"What if John McCain had come into power and his remedy for the country was continued deregulation of the private sector and broad-based cuts in entitlement spending?I'm sure you wouldn't think this plan would help our country out of the financial crisis. But I'd imagine you also wouldn't want it to work because it would justify further deregulation and encourage the government to make fewer transfer payments in the future. That doesn't mean you wouldn't want the economy to improve necessarily. You simply wouldn't want our recovery to be connected with policies you believe are ultimately bad for the country."
Here's where he's right: I wouldn't believe that McCain's plan would work. Here's where he's wrong: if the plan was put in place to lift us out of an economic recession and the economic community had reached a broad (though not unanimous) consensus that this is what it would take to do it, I wouldn't hope for its failure. Because although I have an ideology, it has one strong basis and that is what is ultimately good for the people. If something that goes against the grain of my ideology actually is ultimately good for the people, if something that goes against the core of what I think is right and good saves jobs and homes and makes our world better, then it is my ideology that needs to change to reflect that. If this plan worked, then I would have to reassess whether or not those policies I disagree with were ultimately bad for the country, or if I was wrong about them and their application. I would be remiss not to; I would be foolhardy to cling desperately to a belief system meant to make America better if an alternate system proved to do the same thing.
Here's also where my friend is wrong: I may have an ideology, but on economic matters I'm not to the far left; I'm more of a slightly-left-of-center person than anything else on economic fronts. I am a capitalist. I believe in markets. And although I'm more of a Keynesian than anything else, that has more to do with the negative impact a truly self-correcting market economy would have on the "little" people (and some bigger ones) than a hard and fast ideology about economic theory. I tend to think we do economics wrong in America; I tend to think that our regulatory practices are too influenced by lawmakers' interests in terms of making the lobbyists and the campaign contributers happy. I tend to think that doesn't work so well. But then, although I'm mostly ambivalent, I do still think that in many ways, our economic system - like our political system - is the worst, except all of the others that have been tried. For my part, my economic ideology is driven by the more pragmatic "will it work?" than anything else. For my part, I don't think that what we've been doing lo these past 8 years (and if you really want to think about it, more) really has. For my part, I think it means something, something bad, when the disparity between the wealthy and the really not is as large as it is; as Bill Moyers points out, "In 1960, the gap in wealth between the top 20% of our country and the bottom 20% was thirty fold. Now it is 75 fold." For my part, I'm outraged by the amount of Americans living below the poverty line. For my part, I'm dismayed by the amount of Americans who don't have access to quality and affordable health insurance. My belief in economic theory and what is best for the economy is somewhat mitigated by my worry over the average American. So if deregulation worked, then I would have to rethink my casual faith in Keynes' work and go more for Milton Friedman.
Those people being crushed by the economic downturn right now are why I'm not willing to give those who hope for Obama's failure any leeway. Because ideology comes second to making those people's lives better; because an ideological win means less when American citizens are jobless and homeless and feeling hopeless. On a strictly ideological level, I'm not really for bailing out banks, or the auto industry. Those people make a lot of money, and they've squandered a lot of capital - both monetary and political. But on the other side of that is that if the banks fail, then a whole mess of people who haven't squandered a lot of capital - who don't have a lot of capital to squander - end up pretty royally screwed by the system they bought into. So, from a pragmatic standpoint, I'd rather save the banks because to do anything else would be to cut off my nose to spite my country's face. And above it all, above political ideology and economic ideology and social ideology, I'm really very patriotic. Seriously. I tear up when I hear the Star Spangled Banner, and the reason why I give money to political organizations and the reason I write letters and the reason why I am interested in following the political scene and talking about the political scene and writing about the political scene is that not only do I love my country but I think my country can do better. I think we can reach higher and accomplish more and do better by our citizens, especially those who are too often left on the side of the road during public discourse. And because of that, my ideology in some regards is fairly flexible. And this is one of those times when my beliefs are.
8 comments:
I would've responded to this earlier, but I was on vacation!
Obama often makes this same argument, but I’ve never really understood it. You say that you’ll support any policy that works, whether it’s market-based or interventionist. I definitely agree, and I wholly support your pragmatism. But I think the problem is that it’s not clear what works in terms of macroeconomic policy – especially during a recession. If we actually knew who was right – if we could objectively determine what “works” – we wouldn’t have competing macroeconomic theories, and we wouldn’t have recessions.
There are many different schools of thought here, and more than enough evidence to support each one. Keynesian economists believe that recessions are caused by a decline in aggregate demand that has to be made up for with short-run deficit spending. But for every Keynesian who supports federal stimulus, there is a strong monetarist, neoclassical economist, or Austrian economist who opposes stimulus and interprets the problem very differently.
