When an old friend, and a former student of all things, talks about running for office, well, it’s hard to know what to say. Public service is wonderful and all that, and helping shape the nation’s future is quite impressive. Someone has to do it. And he’s the one, or one of the few, who would be just right for the job – he’s a careful thinker and doesn’t kid himself or others, and he knows far too much about public policy and economics to be jerked around by this or that greedy bastard with an agenda. Hemingway once said that every writer needs a shockproof foolproof crap detector – although Hemingway used a more explicit noun. That’s useful in politics too. So this old friend should run for office. And after all, his heart is in the right place. That matters too. Maybe that matters more than anything else. So he should be in Congress.
But then the problem is getting there. Yes, the problem is those pesky voters. We’re not talking about careful thinkers here – our voters are for the most part reactive, or instinctive, or irrational in the sense that they most often vote on the basis of how they sort of feel about this or that. There’s not a lot of thinking involved. And they love to kid themselves and kid others – it’s that thing about being easily distracted by bright shiny objects. Many would support Sarah Palin for president, even though very few think she knows much about anything at all. That’s not the point. It’s about sticking it to The Man, or sticking it to somebody. And she’s a babe. And her winning would tick off so many people who think they know so damned much. Electing her would be so satisfying, even if it would be disastrous. And thus many would vote for her.
What do you do in a system like this? To get to the right place, to spend a few years doing the right thing, you have to talk about something else. The winning votes are in your ability to talk about what is essentially nonsense – apple pie and motherhood, and these days your imaginary grandkids in the hypothetical distant future, who will have far too much debt to pay off if the government keeps doing… things. The economy is nearing total collapse again, and fourteen to twenty million of us are out of work, and people are losing their homes, and the Middle East, where we get most of our oil just to keep things running, is in chaos, and so one and so forth – but you talk about those imaginary grandkids.
Yes, you don’t want to saddle them with crushing debt, but there are those here-and-now issues that require attention. But you just cannot talk about the here-and-now. Yes, we have roads and bridges and dams, and the Interstate system, and, after the Tennessee Valley Authority, electricity for the southeast, and schools and libraries, and we put a man on the moon and have a safe or sort-of-safe food supply – and no one now is bitching about all the bonds that were floated to create all that stuff that we’re still paying off. And we’re the grandkids who were only imaginary two generations ago. What was the legacy we were we handed? It was a country with a superbly functioning infrastructure, and the lingering bills to pay for much of it.
That wasn’t a bad deal really, but now the idea is to leave our imaginary grandkids nothing much at all, and a crumbling nation, but leave them with no debt to trouble them. That’s the right thing to do, or it feels right. So that’s what you say, and you do want those votes, the votes of an irrational electorate. Sure, you can promise voters they’ll never see a gay person or a Hispanic ever again, or promise them a chicken in every pot, or that no Muslim, or Mormon if that’s your thing, will ever be allowed to believe what they seem to believe, or that Hollywood will only produce chaste G-rated movies, or all sorts of things. But the cute imaginary grandkids are a better bet, a surefire thing. It not mean-spirited and nasty and it tugs at the heartstrings. Please, won’t someone think of the grandchildren?
That’s a winner. And if you win office you can then get back to solving immediate problems. You do what you have to do to get to where you can do what actually needs to be done in the here-and-now. It’s a bit of a game. Just say anything.
But of course these days it doesn’t seem like a game. We have those deficit hawks. We owe too much money to too many creditors – the Chinese and all these others. We financed everything by selling treasury bonds – and those are obligations we must meet. And now if we sell more of those to build things, or even fix things, and to keep people working so someone has some money to buy anything and at all and unfreeze the economy, we’ll have a second debt. We thus have an unsustainable deficit economy, with two deficits – what we owe now, and what we will owe if the government keeps doing… things. So the government should not do things. Please, won’t someone think of the grandchildren?
And Mike Konczal offers this about both our short-term deficit and our long-term deficit:
Why do we have to worry about the second, long-term deficit in the “two deficits” scenario? My understanding of the neoliberal landscape was that it was to convince the bond market that further stimulus would be temporary, thus allowing a larger short-term stimulus to drive down unemployment without freaking out the bond market…. You can doubt that a second stimulus would panic the bond market (I do), but the logic makes sense.
But now he says news reports suggest that the Obama administration views long-term deficit reduction simply as a good in itself because it will spur “confidence” in the economy:
This new idea is that making the bond market happy in-and-of-itself will produce prosperity and full employment through increasing confidence. The major drag on the economy isn’t low aggregate demand but confidence. Now the assumption isn’t that we have to keep the bond markets as happy as they were but instead make them much happier, which will then increase investments and spending through this increase in confidence. Hence long-term spending cuts, lots of gimmies to incumbents in supply-side investments and other things powerful interests love but don’t necessarily make demand-based economic sense.
