At first, I thought this essay was all over the place, with each paragraph deserving its own Medium article. But then, things were pulled together at the end: the economists really don’t know what they are doing.
When the USA financial industry started giving mortgages to homeowners who could not afford to pay them back, that was a good sign that the ship was going to eventually run aground. This armchair economist could see that happening.
But, maybe, just maybe the wizards had seen something in their graphs that the world could override the natural law that homeowners should be able to make mortgage payments before given a mortgage. But however great that concept worked on paper, it did not work good in reality. And for that reason, the profession of economics should not been given our full trust.
I’ll just touch base on two topics of this essay.
The essay did allude to monetarist policies: i.e. banks really don’t have the backing in deposits to support their loans — and governments can “afford” deficit financing for decades with monetarist techniques. While I’m far from an expert on this matters, here is what I have gleaned for the changes in deficit financing. Previous to 2008, governments were being financed by Russian and China. But these two countries no longer have any boom to put their surplus economy somewhere else. Without these lenders, post 2008 Western governments have set up government-run reserve banks, in which the government is both the lender and borrower. From my armchair, this sounds like hocus-pocus that is eventually going to have its curtain lifted. But maybe the wizards know what they are doing: after all very few western countries have gone broke since deficit financing became politically popular. But should we trust the wizards?
My second point is the graph of labor rate participation. I don’t really think the economists understand that this is a profound social change in American society. It not only affects those who find it futile to look for work, but affects those who are still working with lower paying jobs and less opportunities. It is so easy to hand-wave a few percentage points as insignificant, but with millions more people no longer getting work that suits their expectations, that is a breeding ground for social unrest. Then, all economic theories will be totally useless.