This Could Cripple Our Economy

Yesterday, my fellow Fool Nick Kapur penned an article about the broken-record columns from The New York Times columnist (and Nobel Prize winner) Paul Krugman.

My initial reaction to Nick's article was similar to that of another reader who said, in so many words, that the stance lacked meat. While Nick made it very clear that he wasn't fond of Krugman's repetitive argument and absolutist rhetoric, he didn't do much to address the substance of Krugman's stance.

But as I thought it over further, I realized that not only is Nick right, but he's right to a frightening degree. The problem of Paul Krugman only scratches the surface of a huge problem that could have severe consequences for our economy.

Genuflecting to the economic gods
Business Insider recently posted a slideshow showing "9 Ways That Gold Is a Religion Masquerading as an Asset Class." I'm no big fan of gold and found myself nodding along to a lot of the list. The list is cute and pretty amusing, but it also highlights a very real problem. And as with Krugman, it's a problem here that's much bigger than worship of the yellow metal.

The problem is that economic ideology itself has become religion.

Krugman is an evangelist for one of the major economic sects. Ben Bernanke worships at the same altar, and while he's an evangelist in his own right, he also wields significant power. Gold, on the other hand, is largely a symbol and rallying cry for the competing gospel. On that side, we've got "luminaries" such as Peter Schiff and Rep. Ron Paul (R-Texas), ardently fighting a war against fiat currency and the very existence of the Federal Reserve.

When you boil it all down, it's really very simple. As Nick noted in his article, neither side has solid science backing it up, yet each is utterly convinced that it's right. And it's not just that the sides are sure that they're right. They're sure that to concede to the other side at all will lead to utter calamity for our country and an apocalyptic future for our children.

So we've got two sides, both working largely on articles of faith, fighting to save us from a bleak future. Either it's religion or a bad re-enactment of Terminator where both sides think they're with Arnold.

What's worse is that this economic dogma has its slimy tentacles wrapped tightly around politics, and adherents have largely banded together behind similar political parties -- Keynesian and Keynesian-lites with the Democrats, reformed austerity-promoters with the mainstream Republicans, and the more orthodox folks (we could also call them the Austrians) with the Tea Party movement. So much for separation of church and state.

Damn the torpedoes!
But as much as Krugman is prime evangelist for one side of this religious conflict, he's also a perfect example of why we can expect that we'll get nowhere in agreeing on an economic plan for our country.

In his best-selling classic, Influence, Robert Cialdini examines the success that the Chinese had in turning American prisoners into willing collaborators during the Korean War. One prime technique he describes was frighteningly simple -- getting prisoners to commit to things publicly. Cialdini writes:

The prisoner experience in Korea showed the Chinese to be quite aware of an important psychological principal: Public commitments tend to be lasting commitments. The Chinese constantly arranged to have the pro-Communist statements of their captives seen by others. ... Why?

Whenever one takes a stand that is visible to others, there arises a drive to maintain that stand in order to look like a consistent person.

With every column that Krugman writes and every impromptu speech that Ron Paul gives at a Congressional hearing they slam their pit-bull-like jaws down further on their set of views and make any sort of coming together of the sides impossible.

And the religious commitment that the cardinals of each side have to their views is passed on to parishioners through not-so-fair-and-balanced news networks such as Fox and MSNBC. Instead of constructive and helpful debate, we end up with a heck of a lot of people who couldn't tell a Laffer curve from a laugh track parroting that either "We need more stimulus!" or "Fiat currency is evil!" And with the economy looming large in the upcoming elections, our elected officials will end up getting votes based on half-truths and misunderstanding.

Can't we all just get along?
Extremism, dogmatism, and inflexibility are enemies of progress, and we're seeing a lot of that on both sides of the economic debate right now. For my own part, I was raised Keynesian and frankly think some of the calls from the anti-Keynesian side -- end the Fed, go back to gold, etc. -- are utterly insane. But then again, I'm also not on board with the extremes on the Keynesian side -- which includes Krugman.

I argued against a dire future for the U.S. yesterday by pointing out that our country has continued to build world-class companies like Cisco (Nasdaq: CSCO  ) , Amazon.com (Nasdaq: AMZN  ) , and Google (Nasdaq: GOOG  ) -- all of which are less than three decades old and already considered premier worldwide brands.

But the ingenuity and drive of the U.S. citizens are only part of the picture, and it's a part that could be drowned out if policy is based on which dogmatic, quasi-religious group can be more extreme and unyielding rather than a meeting of minds somewhere in the middle -- an often forgotten place where sanity tends to hide out.

So what do you think? Can we avoid letting economic extremists dictate U.S. policy? Or do you think extreme solutions are what we need? Head down to the comments section and sound off.

Corporate America isn't hiring, and Morgan Housel has the surprising answer why.

Google is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers selection. Amazon.com is a Motley Fool Stock Advisor recommendation. The Fool has written calls (bull call spread) on Cisco Systems. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 29, 2010, at 1:41 PM, lw67 wrote:

    I often wonder how the TEA PARTY could be backing the GOP. When Bush left office the Natl Debt was $10.63 trillion and $8.3t was under Reagan and the two Bushs. If they are truely for reducing DEBT why support the GOP. Does that make sense? Job creation for 8yrs under Bush was 2 tenths of ONE PERCENT. So how much did the Bush tax cuts help employment? Answer seems to be very little. It did make the rich a lot richer. Don't touch our Medicare or Soc.Sec. but give the tax cuts to the rich and by the way reduce big GOVT. Those positions seem to be at odds. YOU FIGURE IT OUT.

  • Report this Comment On October 29, 2010, at 2:02 PM, wyecliff wrote:

    Common sense dictates that if one spends in excess of one's earnings eventually bankruptcy will result! Both political parties are guilty of over spending and our nation is heading to financial suicide if the politicians of ALL persuasions do not reign in spending! Higher taxes drive individuals out of state and businesses out of the country. In a global economy we can not compete unless we lower the cost of doing business. Common Sense!!!!

  • Report this Comment On October 29, 2010, at 2:02 PM, cswalker21 wrote:

    You people are all retarded. Krugman isn't any kind of a preacher. He's only repeating himself because he is right, and nobody is listening. What would you expect him to do? That guy on the Titanic was so annoying when he kept repeating himself about that iceberg. He must have been an evangelist for the ice sect....

  • Report this Comment On October 29, 2010, at 3:10 PM, tschipke1 wrote:

    IIf you read Krugman's Return of Depression Economics, you' find that his predictions made before the economic crisis in 2008 were absolutely correct with regard to liquidity traps. He keeps repeating himself because no one is listening, and also because we're getting the same lower taxes as a panacea and excuse for reasonable and intelligent economic policies. More of the same stuff that got us into this mess will just make things worse, even of it doesn't jibe with the same right wing economic rhetoric we've had shove down out throats since Reagan and supply side economics.

  • Report this Comment On October 30, 2010, at 8:57 AM, DDHv wrote:

    One thing that most seem to be missed - given state economic control by anyone, the primary decisions are being made by a small group of people. They may be very bright and studious. However, note that ALL supercomputers today are made with multiple parallel processors of relatively small capacity each. The same may apply to economic activity - we are much more likely to find answers that work if a few million less capable people are trying. Bureaucratic types dislike innovation because it is so messy. On the other hand, it provides many unexpected results, and we can discard the bad ones since they involve small investments of our time and resources.

  • Report this Comment On October 30, 2010, at 11:05 PM, lowmaple wrote:

    I have often found some people must win an argument no matter what cost

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