It is hard to describe how angry I feel about Robert Mundell. I'm so angry, I can hardly write this post. If the Devil (in which I don't believe) had been made incarnate in the last half of the 20th century, it would be as Robert Mundell. Not Reagan, GHW Bush, or any of the other candidates, for as we know, the Devil doesn't actually do any work, he gets others to do it. Curiously, Mundell died of cancer of the bile duct.
Mundell is singularly responsible for the collapse of the world I thought I grew up in, as aptly described by Donald Fagan in The New Frontier. USA was once a leader in actually making good stuff, as well as doing the foundational research to make it possible, such as the origins of the Internet in TCP/IP. But thanks to so called Supply Side Economics, pioneered by Mundell, that all came to an abrupt end in the 1980's. Since then we've been a war machine run by a casino. And it's directly tied to those economic ideas. Meanwhile, China, which was not affected by Mundell's ranting, is where stuff, ideas, and everything else is made now. For 40-50 years, thinking inspired by Mundell caused a massive disinvestment in the USA, stagnating and declining incomes for most Americans, and loss of world leadership in science and technology.
And the same is true of Europe, more or less. Mundell is also known as the Father of the Euro, a disasterous project if there ever was one, I'm sure it will be known in the end, if not already. Curiously he had devised a fairly intuitive model for an Optimal Currency Area. Many more liberal economists used this model to argue that Europe was not such an area. But apparently this model isn't very definitive, because Mundell himself argued everything would be fine.
It's easy to see why Mundell had this lifelong quest to justify tax cutting. His mother was an heiress who had to sell the family castle because she couldn't afford the back taxes. (I feel not a bit of sympathy. No one should be entitled to live in a castle.) That is the background of this Prince of Evil. He himself lived in an Italian Villa virtually stolen for $20,000 and finally fixed up with his Economic Nobel Memorial Prize winnings.
The key delusion that Mundell had is often called Supply Side Economics. The argument is that cutting taxes will somehow increase production, aka supply. But in fact, the opposite happens. Cutting taxes increases everything but production, and especially where they are cut. Instead, tax cutting is a windfall for the wealthy, who put their new change in the foreign investment casino, causing nothing but disinvestment at home. Local production falls, foreign production increases, and we are pauperized.
Untaxed and unregulated corporations don't bother to make long term, or possibly even short term, investments. Actual investment is risky, it ties up money where more could be made elsewhere.
At this point, since our Corporations have become nothing but thieves, only Government can do actual investment anymore. And that's the secret of success in China.
We might have had it both ways, had we not started down the garden path of Tax Cuts starting with Kennedy's (for which I probably couldn't blame Mundell much). If we had followed the advice of John Kenneth Galbraith, who said there should be much more government spending, we'd be living in Fagan's dream.
Father of Neoliberalism. Maybe a few others.
When run by a casino, and perhaps otherwise, only the government can and will do long term investment.
What Mundell advocated was to amp up the supply to the casino, not the casino to the supply.
So, you could say, what it really is, is Casino Economics.
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