Bobby Burns Economics

The English translation goes, “If some little god the gift would give us to see ourselves as others see us, it would from many a blunder free us, and foolish notion.”  That caution from Bobby Burns would be a wise thing to remember this political season as we surround ourselves with ranting advocates waving charts.  We argue about deficits, entitlement reforms, Buffet rules, etc., focusing largely on where we are relative to where the economy was 4 years ago or where we want it to be in another 4 years.  And all the time, great controlled experiments of the kind social scientists dream about are occurring, answers are being produced, and we are blind to them.

Take for example, the issue of the desirability or failure of “the bail-out”, much decried by conservative economists, who strongly prefer deficit reduction and an austerity regimen as the economic cure.  It so happens, that when the global financial crisis hit Europe at the same time as America back in 2008, European bankers, particularly the Germans, prescribed just that. Both the EU and America suffered immediate sharp economic declines.  In Europe the prescribed austerity produced in addition great social trauma, including a “humanitarian crisis” and rioting first in Greece, and now creeping across southern Europe and political crises beginning to spread even to stalwart democracies like France, the Netherlands and the UK.  The economic crisis in Europe meanwhile continues unabated, Spain and the UK have officially entered a double-dip recession, and the Euro zone is expected to shrink another .3 percent this year.

In America, as a result of the lamented “bail-out”, AKA old-fashioned Keynesian economics in thin disguise, the current GDP growth is between 2 and 3 percent, still weak but definitely on the mend, and a number Europe would love to have.  Longer term, the IMF has just projected that German GDP growth to 2017 will be only 40 percent of the American growth rate.  Germany, you will recall, is the leading exponent of severe austerity.  It has become clear to all in Europe, except perhaps Germany, that austerity alone was part of the problem, not the solution.  It’s interesting that the American politicians who most decry the “Europeanization” effect of liberal proposals are the ones  most inclined to follow failed European solutions.

Other experiments are occurring further afield. China, with an expected population over age 60 of 200 million by 2014, is carefully extending its pension plans investments to include up to 40 percent in the equities market.  And China has reduced its average cost to the consumer of medicine by 40 percent by standardizing drug prices.  They are also exploring regulation of hospital administrative practices as a cost-cutting device.  The results are far from in, but worth watching.

The point is, of course, that in this rapidly globalizing world, we need no longer rely only on a longitudinal analysis of American experience to understand our problems and their potential solutions.  It’s time to lift our eyes to the world around and to see both it and ourselves “as others see us.”  We could avoid some costly blunders.