Morphing the ConversationPosted: February 7, 2010
One of the things that I’ve found profoundly upsetting about the last several decades is how successfully movement conservatism has confused and morphed policy conversation into a mishmash of labels which in no way describe what used to be general understanding of policy. Movement conservatism has reframed many definitions that were used as the basis for policy discourse. In a reaction to this, movement progressivism has reframed the reframe rather than try to shift the conversation back to what used to be common ground and common definitions. The terms “socialism”, “liberal”, and “Keynesian” are now completely divorced from reality–if I can use that word–and from their traditional meanings. Shared definitions and discussion of one’s assumptions are important for civil debate. Civil debate is necessary for successful policy implementation. Our discourse is so inflamed these day that we no longer even share the process by which we have historically entered into dialogue. Screaming ill-defined frames is now de rigueur.
Movement conservatism–its media outlets and thinktanks– has moved the Overton Window so far off the ruler that even former Reagan officials are coming forward to press the reset button. Movement progressivism has borrowed from their play book and is now doing the same. Several TC readers have brought up some really good examples recently.
My personal hypothesis is that both Democrats and Republicans have the same agenda which is to feed the hand of the industries and interests that can keep them in power. They play on different teams with different sponsors but their basic goals are the same. That would be to return money to people that provide money to them. The rhetoric we see in ads and speeches are positioned to keep us on the hook and tagging along. Ever so often they throw us a few things like a study on getting rid of DADT or a law that looks like it may get rid of job place discrimination. These are mostly symbolic and have very little real effect. The right does the same thing. They throw a few restrictions on abortion rights or pull together funds for an government agency that lets churches proselytize through social services. Nothing changes in the big policy realm except the continuation of laws that concentrate media, economic, and political power into the power brokers of each party’s choice. This is something that many of the ‘tea-partiers’ as well as those drawn to the move-on movement share; a sense that government moves when one set of interests that fund politicians asks it to do so. We get wars when the Oil industry needs its interests protected. We get bail outs when the finance industry needs its interests protected. Meanwhile, the rest of us get fed hype that something is happening in our best interests as they reframe discourse with their best Madison Avenue gestalt.
Yesterday, I tried to approach this problem from the sociopolitical concepts. Today, because of some down thread links folks pointed out, I’m going to switch to the socioeconomic. I tag these things with ‘socio’ on the front, because I do believe that most of this comes from differences in class more than differences in anything else. Today’s populists are spewing the words ‘elite’ when I think what they are really sensing is they are far removed from the bonus class of Wall Street, the political class in Washington, and the cultural class in Hollywood. There is nothing elite about them other than their ability to attract money and power through a velvet schmooze and a public platform.
During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.
These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”
Over the past few days, we’ve had David Stockman–Reagan Budget Director–on PBS(h/t to Jangles)–say this.
PAUL SOLMAN: And now both men favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan’s budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending.
Do you still feel that way?
DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn’t work. You can keep cutting taxes until you reach the point where this year — or the year just ended, we spent $3.6 trillion, and we only collected $2.2 trillion.
So, we are now so far out of kilter that it’s irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can’t be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.
The Republicans think their mission in life is to cut taxes. Sorry, game — game over. We’re now in the tax-raising business. And we’re going to be in the tax-raising business for the next decade.
Not only do we have Republicans coming back to the “we’re all Keynesians now” Amen corner, we now have Democrats screwing up Keynesian policy as well as the public repudiating the Keynesian economics as they now misunderstand it. That’s because few folks know what it is about since they’ve not had an economics class and they watch screamfests on TV. They all have an opinion based on the reframed concept. It’s wierd, destructive, and disingenuous. The old Reagan crew is stepping up to say WAIT A DARN MINUTE just at the time ‘progressive’ democrats of the Obama ilk and the public have now bought into to the mis-framed Keynesian policy proscriptions of movement conservatives.
WMBC gave me this CNN/Money Link this morning titled “Broke! Fixing America’s fiscal crisis How Obama got Keynes wrong.” This is based on an interview with Allan Meltzer, a monetarist who is basically an economist who has followed the Milton Friedman line of study on the relationship between the money economy (financial transactions behind buying and selling stuff) and the real economy (the actual transfer of the stuff or goods and services between buyers and sellers). Not all Monetarists are as libertarian as Friedman, but they generally have a fairly restricted view of the role of government during business cycles. Here’s some of the Meltzer article.
He would roll over in his grave if he could see the things being done in his name. Keynes was opposed to large structural deficits. He thought that they chilled rather than stimulated the economy. It’s true that we’re stuck with large deficits now. The goal should be to reduce them, not to take on new spending that makes them worse.
