The Purpose of Conservative Macroeconomic "Policy"

Mark Thoma:

There clearly is a class of people willing to sacrifice the livelihood and well-being of others in pursuit of their ideological goal of a smaller government (so long as their own future remains secure). The notion of "expansionary austerity" was the cover, but so long as government shrinks as a result of the policy, the expansionary part is secondary. If reducing the size of government slows the recovery, that's a small price to pay for such a worthy goal -- for them anyway, the power behind this is in no danger of becoming unemployed. The main thing is to impose the small government ideology whenever there is a chance, and to use whatever argument is needed to serve that purpose, austerity is expansionary, tax cuts pay for themselves -- whatever works -- the ideologues will even embrace Keynesian economics if it allows them to argue for tax cuts that might further "starve the beast" (e.g. see Bush's argument for the first round of his tax cuts). But in the end the goal is a simple one, reduce the size and influence of government, and everything else is just a means of getting there.

This always gets me scratching my head.  Tell me again why a smaller government is magically better?

Adam Smith on Scott Walker and his Supporters

Adam Smith is usually claimed by conservatives since his economic principles, detailed in his masterpiece The Wealth of Nations underpin the ideas of modern "free market" fetishists.  Never mind that what Smith said has been perverted, twisted and distorted out of all recognizability by libertarian economists… I digress.

What many may not realize is that Smith, like his American revolutionary counterparts, was reacting to the tyrants of his day.  And when you read his work in the context of our modern political circumstances in Wisconsin, he sounds positively revolutionary!

Read the following extended passage from Smith's Theory of Moral Sentiments with Scott Walker and his Tea Party minions in mind.

When we consider the condition of the great, in those delusive colours in which the imagination is apt to paint it. it seems to be almost the abstract idea of a perfect and happy state. It is the very state which, in all our waking dreams and idle reveries, we had sketched out to ourselves as the final object of all our desires. We feel, therefore, a peculiar sympathy with the satisfaction of those who are in it. We favour all their inclinations, and forward all their wishes. What pity, we think, that any thing should spoil and corrupt so agreeable a situation! We could even wish them immortal; and it seems hard to us, that death should at last put an end to such perfect enjoyment. It is cruel, we think, in Nature to compel them from their exalted stations to that humble, but hospitable home, which she has provided for all her children. Great King, live for ever! is the compliment, which, after the manner of eastern adulation, we should readily make them, if experience did not teach us its absurdity. Every calamity that befals them, every injury that is done them, excites in the breast of the spectator ten times more compassion and resentment than he would have felt, had the same things happened to other men. It is the misfortunes of Kings only which afford the proper subjects for tragedy. They resemble, in this respect, the misfortunes of lovers. Those two situations are the chief which interest us upon the theatre; because, in spite of all that reason and experience can tell us to the contrary, the prejudices of the imagination attach to these two states a happiness superior to any other. To disturb, or to put an end to such perfect enjoyment, seems to be the most atrocious of all injuries. The traitor who conspires against the life of his monarch, is thought a greater monster than any other murderer. All the innocent blood that was shed in the civil wars, provoked less indignation than the death of Charles I. A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than to those of meaner stations.

Upon this disposition of mankind, to go along with all the passions of the rich and the powerful, is founded the distinction of ranks, and the order of society. Our obsequiousness to our superiors more frequently arises from our admiration for the advantages of their situation, than from any private expectations of benefit from their good-will. Their benefits can extend but to a few, but their fortunes interest almost every body. We are eager to assist them in completing a system of happiness that approaches so near to perfection; and we desire to serve them for their own sake, without any other recompense but the vanity or the honour of obliging them. Neither is our deference to their inclinations founded chiefly, or altogether, upon a regard to the utility of such submission, and to the order of society, which is best supported by it. Even when the order of society seems to require that we should oppose them, we can hardly bring ourselves to do it. That kings are the servants of the people, to be obeyed, resisted, deposed, or punished, as the public conveniency may require, is the doctrine of reason and philosophy; but it is not the doctrine of Nature. Nature would teach us to submit to them for their own sake, to tremble and bow down before their exalted station, to regard their smile as a reward sufficient to compensate any services, and to dread their displeasure, though no other evil were to follow from it, as the severest of all mortifications. ... Even when the people have been brought this length, they are apt to relent every moment, and easily relapse into their habitual state of deference to those whom they have been accustomed to look upon as their natural superiors. They cannot stand the mortification of their monarch. Compassion soon takes the place of resentment, they forget all past provocations, their old principles of loyalty revive, and they run to re-establish the ruined authority of their old masters, with the same violence with which they had opposed it.  (emphasis added)

