This month's job numbers vindicate my pre-existing beliefs about macroeconomics!That's about right. I mentioned a good post by John Sides yesterday, but I didn't mention perhaps the most important thing he said: "People underestimate how much the behavior of politicians is sincere." And whatever you believe the best economic course to be, it's unlikely that a couple months of new data are going to change your mind. If you've always believed that there hasn't been enough stimulus, well, look, see what's happened. If you've always believed that "out-of-control spending" is the problem: well, look, see what's happened.
Of course, that doesn't mean that no one is correct, or that these opinions are not testable. But, really, there's no reason to believe that people are going to change their minds. There's no reason to believe, in particular, that those who believe that slashing spending is good for the economy are going to change their minds. And I disagree with Jonathan Chait, who basically accuses the Republicans of preferring the economic conditions that would help them elect a president in 2012. After all, the Conservative Party Brits are gung-ho for austerity while in office.
Check that: there is one group that should, in fact, change their minds based on new data. That would be anyone who believes in stimulus during hard times and austerity once economic health is restored, but mistakenly believed that the economy was now thriving, or at least close to it. That might, indeed, include much of the Barack Obama Administration.
Or is that not what the president thinks? That's what Paul Krugman is proposing: perhaps Obama just is an austerity guy (in my terms, a deficit idealist), end of story. The problem for outsiders is that even though what John said is right -- that a lot of what politicians do is sincere -- it's also correct that figuring out what they want is tricky. Let me try to explain that a bit...let's take an easy example. Say that President Smith really wants $100M of spending on something, but Congress wants $20M. Smith might ask for $100M. She might, however, ask for $30M, if she believed that asking for a lower number was the best way to get the most she could get. She might go on TV and advocate for more spending...or, she might decide to downplay the issue, to keep it from being a partisan talking point, if she thought (correctly or not) that it would help get the most money out of Congress.
What do I think? I agree with Krugman that whatever the reasons, it's foolish for Obama to echo (what I believe are) phony GOP deficit talking points. I certainly think that it's been foolish of Obama to move slowly on Fed appointments. Maybe Obama could have squeezed a state government bailout through the Senate in late 2009, but I mostly doubt it. Beyond that...it's just hard to know much. The fact of GOP control of the House isn't something that liberals can wish away -- and those Republicans really do seem to believe, in my view contrary to all the evidence, but still -- that slashing government spending is the key to prosperity. Regardless of what Obama believes about long-term or even medium-term deficits, there's not much evidence that he believes that...but there's also not a whole lot he can do about it (on that, I think I agree completely with Chait). All of which is highly depressing for those who believe in, well, mainstream economics.
...or it could be that neither side is right, and "aggressively expansionary monetary and fiscal policy" a la Krugman is, like pseudo-Hayekian Republican austerity, just an alternative version of getting right with a wrong situation, pushing very hard on a very big string, failing actually to confront a situation that's inalterably and irreparably wrong from the point of view of those whose expectations for the American economy are based on a history that has passed. Maybe the era of "growth and jobs" as the ne plus ultra of economic governance and therefore of governance itself has already come to an end in principle, at least for the US of A. It may take us a very long time to get used to it, if so, but the masses may be ahead of the intellectuals, having had to accustom themselves to stagnant wages, declining prospects, bad choices, and alternative measures of quality of life for many years.
ReplyDelete"People underestimate how much the behavior of politicians is sincere." ....those Republicans really do seem to believe... that slashing government spending is the key to prosperity
ReplyDeleteThe problem with this idea is that it's been tested and failed. Ideally, the way you'd go about testing this is to have a Republican president in office - so that the GOP would stand to benefit politically from an economic boom - and see whether the rightwingers still push for slashing government spending.
Well, we did that experiment - from 2001 to 2008 - and it turns out that slashing government spending isn't nearly as popular with GOP legislators when a GOP president stood to benefit. (I don't need to remind you that government spending went way up, not way down, when the GOP controlled both houses of Congress and the White House.)
If that isn't enough evidence, consider this: GOP lawmakers have gone so far as to reject a stimulative payroll tax cut under a Democratic president.