Austrian economists tend to believe that deficit spending is a short-term fix that causes long-term damage to our financial markets. In their view, federal stimulus may put idle resources to work during a recession, but the associated structural deficits cause “crowding out” of private investment that is bad for the long-term health of the economy. Too much money locked up in government securities means a reduction in private investment and a drop in aggregate production (and employment) over the long-run. So, if you’re an Austrian, you may want the stimulus to fail to discredit the concept of countercyclical stimulus – because short-term success would only encourage additional deficit spending that would be even more harmful in the long-run. This doesn’t mean you want people to suffer. Quite the opposite. It means that you want long-term growth as opposed to what you see as short-term fixes that can create enduring problems for our economy – and can lead to deeper recessions in the future.
"But for every Keynesian who supports federal stimulus, there is a strong monetarist, neoclassical economist, or Austrian economist who opposes stimulus and interprets the problem very differently."
Right now, there is a strong consensus among economists that the federal government has to spend money because they are the only ones who can; not every economist feels this way, and there are certainly bands of economists who don't, and who feel that the stimulus is a bad idea. But in this climate, it isn't just Keynesians who are saying that doing nothing is not an option, and that this option is our best.
"So, if you’re an Austrian, you may want the stimulus to fail to discredit the concept of countercyclical stimulus – because short-term success would only encourage additional deficit spending that would be even more harmful in the long-run. This doesn’t mean you want people to suffer. Quite the opposite. It means that you want long-term growth as opposed to what you see as short-term fixes that can create enduring problems for our economy – and can lead to deeper recessions in the future."
Here's where the Austrian economist falls down, where Republicans fall down, and where you fell down when you assumed how I would react had McCain been elected instead of Obama:
When you're extremely sick, you pump your body full of drugs, and you stay in one bed drinking things like Powerade Zero and sugar-free ice pops and broth, and nothing else. But when you're well, you no longer do any of those things, because you're well enough to balance your diet, get off of the drugs, and hopefully never have to endure Powerade Zero again.
Just because a policy can get us out of a recession/prevent us from going into a depression doesn't mean that policy should or would become how we do things from here on out. What short term economic policies in a crisis should do is just get us out of a crisis, and during the end of the crisis or just after, we should seriously look to what would be the best economic policy going forward, once the economy is as stable and healthy as economies can get - if this economic stimulus works.
The other thing is that the Austrian may not want people to suffer, but he's disinclined to do whatever it is necessary in the moment to alleviate that suffering. He's being a "greater good" type person, worrying about what this might mean for the future instead of what it does mean right now, for the 8.2 percent of the American public that are unemployed and the around 15 total percent of the American public who are unemployed, underemployed, or have stopped looking for work and are thus not in the unemployment statistics. The future hasn't happened yet, and I would hope that someone could make the argument that what is good for a seriously ailing economy may not be the economic theory that works or is good for an actually healthy economy.
I don’t think there is a clear consensus around stimulus. I can name a number of extremely well respected economists who oppose Keynesians stimulus – including Greg Mankiw, John Cochrane, Tyler Cohen, Eugene Fama, John Taylor, and Robert Barro. Even Christy Romer, the current head of the CEA, did research at Berkley suggesting that tax cuts may have a more significant "multiplier" effect than direct Keynesian stimulus. Paul Krugman recently said that he was “disturbed” by the number of prominent economists who are making what he feels are “non-serious” arguments against stimulus – but he acknowledged that there are legitimate concerns about Keynesian stimulus. (Here is a good NYT article by Greg Mankiw on why he’s skeptical of fiscal stimulus. Mankiw is a former CEA chairperson, as well.)
The choice isn't between stimulus and doing nothing. That’s a false dichotomy that the Obama administration has been eager to set up. Market-oriented typically means having the government work through the markets rather than creating demand exogenously. There are lots of ways to do this which do not involve the government directly allocating resources through a highly-political process and forcing so much private investment into government securities.
Critics are concerned that deficit spending will become standard counter-cyclical economic policy – every time we have a downturn, the government will move to fill the gap in demand with deficit spending. As Krugman pointed out, some economists believe that even if this kind of policy can give the economy a short-term jolt, the long-term consequences will be devastating. We’ll be setting ourselves up for future recessions or a reduction in the overall standard of living.
There is also concern among many economists about long-term structural deficits. Keep in mind that we’ve spent almost as much on the American Recovery and Reinvestment Act as we have on the entire Iraq War.
If you’re among the economists who believe that fiscal stimulus is really, really bad for the long-term health of the economy, it’s not unreasonable for you to hope that it this kind of stimulus fails.
