Keynesian Freak Out

For all those who say Keynes is finally and completely dead, and we need to get on with paying down the national debt, go read Joseph Stiglitz’s Vanity Fair piece. The Columbia econ professor and Nobel Prize winner draws some interesting parallels between the Depression-Era United States and our predicament right now.

His conclusion: It’s going to be a long, long time before our economy gets better.

I was thinking of my 11th-grade history class with Ms. Wara as I read Stiglitz’s column. Ms. Wara taught me that World War II ended the Depression. Stiglitz says yes, that’s true, but why? Because arming ourselves for a world war was an unprecedentedly large public spending campaign. Basically, the U.S. poured rivers of cash into the economy, and did much of the heavy lifting to shift the structural focus of the economy from agriculture to manufacturing. It was a belated shift, but it had to happen and a world war provided both the rationale and the popular support.

“The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.”

We have no world war to spur us on in our next structural shift: moving from a manufacturing economy to a service economy. Stiglitz argues that, while the shift has been underway for years (and we’ve been feeling the pain of it for years), it’s going to take massive amounts of public spending on infrastructure and educational upgrades to get us to where we need to be, but the public support just isn’t there.

OK, so, the freak out comes when you have Stiglitz on the one hand saying “it’s going to suck for a long, long time,” and then you’ve got Clayton Christensen on the other hand saying “actually, even Stiglitz’s solutions might not fix the problem.”

Christensen is one of the brightest business minds in the world (and possibly a wizard), and he delivered a sobering message on The Big Think: The brightest business mind in the world is pessimistic about our future.

You should watch the video yourself (it’s only a couple minutes), but his point is that prosperous societies don’t innovate. He actually says that “prosperity is the enemy of a technical education.” That the children of prosperous parents  study “Greek philosophy and Asian mythology,” while the children of struggling parents study math, science, and engineering. Which one of those societies will have a higher GNP? Which of them will invent the next generation of amazing technologies? And which will be a nation of humanities majors?