Over at Digby’s, in a post titled Killing Credibility, David Atkins writes:
In the absence of any sort of political and economic reporting that actually makes sense, voters are left to trust pre-defined political narratives. . . [T]he biggest problem with the narratives on both sides is that economics is treated as a religion in which hidden priests serving as economic doctors must be placated by appropriate policies to “gain confidence” and “heal the economy.” There is a massive air of mystery and clandestine actors at whose mercy sovereign nations tremble.
Reality is far simpler: the economy is like an engine. Demand fuels it. A strong middle class is the best way to ensure that the fuel level stays high. Credit via lending is a lubricant, sort of like motor oil. In exchange for providing the lubricant, financiers are allowed to skim off the top and make out like bandits even in times of relative equality. Lately, however, the financiers have been playing radical games to suck economy-killing amounts out of the tank, while the economy sputters to a stop due to lack of demand. In this situation, it would seem that government would be best suited to shunt the vampire financiers off to the side, provide a fuel injection of demand and oil up the engine itself on behalf of the people. The only problem is that the vampire financiers have too tight a control on government policy through corruption, and aren’t about to be pushed aside. (emphasis added)
I’ve long described the relationship of the financial industry to the actual economy using the same metaphor: the financial industry helps the engine of the economy run smoothly (by allocating surplus capital to where it is needed) but it isn’t the engine itself. It is more like what Atkins describes – motor oil.
