So, all you kind folks that get up way too early in the morning for my tastes and habits sent me to the Morning Joe website to watch Paul Krugman commit beltway heresy. I actually had to play it twice to believe my eyes.
I am reminded of the occasional student that would turn up in a freshmen class and proceed to school the professor on his subject. I saw this when I went to university and I experienced it when I taught freshmen classes. For some reason, all your education, experience, research, and accolades matter naught before people who are absolutely convinced they are right because they just are. I’ve been watching for the internet reactions and they’re wonderful. None is better than Krugman’s response who likens it to the drumbeat leading up to the invasion of Iraq. Even though the evidence was weak and called bogus by experts, we invaded a country with the incestuous amplification of the villagers who really wanted to be war correspondents.
No matter how much proof we have that austerity makes things worse and the current deficit is cyclical, there are a bunch of those in the press that insist they’re not, well … just because they really love the idea of Simpson-Bowles and the unnecessary suffering that would be induced by a study that their committee wouldn’t even approve. I don’t know why they want to induce unnecessary suffering but maybe it has something to do with not being impacted but being able to report from the middle of homeless and starving grannies.
Back during the early days of the Iraq debacle, I learned that the military has a term for how highly dubious ideas become not just accepted, but viewed as certainties. “Incestuous amplification” happen when a closed group of people repeat the same things to each other – and when accepting the group’s preconceptions itself becomes a necessary ticket to being in the in-group. A fundamentally flawed notion – say, that the Germans can’t possibly attack though the Ardennes – becomes part of what everyone knows, where “everyone” means by definition only people who accept the flawed notion.
We saw that in the run-up to Iraq, where perfectly obvious propositions – the case for invading is very weak, the occupation may well be a nightmare – weren’t so much rejected as ruled out of discussion altogether; if you even considered those possibilities, you weren’t a serious person, no matter what your credentials.
Which brings me to the fiscal debate, characterized by the particular form of incestuous amplification Greg Sargent calls the Beltway Deficit Feedback Loop. I’ve already blogged about my Morning Joe appearance and Scarborough’s reaction, which was to insist that almost no mainstream economists share my view that deficit fear is vastly overblown. As Joe Weisenthal points out, the reality is that among those who have expressed views very similar to mine are the chief economist of Goldman Sachs; the former Treasury secretary and head of the National Economic Council; the former deputy chairman of the Federal Reserve; and the economics editor of the Financial Times. The point isn’t that these people are necessarily right (although they are), it is that Scarborough’s attempt at argument through authority is easily refuted by even a casual stroll through recent economic punditry.
The Krugman view on the economy isn’t an outlier in the community of economists. That’s because we know theory and we know the empirical evidence that supports the theories. Here’s a list of 10 People that disagree with the narrative of the deficit scolds as compiled by Joe Wiesenthal at TBI.
But actually there are plenty of economists and economically-literate minds who think that, to varying degrees, the deficit is not what we should be worrying about.
For Joe Scarborough’s sake, here’s a list of people. With each we’ve linked to comments they’ve made about their (lack of) worry about the deficit.
- Goldman chief economist Jan Hatzius
- Nomura economist Richard Koo
- Brad Delong
- Alan Blinder
- Martin Wolf
- Larry Summers
- James Galbraith
- Robert Reich
- Bruce Bartlett
- John Makin (a conservative AEI scholar with a new paper out today on the danger of overhyping deficit fears!)
- Rep. Jerry Nadler (not an economist, but as knowledgeable on economics as anyone up on Scarborough’s list).
Anyway, that was just a partial list, but one that covers conservatives, liberals, Wall Street economists, and former government officials.
The funny thing is that polls show that the American public isn’t all that worried about the deficit either. The economy and jobs outpolls the deficit concerns by about 2 to 1 in polling from all kinds of pollsters. David Atkins–writing at Hullabaloo–calls it the problem of the Kool Kids Table.
Here at Hullabaloo we call it the Kool Kids Table, a pathway to power and social acceptance inaccessible to those who don’t hold the “right” views.