I marvel at the way Smith so accurately captures the relationship between ruler and ruled and how deference and favor play a role in maintaining the hierarchy of social relationships.  These principles apply even in elected government.  Think about how the Walker administration has tried to control the will of the people.  From the DOA rules governing assembly to the rules imposed on dissent in the galleries to the fraudulent claims of excessive damage to the Capitol, so much deference is demanded of the people by their rulers we've become a satrapy rather than a republic.

Smith is getting at the true nature of power: hierarchy.  Power is the ability to rule over others, whether you're elected to that position or anointed by god, it doesn't matter.  When incumbency rates run at 80% for American elected officials, what's the difference?  Redistricting ensures safety for the rulers from accountability to the ruled.  And conservatives lap it up.

Ultimately, to Recall Scott Walker is to commit, to the conservative mind, the grievous sin of regicide.  The recall petitioners are to the conservatives,  in Smith's words, traitors who conspire "against the life" of  Governor Walker and are thought by them to be "a greater monster than any other murderer."  The deference of conservatives to Walker and their advocacy for him as a victim of the Recall fits right into the frame constructed by Smith.

Enthrallment was never so obvious than at the Celebrate Scott Walker rally.

We are eager to assist them in completing a system of happiness that approaches so near to perfection; and we desire to serve them for their own sake, without any other recompense but the vanity or the honour of obliging them

However, the most grievous sin to the conservative mind, according to political scientist Corey Robin*, is the inversion of the established social order; the ruled become the rulers followed by the destruction of the hierarchy that conservatives find so necessary.  His book, The Reactionary Mind explores this in detail.

One thing to note, Smith warns us "regicides" that revolutionaries can "easily relapse into their habitual state of deference to those whom they have been accustomed to look upon as their natural superiors."  We must continue to pressure the Recall forward, especially with independent and moderate voters who are more apt to revert to the status quo of tyranny than are people actively engaged in the revolution.

I'm always fascinated when history rhymes….

*Corey Robin is quite responsive on Twitter so if you want to ask him a question about his work, he's really good at responding.  You can follow him @CoreyRobin.  For more on Adam Smith and the revolutionary sentiments of the Enlightenment, he recommended (to me on Twitter!) Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment by Emma Rothschild.

Suicidal Tendencies: Democratic Capitalism as Death Kult

Philip Pilkington, in an piece taking issue with the tepid review of the future of capitalism in The Financial Times, remarks:

WWII gave politicians and policymakers the gall to unbalance the budget sufficiently to restore the economy. It also gave them the space to rejig the taxation system in a way that made it far more sustainable. If anyone objected, well, they were moving against the war effort, anti-patriotic and hence excluded from the debate.

What lessons should be taken from this? Quite simple ones. Democratic capitalism is a deeply dysfunctional, perhaps even suicidal system. In the good times capitalists and financiers gain ever more power to influence politicians and, after a brief retreat when crisis occurs, they continue to hold this influence when the deflationary pressures set in. Meanwhile, the policymakers convince themselves that the government budget is the same as a household budget – and in this are supported by numerous economists. This leads to a sort of ‘perfect storm’ situation where the budget deficit becomes the main issue of the day and all else is ignored, including the declining economy.

George W. Bush and Barrack Obama never asked Americans to make the requisite revenue sacrifices to realign the economy to sustainability the way FDR did.  Instead, they convinced themselves and those too ignorant to pursue the truth, that we can cut our way to prosperity.  Western democracies are being led by poll watchers, not leaders.  Men and women, on both sides of the aisle, pander to the know-nothings who think that tax cuts lead to prosperity, deficits are always bad, and why can't the government balance their budget?

The treasury is not at all like your checkbook, you fools.  Balance is not necessarily a good thing.