But Konczal is skeptical:
I simply don’t see any evidence of why, or even how, this would work. What are the arguments that confidence is the major check on the economy? I understood the “two deficit” argument, but this new approach is just substituting in the interests of bondholders for the entire economy. If a very-polite version of expansion austerity is guiding the administration’s thought this is even more of a disaster than these stories convey.
It seems that the Obama administration just moved into the say-anything mode. Things will be better if the bond markets have confidence. That’s a nice word, confidence. But it may be another bright shiny object for an election cycle starting again, and Kevin Drum sees it that way:
At a guess, there are two things going on here. The first is the one Mike talks about: there are a lot of people – Wall Street is full of them – who fundamentally believe in a kind of folk economics in which austerity and discipline are rewarded and profligacy is punished. So if you demonstrate some discipline, businesses will start hiring again because they have confidence in the future.
Isn’t it pretty to think so? Yes, that’s the acerbic last line of Hemingway’s best novel, The Sun Also Rises – but Hemingway wasn’t talking about folk economics. He was just talking about kidding yourself and trying to kid others. And Drum sees what is going on here:
The second thing is simpler: the political landscape for serious stimulus spending is so grim that no one has the energy to effectively argue against the folk theories. What’s the point, after all, when even the most brilliant argument will immediately founder on the reality that Congress just flatly isn’t going to pass a stimulus bill?
And if that’s the case, then why not make the best of a bad situation and argue in public that long-term deficit reduction is good in and of itself? It’s better than nothing, after all, and who knows? Maybe it’ll work. What’s more, politically it’s a lot better to cut a deficit deal that makes you look like a leader than it is to barnstorm the country talking up a stimulus and getting nothing for your efforts. That just makes you look like a loser.
Why argue against folk theories? There really are no votes there.
But of course actual economists, not all that into folk theories, have a problem with this, and Robert Reich certainly does as he knows we will now never see “a bold package of ideas from the White House for spurring growth of jobs and wages.”
Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash-horde estimated to be upwards of $1.6 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.
In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, there’s they won’t spend more. A robust economy can’t be built on inventory replacements.
The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell.
But the folk wisdom – what one must say these days as elections are nearing – is that the business community lacks confidence. That’s a nice word, confidence. It feels so good to talk about that. But that may be nonsense:
The reason consumers aren’t buying is because consumers’ paychecks are dropping, adjusted for inflation. And job losses are mounting. The 83,000 new private-sector jobs created in May represent a net loss because 125,000 jobs are needed merely to keep up with an expanding labor force. The number of Americans filing new claims for unemployment benefits edged higher last week.
At the same time, many Americans are falling behind in their mortgage payments. And housing prices continue to drop – making homeowners feel even poorer.
Close to 60 percent of the half-trillion drop in household debt since the depth of recession has been defaults rather than repayments. This makes it harder for people who’d like to enter the housing market to get new mortgage loans, or for anyone to refinance. Other consumer debt burdens are rising. On Tuesday the Fed reported consumer credit outstanding rose in April – mostly from record-high levels of student-loan debt and an up-tick in credit-card borrowing due to food and gas price increases outpacing wage gains.
All this translates into a continuing crisis on the demand side. Consumers can’t and won’t buy more. Between January and March, sales grew just 0.15 percent around the country – perilously close to no growth at all. May sales look even worse. Chain stores are reporting weaker sales. Consumer confidence has dropped sharply.
But who cares about consumer confidence? The problem is the important people just aren’t feeling confident. That’s the story and everyone is sticking to it. It may be nonsense, but it feels right. And Robert Reich is tearing his hair out:
In seeking Republican votes, Obama is putting forth Republican supply-side ideas – lowering the employer costs of hiring, cutting corporate taxes – that have nothing to do with this demand-side crisis. He may attract some Republican votes for these, but what’s the point if they’re irrelevant to the real problem?
And Obama’s embrace of the folk wisdom that businesses need more financial incentives in order to hire just encourages the other side to go all out:
On Tuesday, Tim Pawlenty called for lower taxes on corporations (down to 15 percent from the current 35 percent), and lower taxes on the rich (to 25 percent from the current 35). Newt Gingrich wants to lower corporate income taxes to 12.5 percent and eliminate the estate tax altogether. And so on. Better that the president advance ideas that work, and go to battle over them.
Supply-side economics doesn’t work. It’s been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it’s bogus than ever. The last thing we need is for the president to go over to the supply side.
