Ignorant Wisdom

This is an article by James Keith, a contributor who works in the U.S. and South Africa. He talks about some basic economic concepts get lost in the partisan divide.



So I am watching Challenges for the Obama Administration on C‐SPAN Panelists included Richard Perle, Susan Eisenhower, Grover Norquist, Elanor Holmes Norton, and Lawrence Mishel.
They have knowingly invited experienced and knowledgeable authorities on the subjects of policy,economics, technology, and sociology…..covering the PEST spectrum.

One woman in the audience stands and asks about the extra money that Obama is planning to spend form his tax and TARP [Troubled Assets Relief Program] plans to “jump‐start” the economy, and before the economist Lawrence Mishel can say anything Grover Norquest jumps in and gives this woman and the viewing audiences an analogy that has long skewed the view of economics to the common man.

Grover has an MBA from Harvard, so you’d think that he’d know better than this….but he proceeded with his conservative political agenda….and the pervasive group‐think that is a systemic killer of the missions of this [and every other] country’s education system.
He explains that the next administration wants to take money debt money and give it to ailing
institutions/individuals to “jump‐start” the economy. Now, now, I am not one of the hopers thinks new this program in particular will do any jumping, and that is not the point of this article….but I am a bit ticked off as to how this ideologue forgets some of the fundamentals that he should have had in economics 101.

Economics is not a zero sum game! It’s a fundamental mathematical principal. Since before the time of Medici an ancestor of the money multiplier has existed. Norquest furthered his analogy on the next administrations tax and TARP plans to say that it is equivalent to taking a bucket of water out of a lake and placing it somewhere else in the lake, to create more water. While his analogy was well said [sounded rehearsed] and probably pleased the George Washington University crowd, it made absolutely no sense.

The ideal of a dollar going into the money multiplier system money multiplier system is that it has the ability to generate more dollars through a process of loaning. By the 20th century’s standards of savings vs. loans, one dollar could necessarily create ~nine dollars as a result of a series equation. That number might very well change in the 21st century as a result of less liquidity….but Grover Norquest is far off from the thought college of common sense, which is what he regularly advocates.

A money multiplier allows banks to loan out more money than they actually have in reserves. A more through definition is on the link in the fifth paragraph.