Economics is not a STEM field, even though economists try hard to convince people it is a branch of mathematics. It is a social science decorated with mathematics. That gives it the veneer of respectability that a field like sociology lacks. That said, it often resembles a cult, in that it has developed an internal logic and language that makes perfect sense to those inside, but seems weird and nutty to those outside. For example, they treat Maynard Keynes in the same way Mormons treat Joseph Smith.
Anyway, the buzzing over the Fed’s sudden course change is a good example. This is a fairly typical example. It does not mention Keynes, but the the belief that creating credit money is always and everywhere a good thing is on display. The intellectual trap they have made for themselves is quite clear. If credit creation adds to the GDP, then it is always good to create debt. There are no conditions under which it can be bad so expanding he money supply becomes a permanent part of the economy.
No one ever stops to wonder how this can be so? After all, if it were that easy, it should have worked all the other times it was tried. The answer, of course, is to say it is different this time. The “new normal” meme has become the get out of jail free card for every utopian dreamer. In the case of economics, any doubts about endless credit creation is waved away with the line, “things are different.” In other words, everyone is supposed to just take what economists say on faith.
Economics is the religion of modern times. In a previous age, rulers would have a holy man or a shaman to endorse his polices. Today, the economists provide this role. In Obama’s first term, Christine Romer was trucked into the White House to tell Obama and the country that the math” said a reckless spending spree was just what the economy wanted. That’s when the “multiplier effect” got loose in the conversation. Since then every minor economic shaman has some theory about a multiplier effect.
The nuttiness is on full display at this site. These guys have built out a series of interactive charts to show various “multipliers” and the impact of the current fads in the faith. For the record, they are making sport of the whole idea by showing the nonsense of it all. The fact is, government spending fueled by debt is great until you run out of people willing to lend you money. Then you become Detroit. Quantitative easing, which is just credit creation at below market rates is just a clever way to disguise it.
By pumping the extra money into assets like stocks, purchasing power is destroyed slowly, rather than in hyper inflation like you see with old fashioned money printing. At some point, the new money will leak into the real economy. Americans have been getting poorer slowly, but seem to be figuring out what has happened to them.Adjusting for inflation, the government share of the economy has more than tripled in the last forty years, per capita and adjusting for inflation.
In addition to the growth of the state at all levels, the amount of debt, both public and private, has exploded: At every stop along the way, modern economics has told our rulers that this was the right policy. The result is a massive, incompetent government systematically beggaring the public. More critically, it has allowed for the transfer of social capital to massive global companies and financial institutions. The price of cheap goods is living among strangers who you don’t dare trust as neighbors.