Blame to go around
Feb. 9th, 2009 12:30 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
jducoeur*Sigh*. This is definitely a week to look at Washington and be annoyed.
On the one hand, I'm mildly disappointed in Obama -- not so much for what he's trying to do, as for being tactically clumsy about it. He was very transparent about his intent to include some of his long-term spending goals in the stimulus package, which in a strategic sense is admirable. Problem is, since this *is* supposed to be an emergency-panic stimulus, anything that doesn't provide extremely immediate relief is arguably inappropriate, so he gave his political enemies a great big wedge issue to hammer him on. It feels very much like he was expecting, if not a honeymoon per se, at least for the Republicans to forego the usual partisan bickering and give his ideas a chance; in the current environment, that was naive.
That said, if I'm a little disappointed in him, I'm appalled by most of the Republicans, whose grandstanding and hypocrisy goes way beyond even their own norms. Hammering the plan for not being immediate and stimulative enough, and then immediately yelling "Tax Cuts! Tax Cuts!", is just galling. Every middle-ground economist I can find agrees that most tax cuts provide relatively weak stimulus, and are an inappropriate way to attack a situation like this. (With one or two *very* specific exceptions, but they aren't focusing on those exceptions.) Mostly, it just illustrates how intellectually bankrupt the Republicans are right now -- instead of hitting back with ideas that actually make sense, they're simply returning to the old well, and being even more nakedly opportunistic than the Democrats.
More than anything, though, I find myself fed up with economic religion. I heard a partial interview the other day with a Cato Institute economist, who was basically saying that Keynesianism was laughably washed up and discredited. But that's only half-true: Keynesian *religion* -- the grossly exaggerated version that says the government can micro-manage and stabilize the economy -- was entirely discredited a couple of decades ago. But the underlying idea that spending can act as essentially a shot of adrenaline -- a blunt but effective tool to revive in a crisis -- still holds some potential.
And on the flip side, I think that market religion -- the notion that the markets always know best, that lower taxes will always make the economy stronger, and that freer markets and less regulation are always better -- has been just as clearly discredited now as Keynesian religion was in the 80's. And for the same reason: too many people took a fundamentally reasonable economic idea, and inflated it into a fundamentalist religion that was a shallow mockery of that idea.
These things are *tools*, folks. Government is a tool. Markets are a tool. Regulation is a tool. Taxes are a tool. Spending is a tool. They are not the be-all and end-all, and no one of them is the solution to every problem. The economy (and the country, and the world) is a gigantic dynamic system, with lots of competing forces and lots of feedback, and it requires all of these tools in order to stay in balance.
So the next time some politician claims that there is one simple way to make things work right, ask yourself whether he's doing so as a student of these tools, or simply as a preacher who is trying to over-sell one of them. At this point, I'd say that the Republicans are almost entirely the latter, just as the Democrats were back in the 70s. We need much less of that, and much more recognition that you have to use *all* of these tools in balance if you want a healthy economy. There's room for reasonable disagreement about what the balance point should be, but the first step is to stop worshipping the idols. The Democrats have mostly gotten that clue; the Republicans need to do so...
On the one hand, I'm mildly disappointed in Obama -- not so much for what he's trying to do, as for being tactically clumsy about it. He was very transparent about his intent to include some of his long-term spending goals in the stimulus package, which in a strategic sense is admirable. Problem is, since this *is* supposed to be an emergency-panic stimulus, anything that doesn't provide extremely immediate relief is arguably inappropriate, so he gave his political enemies a great big wedge issue to hammer him on. It feels very much like he was expecting, if not a honeymoon per se, at least for the Republicans to forego the usual partisan bickering and give his ideas a chance; in the current environment, that was naive.
That said, if I'm a little disappointed in him, I'm appalled by most of the Republicans, whose grandstanding and hypocrisy goes way beyond even their own norms. Hammering the plan for not being immediate and stimulative enough, and then immediately yelling "Tax Cuts! Tax Cuts!", is just galling. Every middle-ground economist I can find agrees that most tax cuts provide relatively weak stimulus, and are an inappropriate way to attack a situation like this. (With one or two *very* specific exceptions, but they aren't focusing on those exceptions.) Mostly, it just illustrates how intellectually bankrupt the Republicans are right now -- instead of hitting back with ideas that actually make sense, they're simply returning to the old well, and being even more nakedly opportunistic than the Democrats.
More than anything, though, I find myself fed up with economic religion. I heard a partial interview the other day with a Cato Institute economist, who was basically saying that Keynesianism was laughably washed up and discredited. But that's only half-true: Keynesian *religion* -- the grossly exaggerated version that says the government can micro-manage and stabilize the economy -- was entirely discredited a couple of decades ago. But the underlying idea that spending can act as essentially a shot of adrenaline -- a blunt but effective tool to revive in a crisis -- still holds some potential.
