Mutually Assured Misunderstanding

Economics is called the dismal science for obvious reasons – it’s complicated and often dull and dry, except when one big-gun economist is telling another big-gun economist he’s full of crap and the other fires back with the same – but then it isn’t a science anyway. Sure, there’s a ton of data, but what to make of it all is anyone’s guess. There’s a lot of magical thinking masquerading as sequential if-then logic, and then the few who actually get things right get nicknames like Doctor Doom. See the latest from Nouriel Roubini – the original Doctor Doom, who got everything right about the total collapse of the economy in Bush’s last years. He saw it coming. This time he doesn’t think 2013 will go well – the mania to cut spending on everything in sight, all around the world, will preclude any sort of recovery anywhere, at best. The current public policy here and everywhere is dangerous. Being careful and sensible about government spending is always a good thing, but austerity is not prosperity. Austerity is just austerity – a slow grind and just making do.

Perhaps that’s why austerity economics appeals to the dour self-loathing neo-Puritans among us, the Republicans and the lower-middle-class folks in Kansas and the South who vote for them – we don’t deserve better, because life is hard and is supposed to be hard – although Roubini makes no such claim. Roubini just deals with data points, but the issue here might be that Obama talks about careful investment in education and infrastructure and industries that should create good jobs, which involves spending, so if he suggests such things they must oppose those things. He shouldn’t be in office after all, as everyone knows, or as everyone on that side knows. The issue then isn’t really fiscal policy – how to spend tax revenues – or monetary policy – adjusting the money supply through the Fed Funds rate and the bond market, through quantitative easing and such things, which few understand – it’s just anger and resentment. That’s not economics, even if it is just as dismal.

That’s probably where all the magical thinking masquerading as sequential if-then logic comes from. This is identity politics masquerading as economic theory, which probably explains what Paul Ryan was up to this weekend. He and Mitt Romney lost the election, rather badly, and the House Republicans had their closed-door retreat in Williamsburg, trying to figure out what to do next. Obama gave his help-out-or-get-out-of-the-way inauguration speech, and these guys finally did come up with something exceedingly clever, a proposal that seemed like a (temporary) capitulation in the debt-ceiling stand-off. They’d vote to raise the debt ceiling for three months, on the condition that the Senate passes a budget that will presumably include significant deficit reduction, but may not, but if they don’t pass something the House will make sure the guys in the Senate don’t get paid, which is probably unconstitutional. What? John Boehner said this would foil Obama’s nefarious plan to annihilate the Republican Party, but Ryan was silent on that. That was followed by the Republicans meeting in Charlotte to figure out how to save their party, with Bobby Jindal giving a rousing speech about how it’s time “to stop being the stupid party” – but that’s easier said than done. The question was and still is how to change no policies while appearing all shiny and new, and there may be no answer to that question. Paul Ryan had nothing to say about this either, even if he is the party’s budget guru, if only by default. Everyone else knows better than to try to sound wise about such things – they know they’d be exposed as clueless. Let Ryan do it. He seems plausible.

The problem was that their plausible man had been silent, save for a few post-election interviews, where he muttered about how he and Mitt really hadn’t anticipated all those “urban voters” turning out. Yeah, people in cities do vote, and they’re a ridiculously diverse crowd, not old rural white guys on Social Security. Ryan shook his head sadly and then disappeared, but now he’s back. Speech after long silence is right, as William Butler Yeats noted in an entirely different context – and Ryan broke his silence on NBC’s Meet the Press, speaking with David Gregory – which may or may not have been the right thing to do.

Actually he broke his silence the night before in a speech at the National Review Institute:

Holding out little hope of compromise, House Budget Committee Chairman Paul Ryan predicted Saturday that the nation will face “tepid growth and deficits” under President Barack Obama and Republicans must prudently “buy time” and “keep the bond markets at bay – for the sake of our people.”

Ah, those bond markets. Our economy is so screwed the interest we have to pay to borrow money will skyrocket. The opposite has happened for three or four years now – we can effectively borrow money at negative interest rates – but this will happen for sure now, as that’s simple sequential if-then logic, the empirical evidence be damned. And yes, it’s all Obama’s fault:

“Unfortunately, the Democrats are unlikely to accept our proposals. They refuse to consider real reform. But we will lay the groundwork for future endeavors. So when reform is possible, we will be ready.

“The president will bait us. He’ll portray us as cruel and unyielding,” Ryan said. “Look, it’s the same trick he plays every time: Fight a straw man. Avoid honest debate. Win the argument by default.”

