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By Joe Campbell
February 17th, 2009

[digg-reddit-me]There are relatively few serious political figures who argue that our economy does not need fiscal stimulus at this time – few political figures are comfortable advocating inaction while serious disruption occurs. But there are a significant minority who do take this position – including, it seems likely, some number of Republicans who though publicly are not advocating this extreme course, position themselves to oppose what Obama is doing in whatever ways are feasible.

The majority of Republicans in power seem to advocate stimulus by enormous tax cuts while railing against deficit spending (although the proposed tax cuts cost more than the proposed spending). This piece does not address their concerns – although independent, non-partisan Congressional Research Service did – explaining why the economic consensus was that tax cuts stimulated less and less quickly than spending – and I will address them again later today. A significant number of other Republicans simply have a bad feeling about the stimulus and are looking for which approach best suits them to oppose it.

For those who do oppose any form of stimulus, James K. Glassman’s article in Commentary has proven to be a rallying cry. But it has also provided ammunition to many others who seeking to oppose Obama by any available means. Cited by House Minority Leader John Boehner and many others, this article has found a large audience despite Glassman’s previous infamous prediction (as an author of Dow 36,000) that the stock market was undervaluing companies in 1999 at the height of the tech boom. I addressed some of the questionable historical claims Glassman made to build his case in an earlier post, but now I’m going to address his broader, more basic argument.

Glassman makes two points which leads him to label fiscal stimulus a folly repeated throughout recent economic history:

The inherent contradiction is obvious. If we do not understand the market enough to affect it deliberately, how can we predict how it will act. If economics is such a limited profession that it cannot provide us with enough information to affect the economy in any predictable way, how can we trust an economist’s presumption to do nothing? The market – as Glassman describes it – is a kind of god who we must have faith in. Letting our economy slide deeper into recession while taking no is the economic equivalent of a “leap of faith.” Given this understanding, economist are little more than priests of the free market – who cannot predict or effect their god’s will – but whose job is to assure us that this god will bless us eventually with plenty in its own good time, but only if we trust it and restrain sinful (government) interference.

But Glassman then says something extraordinary given the two above statements and the inaction he is advocating now:

[I]n the 1930’s, “something in the normal regenerative process was missing.”

He doesn’t offer an answer to this – but the economist he derides throughout, John Maynard Keynes, does.  My meager understanding of Keynes suggests he believed the economy, like an engine, would need to be primed from time to time to prevent it from stalling – and he saw the best means of doing this as stimulus spending. The spending boom of the Second World War, for example, can be seen from a Keynesian perspective, as finally getting the world economic engine started again.

Obama however seems to have incorporated Hayek’s admonition that he “cannot acquire the full knowledge which would make mastery of the [economic] events possible” with a cautious Keynesianism. For those who believe that grand challenges such as possible financial collapse demand a grand ideological vision, Obama’s approach will disappoint. But the kernel of wisdom in Hayek (as well as many other truly conservative thinkers) is that grand visions are as likely to fail as minor tinkering projects – except when they fail, they will cause far more damage than the tinkering. 

Obama’s approach to the crisis is in this mold; some call his bill too cautious and too small; some call his stimulus bill an ideologically mixed up mash with a little of everything; some are frustrated his bailout approach focuses more on process than results. But all of this makes sense if Obama is approaching this crisis as a tinkerer. 

Hayek believed that the economy was a mysterious thing and that, to quote another philosopher/economic thinker, we shouldn’t “disturb complicated systems that have been around for a very long time [as w]e don’t understand their logic.” This other thinker, Nassim Nicholas Taleb, believes that if we must act, we should “tinker” to use his word. As “[w]e have the ability to identify our mistakes eventually better than average,” we can avoid the worst outcomes, and potentially latch onto the best innovations:

Look at the three big inventions of our time: lasers, computers and the internet. They were all produced by tinkering and none of them ended up doing what their inventors intended them to do…We choose the iPod over the Walkman. Medicine improved exponentially when the tinkering barber surgeons took over from the high theorists. They just went with what worked, irrespective of why it worked.

Instead of the paralysis and faith preached by Hayek, Taleb offers us a path forward – one of action tinged with doubt, of trial and error, of identifying mistakes quickly, of evaluatinr results honestly. His approach to economics is, at its base, science, in it’s most basic and primitive form. 

This seems to be the approach Obama is taking – pragmatic, cautious, aware of the wisdom of both Hayek and Keynes. He’s tinkering. And that’s exactly what we need.