Common sense is, in a sense, so common. Common, not in the sense that it is widely found, but rather common in that it is pedestrian and lacking in subtlety. It’s an appeal to a base understanding that is not founded on facts or evidence. It’s common.
This is why common sense is so often wrong.
Take the oft-cited “but we’re broke” meme trotted out by the Neanderthal right (no offense to Neanderthals intended) when they talk about the Federal debt. “We’re just like Greece,” they exclaim. “Hyperinflation is immanent!”
Neoliberals claim that governments, like households, have to live within their means. They say budget deficits have to be repaid and this requires onerous future tax burdens, which force our children and their children to pay for our profligacy.
They argue that government borrowing (to “fund” the deficits) competes with the private sector for scarce available funds and thus drives up interest rates, which reduces private investment—the “crowding out” hypothesis.
And because governments are not subject to market discipline, neoliberals claim, public use of scarce resources is wasteful. Finally, they assert that deficits require printing money, which is inflationary.
Most people are unaware that a major historical event occurred in 1971 when President Nixon abandoned what had been called the gold standard (or US-dollar standard).
Under that monetary system, which had endured for eighty-odd years (with breaks for war), currencies were convertible into gold, exchange rates were fixed and governments could expand their spending only by increasing taxes or borrowing from the private sector
After 1971 governments issued their own currencies, which were not convertible into anything of value and were floated and traded freely in foreign currency markets. Most nations have operated “fiat monetary systems” ever since, and as a result national governments no longer have to “fund” their spending. The level of liquidity in the system is not limited by gold stocks, or anything else.
So the neo-liberal propositions are designed to appeal to our common sense. The “common sense” is then reinforced by the propaganda machine that is mainstream macroeconomics. If I was to confront my professional colleagues about this (I have often) they admit that the analogy is false and then resort to the claim that pedagogical vehicles have to be false by definition.
If mainstream macroeconomists cannot break out of the cycle-of-stupid, what hope do we have as a nation to move beyond the gold buggery (fuck you very much, Ron Paul) that is leading us to destroy our own economy?
Money is not what you think it is. Get over it, move on, and grow up.
The cognitive dissonance is acute. The mainstream model is incapable of explaining why Japan has run continuing and increasing budget deficits, as the largest public debt ratio, yet has maintained almost zero interest rates for two decades, as low inflation if not deflation, and the bond markets queue up for every public bond tender with relish.
Once you accept this evidence you realise that: (a) applying our common sense to Japan and other advanced nations is fraught; and (b) the mainstream macroeconomic narrative that attempts to reinforce this common sense is a blatant misrepresentation, if not, a lie.
At that point,the common sense approach should be avoided and more serious study undertaken.
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