Economics in the Mirror Universe
I’m something of a closet Star Trek fan, and like all true Star Trek fans I’ve always enjoyed the Mirror Universe episodes. For those not blessed by having seen these, the Mirror Universe is a dark parallel to the ‘normal’ Star Trek Universe in which familiar characters exist but things are suitably different. The world is a darker place and things we expect to be true no longer are. Spock, for example sports a rather fetching goatee beard.
I mention this because as I read the economic ideas and analysis coming from the right, I occasionally have to stop and ask – are we living in a Mirror Universe? They are using words and ideas that I’m familiar with but somehow they seem to think the normal chain of causation, of action and reaction has broken down.
Of course, Mirror World logic has existed on the right for a long-time. Most (in)famously there is the Laffer Curve, the idea that cutting tax rates raises tax revenues by making work more attractive. Now whilst there may be cases where taxes have been set too high and lowering them will therefore raise revenue, in the real world such cases are comparatively rare. Not so in the Mirror World of the Tax Payers’ Alliance and the Spectator though, where we always seem to be on the right-hand side of the Laffer Curve and so any tax cut will increase revenues.
In the past few years though Mirror World logic seems to have spread to the right’s entire approach to fiscal policy. Whereas the IMF has chosen to stay in the real world and argue that although government deficits must be cut, the impact of the cuts will hurt the economy, much of the right has adopted the Mirror World Logic that cuts will actually help the economy to grow. So rather than arguing that the cuts will be painful but are needed to appease the bond markets they instead embrace the new theory (actually the very old theory) of ‘Expansionary Fiscal Contraction’. This theory, recently described as ‘oxymoronic’ by former US Treasury Secretary Larry Summers (I’m not sure he needed to add the ‘oxy’), tells us that as the Government gets out the way the private sector will step in so the economy will almost seamlessly rebalance from public demand to private demand, from consumption to exports and investment. In the real world of course nothing is seamless, cutting public sector jobs does not automatically create private sector ones and slashing government demand doesn’t mean private demand will automatically take its place.
In the Mirror Universe it would appear that cutting government debt is utmost importance, even if household debt soars at the same time. Leading to, as Paul Krugman put it, “the spectacle of a government that inveighs against the evils of debt pinning all its hopes on an assumption that over-indebted households will dig their hole even deeper”. As I said at the beginning, in the Mirror Universe things are not quite as they appear.
These are just some of the most extreme bits of Mirror Universe logic I’ve spotted in recent months but I’m sure there are many more – for example the fact that those most keen on fiscal tightening are often also those most keen on monetary tightening at the same time.
Next time you hear someone expounding a theory that seems to not only make no sense but also reverses commonly understood logic it’s worth pausing for a moment and asking yourself -‘Does Spock have a beard?”