The unnecessary pain inflicted upon us when leaders obsess over debt and deficit is just stupid.  We're clearly too dumb as a nation (or perhaps a species) to learn from our history or from the data.

Diffuse Capitalism -or- Mitt Romney the Wage Slave

Marxist writers are often vitriolic and prone to hyperbole when discussing their favorite subject: Capitalism.  Slavoj Žižek is not one of those guys.  He is a dialectical-materialist philosopher and researcher at the Birkbeck School of Law, University of London.  In the latest issue of The London Review of Books he teases apart some bits and pieces of modern capitalism.  As I read the piece (WikiPedia at the ready!), this struck me as particularly insightful when considering the former role of Mitt Romney at Bain Capital.

The context here is the link between the rise of productivity and the rise of unemployment and the role of the new form of, what I'm calling, diffuse capitalism plays in that synergy.

If the old capitalism ideally involved an entrepreneur who invested (his own or borrowed) money into production that he organised and ran, and then reaped the profit from it, a new ideal type is emerging today: no longer the entrepreneur who owns his company, but the expert manager (or a managerial board presided over by a CEO) who runs a company owned by banks (also run by managers who don’t own the bank) or dispersed investors. In this new ideal type of capitalism, the old bourgeoisie, rendered non-functional, is refunctionalised as salaried management: the members of the new bourgeoisie get wages, and even if they own part of their company, earn stocks as part of their remuneration (‘bonuses’ for their ‘success’).

This new bourgeoisie still appropriates surplus value, but in the (mystified) form of what has been called ‘surplus wage’: they are paid rather more than the proletarian ‘minimum wage’ (an often mythic point of reference whose only real example in today’s global economy is the wage of a sweatshop worker in China or Indonesia), and it is this distinction from common proletarians which determines their status. The bourgeoisie in the classic sense thus tends to disappear: capitalists reappear as a subset of salaried workers, as managers who are qualified to earn more by virtue of their competence (which is why pseudo-scientific ‘evaluation’ is crucial: it legitimises disparities). Far from being limited to managers, the category of workers earning a surplus wage extends to all sorts of experts, administrators, public servants, doctors, lawyers, journalists, intellectuals and artists. The surplus takes two forms: more money (for managers etc), but also less work and more free time (for – some – intellectuals, but also for state administrators etc).

The appropriation of surplus labor value from employees is now run through the normalizing filter of "wage" collapsing the distance between manager and the employee.  The distinction is now only a question of degree (wage) and not of kind (capital v labor).  Clever, no?

So Romney, the classic example of a capitalist, becomes just another wage slave.  I'm impressed...

Zombie Talking Point #22: If Only America had a CEO!

Overheard on Movement Conservative Joe this morning, some of the very reasons that we can never, ever, ever let Republicans run any part of our government ever again.

1. America is going bankrupt
2. We need a balanced budget amendment
3. Medicare costs are out of control
4. America needs a CEO, not a politician
5. Mika needs to "take her partisan hat off" according to Joe Scarborough (R-1%)
6. If the President ran the country like a business, then we would be living in a land of magic sparkle pony fairy dust and we'd all get lollipops

Ok, I kind of made that last one up, but you get the idea.  We won't get lollipops.  In the space of 2 minutes, Joe spewed the most vacuous crap all the while telling Mika to "take her partisan hat off," because apparently none of these are partisan issues, except for all of them.  This is one of those irregular verbs, isn't it?

• I am objective
• You are a partisan
• He/She is a leftwing/rightwing crank

Here's some quick debunking...

1. America cannot go "bankrupt" so long as she has a sovereign currency.  We are not a corporation.  We are a nation.  There's a difference.
2. Balanced budget amendments are palliatives at best, dangerous weapons of mass economic destruction at worst.  Depending on how it's written, a BBA could send America into a permanent depression.
3. Medicare represents 17% of Federal healthcare spending. The problem isn't healthcare, the problem is private health insurance.  Single payer would resolve this issue.  Medicare costs are rising substantially slower than private health insurance costs.  And the VA, a large socialized medical system has the tightest cost controls in America delivering far better care for far fewer dollars.
4. George W. Bush. QED.
5. Joe, STFU
6. George W. Bush. QED.  Again.