Today, deficits are getting bigger and bigger with no plan to significantly lower them. Keynes understood what the current administration doesn’t understand that the proper policy in a democracy recognizes that today’s increase in debt must be paid in the future.
We paid down wartime deficits. Now we have continuous deficits. We used to have a rule people believed in, balanced budgets. And now that’s gone.
I wrote about the role of deficits recently in a thread called What’s all this I hear about Fiscal Restraint? I also wrote this thread called “When Deficits Matter”. Keynes was, in fact, very circumspect about when to run deficits and what types of government stimulus is required. There’s also tons of empirical studies on how effective government spending is during recessions compared to across the board tax cuts or (even worse) tax rebates. I am a product of both the monetarist school as well as the Keynesian and practice probably what is best called ‘Middle Path economics’ in that I really think policy prescriptions should be situational and based on what empirics have told us has worked in the past. This is my problem with ideological movement conservatives as well and the new ideological movement progressives. They throw theory and knowledge to the wind and argue anything that fits their world view point and serves their agendas. Remember what ever they say their agendas are is actually secondary to keeping power and attracting money to them and their interests. Self-preservation is always the primary directive.
So, right now, I’m leaving my first edition Patikin’s ‘Money, Interest and Prices’ on the shelf and pulling out my father’s textbook from his first economics class. I’m going directly to “The General Theory of Employment, Interest and Money” for this quote. Here’s the Ebook link so you can read it yourself. Keynes was extremely interested in the private investment function. Reaganomics folks were obsessed with it during their time. Kemp argued for specific tax cuts to jump start parts of the economy. You may remember his ‘red zones’. However, the entire thing got blown up to the point where tax cuts became the apple cider vinegar for whatever your economic woes. Instead of careful tax cuts or planned removal of some regulations , we got tax cuts for every one and removal of even sane regulation. That was because Reagan was backed by the financial class. Obamanomics folks are now backed by the financial class. They’ve not only forgotten the lessons now observed by the old Reagan economist pack, they’ve forgotten the original Keynesian messages. It isn’t about the extremes of removing all regulation and taxes any more than it’s about the extremes of spending tons of money. It’s about targeting both in a way that policy prescribes to reach a particular policy goal. But, ideologues aren’t interesting in particular goals, they’re interested in forcing an extremist agenda AND self preservation.
These considerations should not lie beyond the purview of the economist. But they must be relegated to their right perspective. If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase. In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, ‘for income’; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards
a different object. These tendencies are a scarcely avoidable outcome of our having successfully organised ‘liquid’
investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and
expensive. And perhaps the same is true of stock exchanges.
Keynes clearly saw that Wall Street doesn’t always invest in things which he considered the “proper social purpose” which is to direct new investment into businesses that can create value in the future and jobs in the future. This is still our problem. This is the aim of increasing government spending via deficit spending during a recession. Private investment may not do this in the best of times. The purpose of both tax cuts and more importantly government spending is to fill this void and reverse the downturn. Once the momentum and the multipliers kick in, the economy will move where it’s supposed to and tax receipts can go up and government spending is no longer required for that purpose. Notice that Keynes addresses a bubble economy based on a ‘whirlpool of speculation’. He basically says when Wall Street has gone nuts, it’s a perfectly reasonable and necessary thing for the government to provide the structure for proper investment and step in to get the process back as it should be. Government’s role is not to prop up Wall Street so it can carry on future speculation. This is what Obamanomics is doing and this is why you’re suddenly seeing the old Reagan boyz network seem absolutely Keynesian these days.
Deficit spending and tax cuts are ways for the government to mimic the role of a rational investment sector after a period of perverse speculative activities that have crashed the economy. This is true of 1929 as well as 1999 and 2009. In response to the foaming dot.com bubble of 1999, we saw the Bush government in 2001 set the same game up with rebates, reckless tax cuts,and war spending. In 2009, we saw the Obama government reset the same stage with tax cuts, pork barrel government spending, and funding of speculative investment. Again, they’re setting up the casino. Deregulation through out the period has just fueled the speculative fire. Bailouts and low Fed rates at the discount window are providing public funds for the casino functioning of Wall Street. It’s not doing the traditional Keynesian thing of replacing and reinvigorating investment that creates long term value. For that, we’d need Hoover Dam, rural electrification, the Golden Gate Bridge, new buildings on university campuses, and highways for transport, information, and power.
Well, now I’ve just given an economics lecture on a super bowl sunday. If that doesn’t tell you how out of touch I am, then nothing will. Guess that makes me a cultural elite or something nasty like that. Excuse me while I go play Rhapsody in Blue. I’m avoiding the TV and the streets today. Oh, and since there’s two of the biggest parties in the country blocks from my house, youngest daughter is here. Have fun with the links!