Tyler Cowen, a conservative economist who’s very good when it comes to finding a good restaurant, is further off base in this editorial, where he attributes the lack of expansionary fiscal policy to “broken trust.”
Since Mr. Obama took office, 780,000 private sector jobs have been created, while the number of public sector jobs has fallen by about 600,000, mostly at the state and local level. A quick look might suggest that we need only to bolster the number of public sector jobs to have a healthier economy, but there is a deeper way to think about the problem.
State and local governments are controlled by politicians and, indirectly, by voters. And for better or worse, those voters have lost faith in the social returns of these jobs and our ability to afford them. The voters have responded by looking to cut expenses, and they’ve chosen state and local government employment as a target.
You could write a book about the loss of faith in institutions and particularly the government; actually, Chris Hayes has (which allows me to plug the FDL Book Salon I’m moderating with Chris on Wednesday afternoon!). But state and local governments aren’t controlled by politicians and voters, at least not when it comes to their budget situation. They are controlled by Constitutionally-prescribed balanced budget amendments. That’s true in every state but Vermont. States cannot run budget deficits. As a result, when the economy goes into a downturn, they have to either cut spending or raise taxes. They certainly have a choice on that front, and while many states have increased taxes, many more have cut back on their public sectors. But whether or not to engage in austerity isn’t much of a choice for the states.
The federal government, on the other hand, has a choice. They could subsidize the states to smooth over their deficits. In the Recovery Act and a subsequent Education Jobs bill they did so, but to a minor degree. And I’d be willing to accept an argument that people feel ambivalent about deficit spending or higher taxes because they don’t see a genuine return on investment. But this also is a function of the options being artificially narrowed by gatekeepers. Witness for example the conceit that near-term stimulus must be paired with long-term deficit reduction. This has dominated official punditry on the budget situation since 2010, and yet it has not made it any easier to get either near-term stimulus or long-term deficit reduction. Mike Konczal, in a welcome piece, demolishes the very idea that these two must go together.
It’s never very clear why these two must move together. The more aggressive argument is that the market will panic and raise interest rates if the long-term deficit is not addressed, immediately canceling out the stimulus. The more widely used version is that stimulus now would increase the longer-term debt, hence making the longer-term challenges worse and the crises and challenges occur more quickly.
This is why something like Delong-Summers paper “Fiscal Policy in a Depressed Economy” is so important. It finds that “under what we defend as plausible assumptions of temporary expansionary fiscal policies may well reduce long-run debt-financing burdens.”
As Seth Ackerman noted, there’s something gleeful in seeing Delong-Summers, in their focus on hysteresis in Europe, dismiss the “principal alternative theory was that high unemployment in Europe in the 1980s and 1990s” as “principally a supply-side phenomenon…and rigid labor market institutions… See Krugman (1994)” in a footnote (!), as if that’s not a major reversal or anything. But the argument that, from the debt-to-GDP point of view, fiscal stimulus in a depressed economy is a smart investment by itself, is important for countering the idea that it must be linked to something else in the long term.
The truth is that what Peter Orszag calls “the barbell approach, with stimulus now and austerity later, is not a necessary condition for improving the economy today. Orszag’s arguments in favor of it are all political. He says that stimulus-only proposals cannot pass, that the debt limit looms in the background to make stimulus-only proposals impossible, and that credibility in the markets requires long-term deficit reduction. First of all, the grand bargain can’t pass either, or at least it hasn’t. And trying a stimulus-now, austerity-later plan hasn’t appeased anyone on the debt limit, either. Finally, I don’t know how much clearer the markets can make it that they want deficit spending immediately to improve the economy. They’re already willing to pay the United States to borrow.
As Konczal says, these supposedly intractable political problems are artificially rendered by elites. This is why mainstream book reviewers simply cannot understand the views of a book like Paul Krugman’s. PKrug has no use for the elite policy orthodoxy about structural unemployment and the need to “provide certainty for the markets” on the deficit. He’s arguing what you would have to do to get the economy out of what amounts to a depression. The notion of the politically possible is a function of framing by politicians. If you want answers, don’t ask the man who only raises new questions.





12 Comments


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I would push Konczal’s argument much further. It’s not just that Cowen has been consistently wrong about the depression and how to get out of it. It’s not just economics. Cowen represents the view that the public is not entitled to have politicians pay attention to the public’s preferences.
So poll after poll can say they don’t want to cut Social Security or Medicare, don’t want to savage the EPA or other government services, don’t want to lay off teachers or firemen/policemen, but they do want to raise taxes on the rich, increase the payroll tax cap to cover any future SS shortfall, did want a public option and not just a mandate to purchase private insurance from companies they don’t trust, and on and on. They didn’t want the GOP to force the government to shut down. They didn’t demand a grand bargain at 1:1 or 10:1. And the politicians on both sides said they can’t have what they asked for but must accept the opposite. And the meaning of austerity in Europe and the elections, in which every electorate keeps saying NO to the current policies is that the same “breaking of compact” is going on. Elites are simply refusing to abide by democracy, which is short for “the GOP strategy.”