You said, “The other thing is that the Austrian may not want people to suffer, but he's disinclined to do whatever it is necessary in the moment to alleviate that suffering. He's being a ‘greater good’ type person, worrying about what this might mean for the future instead of what it does mean right now, for the 8.2 percent of the American public that are unemployed . . . .”
Yeah, the Austrian economists is being more of a utilitarian. If a little more suffering now means far less suffering in the future, I don’t see what’s wrong with that. Can you explain?
BTW, I shouldn’t have assumed what you’d think. But, to be honest, I’m very surprised to hear you say that you would support broad-based cuts in entitlement spending if it would help us out of our current situation.
"I don’t think there is a clear consensus around stimulus."
I didn't say clear consensus though; I said strong consensus - I would even posit that there was broad consensus. That doesn't mean that every single economist is for this, but it does mean that a whole bunch of people normally against government spending are now not for it.
"Yeah, the Austrian economists is being more of a utilitarian. If a little more suffering now means far less suffering in the future, I don’t see what’s wrong with that. Can you explain?"
1) We don't know what the future holds. We know what is happening now. Stopping something from benefiting the masses now because you're afraid that it will cataclysmically effect the future isn't a strong argument from where I'm standing. Because we already know the present pretty much is sucking, and "the future may suck worse" argument gets very little traction with me - partially because we have the capability to change gears at a future point. Like I said, I'm not very moved by the theory that giving the economy a shot in the arm now means we have to continue down that diagnostic path once the economy is healthier.
2) Because this isn't some exercise in economic theory. This is happening now, to a lot of people. People are losing their jobs, their houses, their money. I'm fully aware that I'm a little sensitive to this because I've been dismissed not once but three times since the economic rumblings started happening. Yes, the same place kept taking me back - for less pay each time and less work hours each time - but I was cut because of budget issues. And I was out of work for in all around 6 months. And if I wasn't crazy and didn't save every penny, if I wasn't lucky and didn't have a room I could live in and parents who could afford to feed me for a reasonable amount of rent, and if I didn't have the connections I did, I would have been in more than a bit of hot water. As it is, the only reason why I have a job now is because my father's friend is a head hunter and has known me since before I was born.
The job market is terrible; the cost of living is fairly high, and these are real people being affected by it. Telling them (or me) that what's happening to them is worth it because it will make the future a better place really doesn't do much for them now.
"The choice isn't between stimulus and doing nothing. That’s a false dichotomy that the Obama administration has been eager to set up."
Except that is exactly what's coming out of Congress from the Republican side; the dichotomy may be false from a economic theory perspective, but the Republicans of Congress haven't really offered up anything other than the "We think your idea sucks, and we hope you choke on it" philosophy. Which is what the first post - the one you commented on, which then spawned this post- was about. In that sense, between the people who actually are supposed to be making policy, the choice that has been presented has basically boiled down to "do very little" and "do the Obama plan".
"If you’re among the economists who believe that fiscal stimulus is really, really bad for the long-term health of the economy, it’s not unreasonable for you to hope that it this kind of stimulus fails."
I think it is unreasonable, just like it would be unreasonable for me to hope that the Iraq War would fail, or for me to hope that there is no god. I have no problem with economists thinking that this stimulus fails; I have no problem with critiques of the stimulus; I have no problem with people - economists or not - pointing out where even if the stimulus succeeds, we may have future problems - possibly because of that very success. Knowing where there could be future issues is how we can prevent them. If this stimulus works, that doesn't automatically mean that this spending will become cyclical.
"But, to be honest, I’m very surprised to hear you say that you would support broad-based cuts in entitlement spending if it would help us out of our current situation."
That's because you don't seem to understand what I'm most concerned about, economically speaking. I wouldn't believe that broad-based cuts in entitlement spending would work; I wouldn't wish for them to fail. Because for my part, I see anything done in these economically dire times to be more like chemotherapy - to be used sparingly and only when you'd be almost certain to die without it - than a long term supplement plan. If cuts in entitlement spending worked, then I would be happy because the economy would be rebounding. I would be wrong in what it would take to lift us out of a recession, and I would be glad that I was wrong - because if I wasn't wrong, then we'd be even more fucked than before, and we'd be without entitlement spending. In what way is that a win?
The other thing is that just because something is good for an ailing economy, that doesn't mean that same thing is good for a robust economy. Cutting entitlement spending in a recession and a sick economy that had been living off of credit doesn't mean that we can't, once the economy is healtty, begin entitlement spending again. It just means that the cure for what ails you is different than the routine. It just means that sometimes, chemo-like measures are necessary. And here's where I'm unsympathetic to the economists who are freaking out if this thing works - because they can make a very good argument about the differences between a sick, weak economy and a healthy economy and the differences in what we should do to care for the economy to maintain that it won't get as sick again any time soon.
