By Frederic S. Lee
Whether it be inflexible prices, wage rates that are too high and sticky, or interest rates that cannot become negative, they all have the common property of disrupting the smooth workings of the price mechanism, thereby causing recessions, preventing economic recovery, and creating unemployment. But what if there is no price mechanism that allocated scarce resources among competing ends? Then the ‘price problem’ would disappear and the causes of recessions and persistent unemployment would be quite different. Ignoring the issue whether scarce resources as defined in mainstream economics exist or not, I am going to interrogate the supposed existence of the price mechanism that lies at the theoretical core of all mainstream explanations of recessions and unemployment.
By William K. Black
Daniel Indiviglio, a columnist for Reuters, wrote a column(“Dogma show”) denouncing the agreement to extend the payroll tax reduction. He was distressed by what he considered faux fiscal restraint. Indiviglio, writing at the same time that the Eurozone fell back into recession because of its austerity program, denounces both parties for being in the grip of dogmas that cause them to fail to impose greater austerity.
Why does Indiviglio want the U.S. to follow the worst possible response to a severe recession – austerity? Because he is driven by a failed economic dogma, he has neither the capability nor any felt need to explain why he believes we should copy the Eurozone’s failed policies and join them in falling back into recession. He is so trapped by his dogma that he knows that austerity is the only rational economic policy and cannot conceive that his views are ideological because they are so self-evidently true. He has unintentionally proved his point about how destructive discredited economic dogma is.