Yet Cowen chooses to ignore the most obvious examples of the elites breaking faith and pretends that the public actually wants the radically destructive polices of his party. The man is a charlatan.
As for the states and their budget cutting, if you have to balance your budget, and the Federal government refuses to provide national support, and you refuse to tax the rich, you have to cut public services and employees. That means education and teachers, public health and first responders, etc. Those are the only choices left, given the lack of responsible actions by anyone else.
This has absolutely nothing to do with the public losing faith in government — in public education, or health/safety protection or firemen — unless he means losing faith in government’s willingness to accept the clear preferences of a democracy. Tyler thinks the GOP is following the public’s desire, but all the polls say the opposite.
Tyler Cowen, a
conservative economistcomplete hack.“State and local governments are controlled by politicians and, indirectly, by voters”
This propaganda leaves out one essential actor: Corporations. Government at the local level functions similarly to government at the federal level when it comes to these business interests who are given tax breaks to come to town. The politicians who support these tax breaks typically benefit personally from advancing the interest of these businesses (see especially private prisons). When the public bills can’t be met because these companies aren’t paying their fair share of taxes, social services and public sector jobs are about the only places the funds can come from to balance the budget. The companies can’t be asked because they connived with public officials for their deals in the first place. If they are asked to pay taxes, the companies frequently leave instead.
But Cowen would have us believe the public wants to get fucked over with fewer public services and decent jobs in exchange for corporate profits that are designed not to trickle down and private sector jobs for lower pay and benefits. Cowen supposedly turns his ear to masses and hears, “Thank you, sir, may I have another?
That’s complete hack for the elitist to you buddy and don’t you forget it:)
Sadly a somewhat significant portion of our populace has drunk the Kool Aid and agrees with this notion. Sadder still, I see almost daily letters to the Editor of my Nooz paper venting & ranting about how horrid Union and/or Public Sector jobs/workers are. It’s all: off with their heads & make it snappy!!
Otherwise, though, I suspect that even those citizens who wish to do away with Unions and nearly all Public Service work (privatize the PD! no more public schools! no more public libraries!), these same citizens would probably say: don’t touch my Soc Sec & Medicare.
However, as they’re tossing that bath water out (public sector/union jobs), they are pretty going to see the baby (soc sec/medicare) being tossed out along with it.
Very foolish, but I see and hear these tirades a LOT.
Elites use law and war to protect business models to maintain profit and power, while gaming the system. This was America’s Revolution with the Brits using law and war to shove the Kings business model down the colonist throat, at the behest of English corporations. Like mandates……….
Our founders essentially said “f-off” King!
I say F- off US Congress as you fuck us and protect elites profits, while you folks take money from the maggots that continually fuck US!
What is different here? Nothing! Slave owners initiated war to protect slavery, a business model protected by the US Congress for decades. Slave is to master as US Citizen is to Exxon Mobile et als? BTW So much for competition and offering the consumer value! This is corporate sodomy 101! Madison and Jefferson where spot on with that original 11th Amendment. Scumbag corporations are no better than slave owners when it comes to challenging the rule of law or outright buying of law to enslave a specific group of people or a nation. Servitude, bought and enabled under the color of law is still servitude.
Congress only does the bidding of our fascistic masters, who use huge sums oked by the fascist four on the supreme court to lie and propagandize. Get used to it, you have no say. Look forward to the day of the perp walks against these fascists.
That’s not what Jefferson envisioned. There is a specific Amendment to address that situation….
Calling the letter from Congress “bipartisan” is a bit of a stretch — 23 Democrats, 2 Republicans. And Ron Paul may be a Republican largely in name. The other Republican:
http://jones.house.gov/
I have mixed feelings about Ron Paul. But I definitely like his response here:
http://www.youtube.com/watch?v=Wk3qQhMWEfg
A little longer version provides contrasts with other also-rans:
http://www.youtube.com/watch?v=ZjwHYEcFEJE
No word on Mitt’s position, though most canines are a bit cautious.
I am beginning to think some economists live in a fact free world.
Or else why do they ignore studies that show little correlation between lowering taxes and lowering product costs or raising employment.
Why do they ignore studies that show innovation is significantly stifled by profiteering
or that more “competition” does not seem to lead to more innovation because nobody wants to bet on the unknown except the government.
How blindered is the view our elites wish to impose on us?
Nicholas Wapshott’s recent book, Keynes Hayek (which was the focus of a recent Book Salon), would have us believe that the primary economic battle of the century, perhaps of all time, was between John Maynard Keynes and Friedrich Hayek — and in order to make this sound plausible must all but completely ignore Karl Marx, who gets fewer references than the hackmeister Mises.
Indeed. People who couldn’t afford to pay for many services if they were privatized are championing efforts in this direction that have been instigated by people who can afford to pay. Very strange. But that’s where fear and thoughtless deference to “leaders” gets you.