It is often said that conventional wisdom doesn't change until those to whom it is truth die off. John Maynard Keynes said that after age 25 or 30 people seldom change their understanding of how economies work. So I guess that gives entrenched economic beliefs a life expectancy of about two generations. I'm interested in that process.
It was about a year before books about the sub-prime mortgage meltdown began to come out. Before that, people trying to understand what went wrong and what to do about it had only fragments of information in the form of personal communications, newspaper and magazine articles, and blog posts. It took a lot of time-consuming work to interview the people who were there, read the documents, organize the information, weigh the evidence, and finally write a satisfactory and understandable explanation that encompassed something like the whole interconnected picture. Only then, with a viable competing narrative available, can the old conventional wisdom about the proper relationship of Wall Street, government, shadow banks, markets, derivatives, etc. even start to be displaced. Will it go quickly from here? I doubt it.
Another interesting evolution is the New York Times editorial board position on globalization, which went from "embracing" globalization as essential to growth in America 30 months ago to today's assessment that globalization is deeply damaging to America. I wish I knew what they said to each other about this issue, and what evidence (I assume it was evidence, but may have been something else) changed their minds. I don't, but here's the documentation of the evolution.
As recently as July 2007, the New York Times editorial page was telling us to "embrace" globalization:
[F]or American incomes to keep growing, the nation needs to embrace globalization, not turn against it.
Only 13 months later, and in the midst of the Great Recession, the "embrace" was gone and the NYT editorial included globalization in a list of factors inhibiting middle-class prosperity:
There are multiple reasons why Americans are working harder and not getting ahead, including a weak labor movement, globalization, technological change and a slowdown in educational attainment.
Today, the NYT editorial page says straight out that the variety of globalization we actually have is deeply damaging to America and many other nations. NYT's only prescription is for China to change policies that have been central to its worldview for two decades or more, so it's not rejecting globalization altogether but only saying the way it's been working is bad. Still that's a pretty big change.
If China continues its beggar-thy-neighbor currency policy, it will make it even harder for countries and the global economy to revive. As overextended governments wind down their fiscal stimulus, many economies will have to rely on exports as a crucial source of demand while their consumers restructure their sorry personal finances.
This task is made much more difficult if China is flooding the world with cheap goods. China's exports rebounded sharply in December after more than a year of decline. Its trade surplus — after falling last year — is expected to rebound sharply in 2010.
There are healthier strategies for China to follow. In particular, it could deploy some of its mountainous reserves at home to pay for long-neglected social spending: on health care, education and pensions. This would provide substantial economic stimulus and improve the lives of its people.
If it sticks to its cheap-renminbi guns, however, it is bound to draw a protectionist response. The Obama administration already has caved to political demands and slapped exceptional tariffs on Chinese tires and antidumping duties on steel pipes. Congress has been uncharacteristically quiet, but patience is wearing thin in Washington and everywhere.
India has filed a stack of trade complaints against China. And the Asia-Pacific Economic Cooperation forum recently urged the adoption of "market-oriented exchange rates" for Asian currencies, a reference to China's manipulation.
A trade war with China would be disastrous and bound to escalate around the world. Restraint is needed. But we fear no one is going to feel restrained if China doesn't change its strategy.
When a guardian and purveyor of conventional wisdom as powerful as NYT changes its institutional view, that's significant, but what are the next steps in the process of changing minds, and how long will it be before responsive policy changes in Washington are possible? And, of course, I'm very curious about what caused the NYT to change its collective mind.