And on the flip side, I think that market religion -- the notion that the markets always know best, that lower taxes will always make the economy stronger, and that freer markets and less regulation are always better -- has been just as clearly discredited now as Keynesian religion was in the 80's. And for the same reason: too many people took a fundamentally reasonable economic idea, and inflated it into a fundamentalist religion that was a shallow mockery of that idea.
These things are *tools*, folks. Government is a tool. Markets are a tool. Regulation is a tool. Taxes are a tool. Spending is a tool. They are not the be-all and end-all, and no one of them is the solution to every problem. The economy (and the country, and the world) is a gigantic dynamic system, with lots of competing forces and lots of feedback, and it requires all of these tools in order to stay in balance.
So the next time some politician claims that there is one simple way to make things work right, ask yourself whether he's doing so as a student of these tools, or simply as a preacher who is trying to over-sell one of them. At this point, I'd say that the Republicans are almost entirely the latter, just as the Democrats were back in the 70s. We need much less of that, and much more recognition that you have to use *all* of these tools in balance if you want a healthy economy. There's room for reasonable disagreement about what the balance point should be, but the first step is to stop worshipping the idols. The Democrats have mostly gotten that clue; the Republicans need to do so...
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(no subject)
Date: 2009-02-10 12:04 am (UTC)(no subject)
Date: 2009-02-10 07:36 am (UTC)Gross domestic product (GDP) is equal to the sum of consumer spending (C), investment spending (I), government spending (G) and exports minus imports (X-M).
GDP = C + I + G + (X - M)
In normal times, these things are pretty much in equilibrium -- they go up and down in cycles that are not too severe. But a big shock to the system, like the financial crash and freeze in credit last year, can put things into a downward spiral. It can start with either businesses or consumers/workers, but basically, when people are losing their jobs or are uncertain about them, they spend less, which causes businesses to expand less or cut back, which means fewer jobs, and the whole thing feeds on itself. In the equation, both C and I are declining, so GDP is too. The way to break the cycle is to temporarily use G -- government spending. The government spends money on things that businesses provide, and in response, businesses increase investment (I) and hire more people, which puts (C) on the path to increasing, and the economy gets back to a normal state. That's a stimulus. Economists can even estimate the amount by which the economy is "below capacity" and therefore the amount of government spending that's necessary to have an effect.
(The drawback is increased government debt, which is one reason this isn't done all the time to try to keep the economy from declining at all.)
There are a lot more specifics about which method of putting money into the economy is most effective, but that's the basic idea.
(no subject)
Date: 2009-02-10 03:34 pm (UTC)The big argument going on between Democrats and Republicans is over *how* to boost GDP. The Democrats are pushing for the most straightforward route: increase the "G" in the formula above. The Republicans counter that (a) this doesn't work fast enough (because it takes real calendar time to spend money) and (b) distorts the economy (because the government's spending priorities aren't the same as those of the populace, and are sometimes really dumb). They therefore argue for tax cuts instead, on the theory that it works quickly (since people can immediately spend the money that they won't be sending to the government) and get to spend it as they like.
This is a lovely theory, but unfortunately runs smack against the reality that, in an economy like this, much of that money will get stuck directly into bank accounts rather than spent. (And banks aren't putting the money into the economy efficiently, either, instead building up their cash cushions.) So the Democrats counter that, since government spending is actually *spending*, it nudges the economy much more efficiently dollar-for-dollar. This is supported by a fair amount of economic research, although there are subtleties to it -- some forms of spending are better than others, and some tax cuts are moderately useful. (So keep in mind that both sides are over-simplifying.)
Unfortunately, both of these arguments are basically correct: typically, government spending *is* slowish and distortionary, and tax cuts *are* a fairly poor stimulus. My conclusion is that in the current mess the Democratic plan is probably the better one, but that wouldn't always be the case. In particular, I think the *psychology* of the Democratic plan is better: it sends a message of "growth" and "spending", whereas the Republican one sends an underlying message of "saving". That's a good message in principle, but not the right one right this minute.
The other danger of the stimulus package is that it's easy to start government spending, and hard to stop it. It's conspicuous that some legacies of Roosevelt's New Deal (eg, the Tennessee Valley Authority) are still with us and still spending money, despite being long past their sell-by date. So while I'm inclined to agree with the Democrats and have a major spending binge right now for tactical reasons, I'm likely to turn back into a deficit hawk and argue for cutting government spending gradually but aggressively once the crisis has passed. (The hazard of being a centrist is that I never agree with anybody completely...)