But mostly, it's because I'm really more concerned about the people. Who's getting hit hardest in this economy? It isn't the people having these arguments. It is the people who were already hanging on by a hair, the ones living paycheck to paycheck. It is the towns and the people who live in them, who remain unplowed when there is snow because the city has run out of money. It is the children whose schools are going to be underfunded and understaffed. It is a lot of those people who most directly benefit from entitlement spending. It is the people who live in the towns that will now have less of a police force. As I said, ideology comes second to those people, and those like them.
I’m skeptical of the idea that policy decisions made during a crisis are temporary or easily reversible. So many federal programs today are holdovers from the Depression era – “emergency” measures designed to soothe the markets during a financial crisis that was unprecedented in scope and depth. Then, Truman invoked the New Deal to justify the Fair Deal, and LBJ invoked the Fair Deal to justify the Great Society, and the size of the federal government tripled and quadrupled. The presumed success of FDR’s programs became the rationale for continued federal expansion, even during growth periods.
That’s why I think it’s reasonable, though maybe not accurate, to believe that this stimulus will encourage additional federal expansion. Even if this is a false assumption, it’s clear that ARRA will have a lasting impact on our federal budget – contributing substantially to a deficit that will likely plague us for the next decade, however optimistic our revenue forecasts.
I’m not trying to defend the hyper-partisan, win-at-all-costs mentality that seems to pervade our politics – and I think you’re probably right that Rush Limbaugh is more concerned with delivering a Republican victory in 2012 than actually repairing the global economy. Maybe you’re also correct that all of these concerns about “crowding out” and “dead weight loss” are overstated, and the stimulus package will produce few messy side effects. We don’t know.
You’re arguing that people are suffering now and we need to do something immediately, future consequences aside. I think this is the kind of approach potentially leads to disaster.
If I may borrow an Adam Davidson analogy (admittedly, he used this in reference to bank nationalization, but I think it still fits) . . .
Right now, the economy is a patient with a terrible infection in his legs. The infection has the potential to spread throughout his body and kill him. Doctors may be able to treat the infection with medication, which will save the patient’s legs. But they can also amputate the legs to prevent the infection from spreading. (This sort of sounds like House’s situation, doesn’t it? Maybe a little bit grimmer.)
Anyway, I think I’m the kind of person who would say, “Let’s treat this with medication because I don’t want to lose my legs – that would dramatically lower my quality of life in the future. Maybe the doctors could also come up with some other creative solutions that wouldn’t cause long-term damage.”
You’re the kind of person who would say, “WHAT!? I COULD DIE! CUT THAT SHIT OFF!”
Neither of us is really wrong here, but we both probably think the other is crazy.
(Forgive me for assuming what you’d actually do in this life-or-death circumstance, but it fits my analogy.)
If you hate time, here's a great rant by Megan McArdle that really relates to our discussion. Her point about the stimulus bill is, I think, the prevailing wisdom among conservative economists. Even some economists who initially endorsed the idea of Keynesian stimulus were very unhappy with the structure of ARRA.
One of the reasons I'm skeptical of stimulus in general is because I believe that any bill rushed through Congress is likely to be messy and incoherent -- spending money to meet ideological priorities rather than actually get the economy moving.
*have time
I hope you don't hate time . . . that would seem pretty arbitrary.
Right now, the economy is a patient with a terrible infection in his legs. The infection has the potential to spread throughout his body and kill him. Doctors may be able to treat the infection with medication, which will save the patient’s legs. But they can also amputate the legs to prevent the infection from spreading. (This sort of sounds like House’s situation, doesn’t it? Maybe a little bit grimmer.)
Anyway, I think I’m the kind of person who would say, “Let’s treat this with medication because I don’t want to lose my legs – that would dramatically lower my quality of life in the future. Maybe the doctors could also come up with some other creative solutions that wouldn’t cause long-term damage.”
You’re the kind of person who would say, “WHAT!? I COULD DIE! CUT THAT SHIT OFF!”
Interesting; I'm pretty sure you're very wrong about me. What I do think is strange is how you aren't applying this to those who are arguing against the stimulus plan now and hoping that the stimulus Obama is suggesting will fail because if it doesn't, then the virus they fear may spread and make the future horrible (ie, kill the leg person). For my money, I am very much a "give me the medicine" type of person in this situation because I am someone who is concerned with but not preoccupied by what could happen in the future, and those arguing against the stimulus are the amputate-endorsers because they are obsessed with what may be and not with what is.
By the way, I do hate time. Time sucks. ;-D
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