Ed Kilgore thinks that’s pretty rich:

Ryan has time and time again demonstrated that he isn’t interested in paying down the national debt or in “reforms to protect and strengthen Medicare and Medicaid,” as he claimed on Saturday. He’s interested in turning Medicare into a voucher program and in slashing Medicaid’s budget by over a trillion dollars – his logic reminiscent of that infamous Vietnam era talking point “destroying the village in order to save it.” And speaking of bombs, Ryan has repeatedly refused to consider cutting one of the most draining and unnecessarily large parts of the budget: defense spending. He also refuses to consider forcing those with mountains of idle or otherwise unproductive cash to pay for these programs, and isn’t content with Democratic compromises thus far, refusing to appreciate the $2.2 trillion in cuts agreed to during the 112th Congress, because he’s cranky about the $620 billion in tax increases.

That might define cruel and unyielding. And Kilgore notes the internal party irony:

Ryan’s outlook contrasts sharply with Speaker Boehner’s. The latter is attempting to compromise with Democrats by forcing the Senate to pass a budget so that the two houses can find some middle ground. But if Ryan uses his budget committee chair to turn this into another fiscal knock-down drag-out fight – something that makes virtually no sense in light of his party’s November drubbing, and Congress’ low approval rating – the ensuing conference committee might make the super committee look like serious adults.

Yes, but Ryan is a purist – Obama knows nothing of economics and his leader, John Boehner, is a fool for trying to work compromises of any kind. Still on Meet the Press he did try to sound reasonable. With the next debt ceiling vote and sequestration cuts set for the first day of March, Ryan did his nice-guy impression:

“We’re not interested in shutting the government down,” Ryan told David Gregory, saying that he would rather see more continuing resolutions and let the debate drag on as a long-term deal is hammered out.

Kilgore is not impressed:

So Republicans won’t use suicide bomber negotiation tactics. That can only be a good thing.

But Ryan still seemed to think that his was the only plan, as if Democrats didn’t offer a myriad of fiscal visions during the 112th Congress.

The Extremely Serious House Budget Committee chair also told Gregory he was in favor of tax reform and closing loopholes, but simultaneously, somehow, said that he rejected Sen. Chuck Schumer’s call for more tax revenue.

Yep, economics, the dismal science, isn’t really a science, at least when it meets politics, and it got worse:

Rep. Paul Ryan (R-WI) predicted Sunday that sequestration, the $1.2 trillion in automatic cuts to domestic and military spending that was put off as part of a last-minute effort to avoid the fiscal cliff at the beginning of January, will ultimately go into effect. …

Ryan said this is because Democrats have refused to offer any alternatives to the sequester, unlike Republicans who have passed legislation with alternative spending cuts.

“We think the sequester will happen because the democrats have opposed our efforts to replace those cuts with others and they’ve offered no alternatives,” Ryan said.

In short, those other guys don’t believe in austerity economics, so it’s brutal cuts in everything, and not our fault. Those guys admit that we have a large federal budget deficit, but they think that deficit is mainly the result of a depressed economy – and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers, all by itself. That’s the argument of two famous Nobel Prize economists – but Paul Ryan broke his silence to say those folks are wrong.

Ryan also disagrees with the outgoing treasury secretary Tim Geithner – he says we may be close to fixing any long-term deficit problems. He says since there’s only a little more to do “It should be relatively easy to reach an agreement” – and one of those two famous Nobel Prize economists throws up his hands. That would be Paul Krugman:

To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it. I mean, how is “starve the beast” supposed to work? Precisely by creating a fiscal crisis, giving you an excuse to slash Social Security and Medicare!

The idea that they’re going to cheerfully accept a deal that will take the current deficit off the table as a scare story without doing major damage to the key social insurance programs, and then have a philosophical discussion about how we might change those programs over the longer term, is pure fantasy. That would amount to an admission of defeat on their part.

Now, maybe we will get that admission of defeat. But that’s what it will be – not a Grand Bargain between the parties, acting together in the nation’s interest.

They’ll either give up on their magical thinking, having nothing to do with real economics but useful as a wedge to dismantle the social insurance system, or they won’t, but Kevin Drum is not surprised:

Republicans haven’t cared about the deficit for decades. They got a bit worried about it when Ronald Reagan’s 1981 tax cut didn’t pay for itself the way he promised, and this prompted them to reluctantly pass Reagan’s 1982 tax increase. But they very quickly sent that 1982 bill down the memory hole, pretending to this day that Saint Ronnie never increased taxes. Since then, they’ve cared about deficits only when Democrats were in office.

As it happens, I don’t think there’s anything nefarious about this. Republicans don’t like Democratic spending priorities, and yelling about the deficit is a very effective way of objecting to all of them without having to waste time arguing about each one separately.