Zombie Talking Point #17: We're Becoming Greece!

Or Italy, or Ireland, or Portugal or now even France.  No... We're not like them at all.  Anyone who tells you that we are is either lying to you or is too stupid to understand why the United States (like the UK) is in a much different circumstance.  We are not like the Eurozone.

Greece, Italy, Ireland, Portugal, France, Germany and all the other Eurozone countries share more than just a common currency.  They share a common monetary policy.  This means that they rise and fall as a group.  The problem is, they don't share a common fiscal policy.  The United States does not suffer from this untenable policy divorce.  Why is this important? Because.  It severely limits the response these nations have to economic turbulence.

Consider how France, for example, would have responded in the 1990’s to a substantial decline in demand for its exports. If there had been no government response, production and employment would have fallen. To prevent this, the Banque de France would have lowered interest rates. In addition, the fall in incomes would have automatically reduced tax revenue and increased various transfer payments. The government might have supplemented these “automatic stabilizers” with new spending or by lowering tax rates, further increasing the fiscal deficit.

In addition, the fall in export demand would have automatically caused the franc’s value to decline relative to other currencies, with lower interest rates producing a further decline. This combination of monetary, fiscal, and exchange-rate changes would have stimulated production and employment, preventing a significant rise in unemployment.

But when France adopted the euro, two of these channels of response were closed off. The franc could no longer decline relative to other eurozone currencies. The interest rate in France – and in all other eurozone countries – is now determined by the European Central Bank, based on demand conditions within the monetary union as a whole. So the only countercyclical policy available to France is fiscal: lower tax revenue and higher spending.

While that response implies a higher budget deficit, automatic fiscal stabilizers are particularly important now that the eurozone countries cannot use monetary policy to stabilize demand. Their lack of monetary tools, together with the absence of exchange-rate adjustment, might also justify some discretionary cyclical tax cuts and spending increases.

The Eurozone countries are, in effect, completely restrained by the policies of an un-elected ECB.  But these nations are also attempting to rein in spending at the same time that monetary policy is contracting.  This is a recipe for depression.  Their deficits are not structural, they're cyclical. Yet the governments of the Eurozone are behaving as if they face structural deficits.  They're using austerity measures to cut government spending when that is the worst thing you could do.  It's pouring gasoline on a raging brush fire.  It's obvious that none of these countries posses sufficient economic velocity to escape the gravity well of the depression that it pulling them down.

The problem for the US?  If Europe really does slip into depression, this will have a significant impact on US exports.  That will drive the US economy closer to recession at a time when a fragile recovery is underway.  That, my friends, would be very, very bad.

The Economics of Misery

Economics has real, unpleasant, even destructive consequences for the people of the world.

Over the last three decades, economists played an important role in creating the conditions of the 2008 crisis (and dozens of smaller financial crises that came before it since the early 1980s, such as the 1982 Third World debt crisis, the 1995 Mexican peso crisis, the 1997 Asian crisis and the 1998 Russian crisis) by providing theoretical justifications for financial deregulation and the unrestrained pursuit of short-term profits. More broadly, they advanced theories that justified the policies that have led to slower growth, higher inequality, heightened job insecurity and more frequently financial crises that have dogged the world in the last three decades... On top of that, they pushed for policies that weakened the prospects for long-term development in developing countries... In the rich countries, these economists encouraged people to overestimate the power of new technologies..., made people's lives more and more unstable..., made them ignore the loss of national control over the economy..., and rendered them complacent about de-industrialization... Moreover, they supplied arguments that insist that all these economic outcomes that many people find objectionable in this world - such as rising inequality..., sky-high executive salaries... or extreme poverty in poor countries... - are really inevitable, given (selfish and rational) human nature and the need to reward people according to their productive contributions.

In other words, economics has been worse than irrelevant. Economics, as it has been practised in the last three decades, has been positively harmful for most people.

Ha-Joon Chang, 23 Things They Don't Tell You About Capitalism. Bloomsbury Press (2011)

The Euroslide Continues

You might have heard that the S&P downgraded several European nations this week.  What you probably didn't hear was why.  Hidden in the appendix of the downgrade report is this gem.

