Monday, June 20, 2011

The Economist and Logical Fallacy

A recent article on sovereign debt article represents precisely a regular gripe I have with The Economist. To me, the magazine advances a prose style that comes across as completely anodyne while advocating for economic policies that positively bellicose in their affirmation fundamentalist Chicago-school economic policies. This is done seemingly despite their reportage suggesting very different conclusions be drawn. Despite the rather clear picture we have now that extensive de-regulation of markets got us into the current economic mess, the magazine seems delighted to continue to cheer for it on the grounds that rapid capital flow is always a good thing. Any economic problem, no matter how complicated, seems to be solvable through further deregulation, regardless of cause and regardless of how non-intuitive that response may be. It is as if the articles are written and then the editors return to insert seemingly unrelated conclusions that reaffirm the magazines ideology.

To wit, their argument is flawed in that 'a' does not follow 'b': after stating that the high savings rate, a result of higher regulation, more difficulty in moving money and reserves requirements under the Bretton-Woods system, was instrumental in allowing for rapid debt elimination following World War II, the article then goes on to state that:

Fortunately, the financial world is a far more liberal, multipolar place than it used to be. The Bretton Woods system fractured amid the inflationary pressures of the 1970s, around the time the rich world embarked on a three-decade process of financial liberalisation. Capital now flows quickly and easily around the world in search of high returns. New regulations in the West have done little to change that. China, too, is easing its financial controls. It is difficult to imagine how the genie of liberalisation can be stuffed back into its lamp. (Emphasis added)

Thus, as always with the magazine's reasoning, easing financial controls - despite what the article just told us, is somehow, sans explanation and taken as a matter of orthodoxy - a good thing and any problems or costs borne of that process should be borne by populations through painful austerity measures. To The Economist, the fortuitousness of deregulation allowing for the easy flow of capital across markets should not distract us from the fact that it was perhaps that easy flow of capital that allowed for massive increases in consumer debt and the elimination of savings that undermine the ability of economies to recover from debt. Try to follow that logic.

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