Afghanistan is a disaster. Even Michael Steele can see that. More on that tomorrow. But Afghanistan is not the only conservative disaster that Obama has managed to make his own over the past year and a half. In fact, making conservative disasters his own is sort of an Obama specialty. He's not alone in this, of course. It's sort of a "Third Way" thing. In fact, it practically defines what it means to be "Third Way". You take a few "high-minded" liberal ideals, combine them with a shit-load of failed (and/or doomed to fail) conservative policy frameworks, and voila! there you have your "Third Way" in its entirety. Earlier this week, in "Learned Helplessness In Macro", Paul Krugman gave a quick run-down of what this looks like in the economic policy realm:
the basic story of "modern" macro runs like this:
1. Lucas and his disciples agree that the economy looks Keynesian - that is, it surely looks as if monetary and fiscal policy have real effects - but argue that an equilibrium approach with imperfect information can explain why, while rejecting Keynesian policy implications. And they ridicule Keynesian economics.
2. By 1980 - three decades ago! - it is already clear that the Lucas project has failed. Equilibrium models with imperfect information cannot, in fact, explain key facts about business cycles, especially the way recessions persist even though everyone knows that they're in a recession.
3. Rather than admitting that they went down the wrong track, however, the advocates of freshwater macro double down; they decide to forget about what they used to know about the apparent effects of demand shocks, and explain the business cycle in terms of real shocks.
4. This approach also falls short; in an attempt to rescue the models, ever more epicycles are added, and whatever clarity may once have existed gets lost.
5. Freshwater economists declare that the business cycle is deeply puzzling, and that we need much more research before we can make policy recommendations.
In short, what we're looking at is learned helplessness.
This is actually not what the term "learned helplessness" means, since it refers to a psychological, not an intellectual, process. But, then, calling this morass of misundersanding "intellectual" is a bit of its own stretch, don'tcha know! So I'm not going to push it.
To add a bit more detail to this story, the core mistake here is two-fold: (1) the belief that macro-phenomena must be reduced to micro-phenomena (as opposed, say, to seeing that both micro- and macro- phenomena can influence each other), and (2) the belief that micro-phenomena can be explained in terms of "rational expectations", a relatively simplistic, static model of human decisionmaking that directly contradicts much of what cognitive & social science has to tell us about human cognition and decisionmaking.
This approach doesn't work from the very beginning, but to try to make it work, they adopt a practice reminiscent of pre-Copernican astronomy, when any deviation from "perfect" circular orbits was dealt with by adding smaller epicycles of circular orbits around the paths of larger circular orbits. In this case, they took the relatively new discoveries of "imperfect information"--which looked at one way destroyed the foundations of classical micro-economics--and used them to try to show how their micro-based vision could work. This was all embodied in Krugman's first point above--and his second point spelled its doom.
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