It’s a bit of slight-of-hand, but then, with a country full of dour self-loathing neo-Puritans, who think life is hard, and it should be hard, this slight-of-hand works:

It’s an effective strategy with the press corps, which for some reason is deficit-phobic, and it’s effective with the public, which generally retains its belief that government finances are similar to household finances. If I were a Republican, I’d latch onto deficits as an anti-spending tactic too. It works pretty well.

Drum is unhappy with the state of things:

What frustrates me isn’t so much that Republicans do this – that’s just politics – but that the press so routinely lets them get away with it. I understand the constraints they work under, but still. The difference between actual Republican priorities and claimed Republican priorities is so obvious that it hardly counts as editorializing to point it out.

Well, maybe, but the Washington Post’s Ezra Klein did sit down and talk with Paul Ryan about taxes and spending and gives us this:

“Principle and prudence,” said Rep. Paul Ryan, when asked how Republicans should proceed after losing the 2012 election. “We have to exercise our principles in a prudent way with realistic expectations while being reasonable and doing what we think is right. That means our tactics will vary but our strategy will stay the same.”

That sounds pleasant and reasonable, but then there’s this:

The key to understanding the House Republicans’ mindset, Ryan said, was that “our value-add to the political system on all things is to help prevent a debt crisis.” But it quickly became clear that the Republican Party’s fear of a debt crisis lags far behind their fear of further tax revenue. For House Republicans, it’s spending cuts or nothing. Actually, I shouldn’t say nothing – it’s spending cuts or House Republicans force another kind of crisis.

This is not what Ryan said on Meet the Press:

Asked where Republicans will get the leverage to force a spending-cuts only plan after losing an election, Ryan ticked off the coming moments when House Republicans could, by refusing to pass legislation, hurt the economy. “We have a sequester kicking in on March the 1st. We have a continuing resolution expiring on March the 27th. We have budgets that, if the Senate decides to do its job this year, will come out in April, so we can have a debate about how to fix the problem, not if to fix the problem, and you have a debt limit coming right after that.”

The points of leverage, in other words, are crises. The sequester is full of dumb spending cuts that will wound the recovery. If the continuing resolution runs out without being replaced or renewed, the government will shut down. If the debt ceiling is breached, the economy will fall into chaos.

Will Ryan force these issues or not? It depends on who asks him the question:

Lori Montgomery, a Washington Post reporter, asked Ryan whether he was absolutely ruling out a deficit-reduction compromise with Senate Democrats that included new revenues, even if they came through tax reform. “Yes,” Ryan said. “We want to use reconciliation to get revenue-neutral tax reform.”

“But there’s a Democratic Senate you need to work with,” replied Montgomery.

“They already got their revenues,” Ryan said.

Economics is complicated, or something, as Klein discovers:

They don’t want more tax revenue because, well, they don’t want more tax revenue. That’s the “principle” behind their approach. So that was my question for Ryan.

“What is the evidence,” I asked, “be it historical or academic, underneath the idea that bringing another $600 billion or $700 billion out of tax expenditures – which some Republicans, like Alan Greenspan, think is properly classified as spending anyway – what is the evidence that makes you convinced that would have such a deleterious effect on the economy that it wouldn’t be worth taking it to get the debt deal?”

The answer was that it just will have the effect, leading Klein to sum it up:

Typically, politicians say that their job requires balancing principle with compromise. Ryan’s formulation was principle and prudence. The principles are clear. The prudence, given the recent history of the House Republicans, means knowing when to stop saying no, with the decision to fold on the debt ceiling being a prime example. At one point, Ryan was asked whether Republicans could really stick to this strategy given their low poll numbers and tattered brand. “So,” he laughed, “we don’t have much to lose, do we?”

This is high-stakes poker, not economics, and Matthew Yglesias adds this:

The really puzzling thing in Ryan’s disquisition on the subject is his unwillingness to show any tactical flexibility. Barack Obama has, at various points, offered to enact substantial spending cuts in exchange for Republican support for tax hikes. Republicans have invariably shot these proposals down and they appear to reject the idea in principle. It’s not that Obama has only been willing to cut in certain ways. He’ll raise the eligibility age for Medicare or enact an across-the-board cut in Social Security. But Republicans have to pony up some tax increases in exchange.

They won’t do it but they won’t quite say why they won’t do it:

In fact, they basically just won’t answer the tactical question at all. When interrogated, they answer a different question and give their reasons for preferring lower taxes rather than higher taxes. The implication, I guess, is that there’s no need to put forward a spending cut plan that can gain Democratic support because at some future date they’ll win an electoral sweep and enact large spending cuts via the budget reconciliation process. But even so, agreeing to a higher-taxes-and-lower-spending plan in 2013 wouldn’t prevent them from enacting large cuts in taxes and spending via reconciliation if they win a clean sweep in 2016 or some future date.