So, to sum up: With a GOP White House, slash taxes and ramp up spending. With a Democratic White House, slash spending and oppose stimulative tax cuts.
They work very hard to sound sincere, but, according to all the objective evidence, their new-found zeal for austerity is anything but.
@ MacLeod:
ReplyDeleteCan you elaborate on that assertion or provide some supporting references? I'm curious.
Liberal pundits and bloggers have not wrapped their minds around the basic fact that Obama and the Dems made one implicit promise in 2008 - that they would make the hurt go away - and then failed to make the hurt go away.
ReplyDeleteGiven that reality, why would generally inattentive and grumpy swing voters pay attention to anything Krugman or any liberal says about what we should have done then (more stimulus), or should do now (a second stimulus)?
Never mind the theoretical merits; this is about (understandable) perceptions. So Obama is pandering to swing voters, who are 'pre-existing' deficit idealists. And, sensibly, trying to hang as much blame on Republicans as possible. Given the political realities, that is essentially all he can do.
Lodus, if you're looking for economic analysis from a more global perspective, you might try Andy Xie, who is now writing for Caixin Online, http://english.caing.com/andy_xie/. Xie is a bubble-ologist who used to be a "star analyst" at Morgan Stanley (then resigned around the time of a bad call on India).
ReplyDeleteThis is not an endorsement of all of Xie's views. If I were dictator, I'd strongly consider Michael Hudson's radical progressive total re-orientation of tax policy, though I suspect it would be a bloodbath. Anyway, Xie's had the macro picture pretty good for the last few years. Both believe that FIRE (finance, insurance, real estate) represents a massive, essentially rent-seeking drag on the mature Western economies, increasingly as economically and technologically obsolete as it is unproductive, distortive, and politically powerful. Because I see little likelihood of U.S. policy-makers embracing Hudson's far too reasonable prescription, I end up siding with Xie's financialized pessimism, or at least what amounts to pessimism within the parameters of "mainstream" political-economic discussion.
I don't pretend to be an economic expert in any way, shape or form, however. My view is more "philosophy of history and geo-politics" than technical. So, for example, at the peak of American power, with three generations of global ascendancy ahead, Reinhold Neibuhr - try THE IRONY OF AMERICAN HISTORY - was able to envision the day that American culture would run out of empty spaces in which to offload its inequities easily, and would also discover that there was no permanent or desirable final victory over the collectivist "other."
@ MacLeod:
ReplyDeleteThanks for the links, I'll check 'em out.
Lodus - my pleasure. Hudson's work turns up at HuffPo sometimes, or at far left places. His own site is http://michael-hudson.com/
ReplyDeleteObama has sought and gotten more stimulus from the House Republicans in each of their two major negotiations so far (the tax deal and FY2011 budget deal). He is seeking more stimulus in the debt ceiling deal, and I suspect that he will get it. I personally think that is conclusive with respect to Obama: he understands the need for more stimulus and is doing what he thinks best given the nature of this Congress to get as much of it as he can.
ReplyDeleteInterestingly, Krugman and other notable like-minded commentators more or less just ignore the hundreds of billions in additional stimulus that Obama has been proposing and getting (both in this Congress and the last Congress post-ARRA) when commentating on these issues. They could be doing that because they are just terrible commentators blinded by their own biases and talking points, but it is also possible that they realize that ignoring all that in their commentary is actually helping to make it happen (the last thing Obama needs is someone like Krugman praising Obama for getting more stimulus out of the House Republicans).
Anyway, the one entity that might well change its mind in light of new data, and has the power to do something about it, is the Fed. They have so far been interpreting the recent poor jobs data as a temporary setback explainable by factors that have already diminished on their own (such as the gas price spike and the Japanese supply-chain interruption), but at some point well before November 2012--well before November 2011, in fact--they would like change their mind if the jobs recovery doesn't start rebounding.
In fact, it will be interesting to see if at least they start talking a little different after the very disappointing (in the literal sense of unexpectedly bad) June report, even assuming they don't yet adopt any new policies.