Do I believe that everyone in Joe Scarborough’s sphere of influence knows that Keynesianism is accurate and that Krugman is right, but chooses to say otherwise because it pads their bank account? Of course not. It takes a conspiracy theorist and an idiot to believe that. Washington is corrupt, but it’s not that corrupt.
No, most of these people believe what they say. I don’t doubt that Scarborough’s perplexed shock is genuine. Just like I believe that most of the conservative theologians who burned Giordano Bruno at the stake believed that our solar system was the only one of its kind. After all, anyone who believed otherwise wasn’t taken seriously and didn’t advance in the Church hierarchy. Everyone who was anyone knew better, and since Bruno refused to accept the conventional wisdom he had to be shunned and ultimately silenced. Bruno’s ideas were unserious and dangerous. The man had his head in the sand and couldn’t see what seemed obvious to everyone else.
Perhaps one day the Church of the Austerians will belatedly apologize to Keynes, Krugman, Stiglitz and all the other great economists whose names have been dragged through the mud. But not likely soon, and not during their lifetimes. In our own sordid lifetimes, Popes Simpson and Bowles will continue to bestow favors upon their cardinals, giving communion only to the Kool Kids who deserve it.
It is actually a freshman economics problem to argue that now is a very bad time to focus on the deficit. It’s very simple math. There are 4 actors in our economy. That would be businesses, the foreign sector, households and the government. During a bad economy, the first three actors generally pull back. Households tend to save and pay down debt, businesses don’t order as much inventory or expand because households are pulling back, and the foreign sector is generally impacted by the US economy and will slow down its buying too unless the dollar should become very weak and our prices fall dramatically. US policy normally doesn’t let that happen.
So, the idea is that the government–using its taxing and spending policy–can make up for the fall off in economic activity. It can buy things from the private sector or do things like public works and directly offer households jobs and income and businesses a reason to expand. It can also do this by handing money over to state governments to do the same. All the activity of the four actors contributes to our GDP so if all four of them are pulling back, we get a recession.
We know this not only by talking about it in conceptual terms but also by studying the great depression and the austerity policies of countries like the UK. The UK fixated on austerity and–as a result–has had miserable economy experience and is now fallen into another recession. As Krugman explains, we’ve done relatively better because we had some stimulus. Had it been politically feasible to make it stronger, we’d have had a much stronger recovery. It’s not just a matter of embracing a Keynesian mindset, it’s just a matter of knowing the math or what’s called the national accounting identity. Remember, it’s an identity which means it’s true by definition. You can’t have four negative numbers summed together on one side of an equation with out the other side being negative too.
We also know that we’ve been in worse situations with deficits. Notably, the post-World War 2 period saw huge government deficits. Our economy expanded, we had extremely progressive taxes, and we paid the deficit down. They sky did not fall down because we ran up huge deficits during the War. In fact, buying war bonds that financed the war was seen as patriotic. We personally supported government spending this way. We did not do the same thing in our following wars and skirmishes. Bush Two put two very expensive and long, drawn out wars on the deficit while lowering taxes and decreasing the progressiveness of the tax system. This policy behavior is a huge problem.
The truth is that Keynes himself never suggested an economy run a perpetual recession. The fiscal policy prescription is to run a deficit during recessions, run towards a balanced budget in a Goldilocks economy where everything is just right, and run a budget surplus in an overheated, inflationary economy. It seems we never hear any of this from the obnoxious freshman student that sits in the front row and insists his high school reading of Ayn Rand tells him something completely different. We also never hear this from ideologues who really have a completely different agenda in mind. Their agenda is basically just to drown government in the bathtub and they don’t want any thing to work.
The problem is the kids at the Koolaid Table never, ever learn and are more motivated by access to power than access to knowledge. It’s evident in that they keep playing the deficit hawks running around yelling the sky is falling and they’ve done so for about 5 years. Or, as Krugman puts it:
KRUGMAN: “People like me have been saying for five years don’t worry about these deficit things for the time being, they’re non-issues, other people have been saying imminent crisis, imminent crisis … how many times do they have to be wrong and people like me have to be right before people start to believe us?”
Krugman must have an endless amount of patience to continually sit down with a group of these obnoxious freshmen. I wonder at how he does it day-in-and-day-out.