Yglesias thinks something else is going on:

I suspect that the real reason here has to do with the internal tensions in the Republican caucus over Medicare. Republicans want to want to roll back the welfare state but on some important level don’t actually want to do it. The way through is to refuse to cut Medicare and Social Security while insisting that anti-tax ideology is what’s preventing them from agreeing to cuts. But back in 2003 when they ran the zoo, that anti-tax ideology compelled them to cut taxes and they simultaneously increased Medicare benefits.

This last point is interesting. See David Frum’s Why Romney Lost:

It’s certainly possible for Republicans to choose to be a white person’s party. If we do so choose, however, we are also choosing to be an old person’s party. Since the elderly receive by far the largest portion of government’s benefits, an old person’s party will be drawn by almost inescapable necessity to become a big government party. Indeed that is just what happened in the George W. Bush years: Medicare Part D and all that.

Economics and politics lead to strange places, as Yglesias notes here:

While it’s not super-polite to say so it’s important to understand that among the white population generally racist sentiments correlate with more support for programs for the elderly and less support for programs for the poor – which is just to say that while from some kind of abstract political theory point of view you can judge “get the government out of my Medicare” sentiment to be incoherent, in terms of coalitions there’s a deep logic here. Older people are whiter and more socially conservative than younger people. More ethnocentric white people of all ages are more supportive of programs for the elderly. So a coalitional core of older white social conservatives makes perfect sense.

An interesting problem here is that at the elite level conservative leaders simply don’t like the idea of this coalition. Paul Ryan seemed most thrilling when he was most daring in his attacks on social insurance for the elderly. George W Bush masterfully led this coalition through the Medicare Part D episode only to attempt to spend his political capital on a phase-out of Social Security.

The tension is obvious:

Elite conservatives are well-aware that it is retirement programs that account for the bulk of non-military spending. And I think that at a level of rhetoric and politicking, the Romney / Ryan / Boehner / McConnell GOP has done about a good a job as you could hope of squaring this particular circle. It’s just hard. So one option would be to stay committed to the idea of dismantling the welfare state and try to ditch the existing coalition in favor of some different, younger, less-white, less-ethnocentric coalition that’s more likely to want to cut retirement security programs. That would involve moderating on immigration and many social issues, but since (unlike gay rights) abortion is not an age-polarized issue the GOP could remain robustly anti-abortion. Then you might try to get to the Democrats “left” on certain topics where younger people tend to have small government views – marijuana regulation and copyright policy, for example – reversing the traditional logic of fusionist politics.

That’ll never happen. Things are too locked in now just as they are, as Yglesias concedes:

The alternative would be to take the existing Republican Party base as a given and simply abandon the quest to dismantle the welfare state. One argument for that approach is there’s some reason to think that dismantling the welfare state is impossible anyway.

Yes, but who’s to say what’s impossible? Economics was never much of a science anyway, and it’s even less of a science when it meets politics, when the dismal meets the pathetic. Magical thinking masquerading as sequential if-then logic will always have an audience. Folks will believe anything.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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One Response to Mutually Assured Misunderstanding

  1. Rick says:

    (1) “Yep, economics, the dismal science, isn’t really a science”:

    Some people do say that, but in what sense is it really not? That it’s not a study of the “physical” world? Then neither would psychology, sociology, criminology, or anthropology be, or any of the other studies of human behavior. In fact, science being sometimes defined as “a systematically organized body of knowledge on a particular subject”, economics certainly is a science.

    (2) Yglesias concedes: “The alternative would be to take the existing Republican Party base as a given and simply abandon the quest to dismantle the welfare state. One argument for that approach is there’s some reason to think that dismantling the welfare state is impossible anyway.”

    Yeah, but dismantling the welfare state is their core belief; if they got rid of their core belief, what would they replace it with? That would be like asking the Catholic church to stop believing in the divinity of Jesus Christ, but just keep believing in all the rest — whatever “rest” there is.

    (3) I guess Ezra Klein asked Paul Ryan an okay question (where’s your evidence that more tax revenues would hurt the economy), but I wish he had asked the more pertinent question, the one about austerity — that is, where is your evidence that, despite being counter-intuitive, cutting spending will actually get the economy spending again?

    That’s where the real Republican “Peter Pan Economics” magical-thinking takes place: If we all want to fly, all we need to do is just think happy thoughts. If all the little boys and girls clap their hands, Tinker Bell will come back to life. Happens all the time in fairy stories, but it just never happens in real life.

    (4) But I, for one, am glad the Republicans have not been accepting Obama’s cuts-in-exchange-for-tax-increases offers. The Republicans are indeed saving us from ourselves. The real question is, why does Obama keep making these offers?

    Funny, I swear I have a better understanding of what the other guys are trying to do than I do of what is going through our guy’s mind.

    Rick

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