The just-plain-wrong notions that (hopefully) bit the dust this year.
- By Tyler CowenTyler Cowen is professor of economics at George Mason University.
The world can be a humbling place for the purveyor of big ideas. Each year, earth-shattering events, be it the 9/11 attacks, the 2008 financial crisis, or the 2011 Arab Spring, upend received wisdom and demand fresh thinking. So what are the big ideas that should be thrown out this year?
1. Illegal Mexican immigration is a growing threat. This sure doesn’t seem like a dead issue, as the rhetoric is alive and well among conservative Republican politicians; observe the reaction to Texas Gov. Rick Perry’s in-state tuition plan for illegal immigrant students. Even Democratic President Barack Obama has pursued deportations at a relatively rapid pace. Nonetheless, the reality on the ground is outracing the political debate. The annual flow of about 500,000 illegal Mexican migrants has slowed to about 100,000 a year; that’s a huge change. Mexico, meanwhile, is undergoing one of the most rapid demographic transitions in history as its fertility rate is just slightly over two per family, barely above America’s. Thirty years from now, the United States may have to compete to lure Mexican immigrants across the border.
2. Green energy will save us. Not anytime soon. Obama came into office vowing to bring about a "clean energy" nation, but the recession has turned priorities away from environmental causes. The United States seems further than ever from addressing its carbon problem. Americans now see the expansion of fossil fuel production as a higher priority than green energy, and this margin of difference has only grown since 2007. Rightly or wrongly, the Solyndra scandal has given solar power a bad name. Nuclear power seems to have lost its allure after the Fukushima disaster, as greens who once saw it as a possible carbon-light solution are now swearing off it. Perhaps a surprising technological miracle lies right around the corner, but the more likely outcome is that the political impetus for green energy will be largely dormant for some time to come.
3. Bank runs are a thing of the past. Sadly, bank runs are alive and well. They first resurfaced in the United States with a run on money-market funds and on the so-called shadow banking system in 2008. We’re now seeing gradual "silent runs" on European banks, as depositors wonder why they should keep their money in Greece or Portugal, leading the banks of those countries to wither. The withdrawals of these peripheral eurozone countries from capital markets are like another form of bank run, except the victim is a country rather than a bank. Expect more bank runs, not fewer, at least for the foreseeable future.
4. The eurozone is for pretty much everyone in Europe. By now, it should be obvious that a 17-nation eurozone was a bad idea. The only questions left are how many countries do not belong and how painful will it be to push out those that shouldn’t be there. Whether or not you think the current patchwork bailouts will work (probably not, see No. 5 below), just what, precisely, are those bailouts fighting to defend? No one knows anymore. The peripheral countries, like Greece and Portugal, used to think that if they suffered through a bit of deflation from eurozone membership, they still could benefit from the lower borrowing rates enjoyed by stronger economies like Germany. Now they’re getting the deflationary pressures, stronger than ever before, but without the low borrowing rates. So what’s in it for them to remain? What’s in it for Germany and Finland and the Netherlands? It’s hard to see.
5. Bailouts should be incremental. How many times over the last year have the Europeans announced Greek assistance or bailout plans? Everyone has lost count. By November, the most recent July plan already seemed out of date, and that was before all the required governments had agreed to it. So why should anyone take the next bailout plan any more seriously? A bailout should run ahead of the market and respond with overwhelming force rather than chasing after the market. After 2011, the multiple bailouts approach will look worse than ever.
6. Fiscal stimulus should be "temporary, targeted, and timely." Those were Obama’s catchwords in 2009, the goal being to boost a sagging economy and bring it to recovery rapidly. Yet this recipe hasn’t held up. The problem arises when the downturn lasts longer than the program of stimulus. Once the stimulus is removed, the labor market remains slow, and the workers, formerly employed thanks to the stimulus, don’t have private-sector jobs to move into. The stimulus ends up having postponed the pain for a few years, but without much improving the economy over the medium term, much less the long run.
On the whole, 2011 has not been a good year for the global economy. But still, life expectancy continues to increase. Crime rates continue to fall in many countries, including the United States. Tolerance is on the rise. The developing world is elevating hundreds of millions of people from poverty. All these gains are real, and we should appreciate and applaud them. It’s our economic core — and in the most successful countries — that is malfunctioning. I shudder to think what this list might look like next year.