The Real and the Financial: Baseline Scenario Updated

If you aren’t reading The Baseline Scenario, I highly recommend it. In addition to detailed posts explaining economic and financial concepts both simple and arcane, the Baseline Scenario (TBS) also produces an actual baseline scenario – an expected financial forecast against which to compare future events. The newest update to that scenario came out on Tuesday, here, and includes an excellent summary of all the recent updates in political action to try and combat the coming depression. Some highlights:

The global economy remains weak across the board, with no significant signs of improvement since our last baseline. The one positive sign is that some forecasters are beginning to recognize that growth in 2010 is not a foregone conclusion. The OECD, for example, now forecasts contraction of 4.3% in 2009 for the OECD area as a whole – and 0.1% contraction in 2010. This is broadly with our previous ”L-shaped” recovery view.

Nothing too surprising here. More interesting to me is the way that they divide up the administration’s actions. I think this division is fairly conventional, but still fascinating to me:

The Obama administration’s responses to date can be grouped into three broad areas: the financial sector, the real economy, and monetary policy. In each case, the administration has made great efforts that either are yet to pay off or will not pay off.

The main recent interventions in the financial sector are the stress tests (no longer credible, according to TBS), and the new “Public-Private Investment Partnership”, which they read as the administration trying to leverage the last few dollars they can get without having to go back to a congress with bailout fatigue. What I find most interesting is the way we divide out the “financial sector” from the “real economy” only to talk about how interdependent they are. We might shout, “Save the financial sector, save the real economy!” But where is the stark division coming from in the first place? Don’t people who work for banks still.. work? Don’t they produce valuable goods and services, just like autoworkers, professors, cooks and babysitters? What makes the financial not real?

I’m reminded of a recent quote I read from this article by Nikolas Rose about the silliness of distinguishing ideas and their contexts:

“[It] is certainly as unsatisfactory to seek to explain new modes of cognition by pointing to “social conditions” as it is to point to “economic needs” or “political functions”. But even to pose the question in this way is to become locked in the interminable debates about the relations between “ideas” and their “social context”. Social conditions are never active in human affairs as raw experiences but only in and through certain systems of meaning and value. Ideas are constitutively social in that they are formed and circulated within very material apparatuses for the production, delimitation and authorization of truth. It is perhaps time, once and for all, to cease to distinguish the intellectual from the social only to ask how they are related.” (681)

While I am convinced of Rose’s argument, I’m not sure when it comes to the financial sector. What do we get from keeping and reinforcing this distinction? What does it obscure?

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