In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone.In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery". As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.

While "fiscal profligacy at the periphery" is still part of the S&P equation, the ratings agency now recognizes that the capital flow imbalances between the "core" and the "periphery" played a major part in destabilizing the Eurozone.  Austerity is driving the Eurozone to default and it won't stop until they recognize that the Euro is a failed experiment.

Why did this happen?  In a nutshell, Germany didn't play fair in the Eurozone.  They treated the Eurozone periphery as a "captured market" for German exports.  By keeping their employment high and their inflation low, they were able to maintain a significant trade surplus with the periphery, thereby extracting capital from the peripheral countries.  This imbalance impoverished those peripheral countries.  Combined with the rampant core-zone speculation in the periphery (Greece in particular) pretty much guaranteed the failure of the system.

What we're witnessing is a validation of MMT and a complete repudiation of neoclassical economics.  Nations without their own currency are subject to monetary destabilization from outside.  Nations with a sovereign currency do not run this risk.

Refactoring Time

I started blogging a few years ago, but I was never really dedicated to it.  I'd post a bit here and a bit there, but I didn't have the interest or the drive to keep it going.  It wasn't until Scott Walker attacked the working men and women (my lovely wife in particular) that I truly found my muse.

I created The Masses, in honor of John Reed who was a first-hand witness to the 1917 Russian Revolution.  Reed wrote about the classless society that briefly arose from the uprising of the proletariat only to be undermined and ultimately corrupted and crushed by Stalin and his thugs.  I admire Reed for his optimism and his dedication to the cause of working people.

I created The Masses because I felt (more than saw) a kind of revolution coming.  I could feel it in my soul that America was nearing an economic and social breaking point.  Marching with 100,000 people around the Capitol in Madison said to me "Things need to change!"

Indeed, at that time, capitalism itself seemed on the brink of collapse.  I had no illusions that we'd get a "worker's paradise."  No, capitalism would survive despite the best efforts of the financial capitalists to kill it, but I thought we might at least shift the dialog.  Fair Markets instead of just Free Markets.

I started reading economics blogs, I took a macroeconomics class at UW Waukesha (as one conservative detractor calls it, the Junior College) and spent time exchanging e-mails and comments with economists around the world in an effort to better my understanding our collective circumstance.

I followed (and still follow) the events unfolding in the European macroeconomy.  Greece was a long obsession of mine as we watched the failure of expansionary austerity wreak havoc on the Greek economy and the Greeks themselves.  They took to the streetsThe fate of nations hangs in the balance.  Indeed, the unwinding of the Euro could be the most fascinating and catastrophic economic event we're likely to witness in our lifetimes.  Excitement abounds!

For the longest time, I focused on a few topics that I deemed critical to our state and our nation.  I spent a lot of time reading and learning about economics because I believe that a sound footing in macroeconomics and a systems-oriented understanding of our modern global economy is the only way we're going to survive.

With my background in anthropology and statistics, I chose to blend my formal training in social science, my semi-formal and informal learning in economics and my interest in data-driven policy to offer a forum for others to discuss these complex policy circumstances.  But somehow that hasn't been happening lately.  It's been all about politics and who did what to whom.  Pot shots and smack downs.

It would seem, then, that I have lost my way.

Upon reflection, I just got wrapped up in the politics of recall.  It was exciting!  It was fun! It hinted at revolution!  Poking conservatives in the eye got to be a fun hobby.  Pointing out the error of their ways became the main point of my posts.  But eventually the fun wore off.

Don't misunderstand me, Scott Walker has got to go.  His economic failures are enough to remove him.  His fiscal policies have exacerbated Wisconsin's economic downturn making us one of the worst economic performers in the nation.

It's time to go back to what I know and what (I've been told) I do best.  More economics, more healthcare, more policy, less politics.

I reserve the right to post a snarky article or two from time-to-time, but I'm going to stick with the policies of economics and society and leave the politics to those who have more patience for the excruciating minutiae of political discourse in 21st century America.

BloggingBlue ate my Brain (and my time)

I know I've been totally remiss in my blogging here, but I plan to make it up in 2012 and do more cross-posting between here and BloggingBlue.  I promise...