As saltwater and freshwater views divide economists into Keynesians, focused on demand and supply siders, putting faith in market forces, another important divide is overlooked by both sides of the big US tent.
Political economy, taught and practiced in Europe, disappears in the Atlantic divide. It is jettisoned because it brings into direct focus the politics of economics. Power, ideology, law, and institutions are essential in studies of political economy which reviews and questions economic policy, practice, and ideas for its political, social, and cultural premises. European political economy reviews the distortions regularly coming out of think tanks, the make-believe repeated by politicians, the conflicts of media as big business, the cultural barriers that tie economics to myths, bias, and fear, the blind spots of policy.
Five American cases are often repeated, despite being void of economic value: we are not Greece, whose economy is the size of Dallas-Ft. Worth. The fiscal cliff was a perfect storm of tax and budget cuts, rejected by folk who passed it only a year ago, blaring it was the perfect medicine for growth. Inflation is another chimera. So, too, the mantra: the rich create jobs (most capital growth is self-generated!) and governments can’t! Social security? In danger!–but fully funded through 2037 (much longer if income is uncapped).
As Paul Krugman says, if you disagree by citing reams of empirical support, you are blind and crazy! Yet elected officials repeat these wrong economic ideas to gain power, increase the wealth divide, and turn workers into serfs.
Political economy looks at how economics and politics combines into strategies similar to the ancient classic, The Art of War. Its calculus is easy to grasp. Let’s start by pointing out the latest ruse. Only Congress appropriates money and makes debt; raising the limit is not a blank check for President Obama. What the Republicans suggest is not economic policy; it’s economic blackmail.