And the New York Times’ Ross Douthat accurately describes Tim Pawlenty’s economic policy as a return to Bushism and even a retreat from Paul Ryan’s kill-Medicare austerity conservatism:
The speech has some of the Ryan budget’s political vulnerabilities, in a sense, without the Ryan’s budget’s guts: Whereas Ryan actually took the entitlement bull by the horns Pawlenty seems to use his supply-side growth projections as a substitute for Medicare reform instead of adding them on as gravy. Reading it, you would think that the Bush economy was a huge, roaring success, since Pawlenty has little to say about the pocketbook issues that helped elect Barack Obama in the first place (wage stagnation, health care costs, etc.). And reading the excited reception that the speech is getting from movement organs, it’s clear that a great many conservatives have learned next to nothing from the trends that turned them out of office just a few short years ago.
And the problem here is that the Bush diagnosis is less plausible than ever. Bush ran during a period of budget surpluses that he claimed ought to be returned to taxpayers. And the right has a hardy perennial story about tax cuts increasing labor supply that doesn’t make a ton of sense in an economy where the unemployment rate is already 9.1 percent.
Ah, there he goes again. Yglesias is being all logical. No one wins office by being logical. Even Obama ran a two-pronged campaign back in 2008 – for the scattered few who like well thought-out ideas he had detailed policy positions, and for everyone else it was Hope – and Yes We Can. He covered his bases.
But Daniel Larison considers Pawlenty’s political strategy:
Had Pawlenty delivered a remotely plausible economic policy speech, very few people would have paid attention to it, and it would have reinforced the view that Pawlenty is so very boring. No one’s saying that now. Some people are saying that Pawlenty is the new incarnation of George W. Bush, and some are saying that he is a con-man, but at least they aren’t still talking about how “nice” and boring he is. The most significant thing that Pawlenty may have done by giving this speech was to differentiate himself as a presidential candidate from the rather dull Minnesota governor that he has been until now.
Yep, just say something, just say anything. Not many people will think through what you just said. And most people vote on the basis of how they sort of feel about this or that. And thinking and feeling are two different things.
And that leads to Republican lawmakers now taking what some say are reckless and irresponsible positions on the debt ceiling. If we don’t raise it we must default on our debt obligations. And what happens next is clear. The one safe haven, the one last place you can park your money and not lose it, and even make a tiny bit of interest, has, since the end of the World War II, been US Treasury Bonds. And if we default on those then that one safe haven is gone. There is no safe haven and what follows would be the mother of all bank runs, worldwide. Nowhere would be safe. Grab your cash and hide it away. And the available cash would be gone in an instant, so credit would dry up completely – no one would lend anyone anything, as no one knows who will pay them back, ever. Most businesses use revolving credit to stock the shelves and meet payroll and that sort of thing. They couldn’t do that. They’d close. And of course your credit cards wouldn’t work – no credit for anyone. And forget getting cash from your bank’s ATM – there’s been a run and they don’t have any. This would make the Great Depression look like a great good time of real prosperity for everyone. But if you want to make Obama do what you want him to do, and want to make him look weak so he cannot be reelected, you say you won’t vote to do this thing – unless you get exactly what you want – and even then you might not do it.
But it has to be done. And House Budget Committee Chairman Paul Ryan said he knew that. But just as House Speaker John Boehner has now abandoned that position so has Ryan. Ryan this said in January – “You can’t not raise the debt ceiling – default is the unworkable solution.” But now he says this:
If a bondholder misses a payment for a day or two or three or four – what is more important is you are putting the government in a materially better position to better pay its bills going forward.
Yes, two of the biggest ratings agencies, including Standard & Poor’s, just said they would downgrade the United States’ credit if the government missed even one debt-service payment, but Ryan seems to think a brief default wouldn’t carry consequences. Maybe it just feels that way to him. And last week, Moody’s Investors Service went further – our AAA credit rating is at risk of being downgraded by mid-July – long before actual default — if it looks like failure is even a possibility. The United States would suffer if it merely looks like the country might miss a payment on its debt obligations. And even after “day or two or three or four” that Ryan envisions, there would no quick recovery, as another leading credit rating agency explained that it’s unlikely the United States would ever gain its AAA rating back if it defaults on purpose. And this would be on purpose.
What is he thinking? He’s just saying what he knows people want to hear:
A large majority of Americans say the U.S. economy would probably suffer serious harm if Congress fails to give the federal government more borrowing authority. But barely half support raising the government’s debt limit, even if lawmakers also sharply cut spending.
And Kevin Drum comments:
Is this just an example of pure fantasy-based thinking? A cri de coeur that’s nothing more than an inchoate expression of frustration? A token of tribal solidarity? Proof that many Americans simply have no idea what the debt ceiling really is? Evidence that many Americans think America deserves to be seriously harmed? All of the above? Something else? Somebody needs to do some kind of in-depth interviewing to figure out what’s really going on here in the minds of our countrymen.
No, no need for that – asking them what they’re thinking is futile. It presumes thought.
And it is in this environment a friend wants to run for office. Yes, you want to serve your country, and shape the future, or at least do some good. That’s great. But it seems the trick is that once there, forget everything you said to get there. More politicians should do that. We’d all be better for it.