Paul Zrimsek in the comments below offers us this gem:
Last but perhaps not least among causes of the consumer funk is the administration’s own determined pessimism. Mr. Bush has a bully pulpit, and he is using it to preach economic alarm. This adds powerfully to the chorus of doomsaying. And when it comes to short-term economics, believing can sometimes make it so.
Oh snap!
In response to my post below, friend and former colleague Ryan Avent writes:
This is just too cute. The paradox of countercyclical macroeconomic politics is only a paradox if you believe that the current recession is the result of equal parts Democratic fear-mongering and facts on the ground. But can any sane person actually believe this? Does anyone really think that Barack Obama’s acknowledgement of economic reality and the op-ed warnings of lefty economists are the things producing this downturn, or perpetuating it, or deepening it?
I don’t think Ryan understands the cute argument. The cause of the recession is irrelevant. I never even intimated that Democratic fear-mongering caused it. (I think normal periodic breakdown of efficient-ish economic coordination + American houselust + democracy + fancypants finance + executive myopia + regulatory failure caused it.) So does anyone think that pants-wetting op-eds by Presidents and Nobel Prize-winning economists can perpetuate or deepen a downturn? Yes! For example, people like the President or Nobel Prize-winning economist Paul Krugman who believe that countercyclical macroeconomic policy works largely by manipulating consumer and investor psychology. If you don’t think Obama and Krugman’s confidence-destroying disaster forecasts hurt, then you probably shouldn’t accept confidence-restoration theories of stimulus, either. Or maybe Ryan knows of some research that shows that badly-targeted tax cuts and infrastructure spending effectively boost confidence and buoy markets while doomsaying from the most powerful man on Earth means squat. That would be interesting to see.
Like the president, Krugman seems firmly caught in the paradox of countercyclical macroeconomic politics. The intermediate-level textbook theory says that at times like these we need a certain kind of policy to steady the economy’s nerves and lubricate consumption and investment. The economics says we need confidence. But political reality says we need panic. So we try to induce panic so that we can later induce confidence. This seems an extremely awkward and implausible approach, but that doesn’t keep anyone from trying it.
The deeper problem, I think, is that the textbook theory doesn’t have any politics in it. In macroeconomics textbooks, government is a benevolent central planner beyond politics. It is assumed, for simplicity’s sake, that governments can act in perfect compliance with theory. It is also assumed that theory is settled before coming to a policy problem, that motivated disagreement over theory is not an essential element of democratic policymaking. But of course, there is politics, which trashes hope of either consensus on or compliance with theory. And that’s how we ended up with the legislative monstrosity actually under consideration in Congress. As Harvard’s Robert Barro puts it:
This is probably the worst bill that has been put forward since the 1930s. I don’t know what to say. I mean it’s wasting a tremendous amount of money. It has some simplistic theory that I don’t think will work, so I don’t think the expenditure stuff is going to have the intended effect. I don’t think it will expand the economy. And the tax cutting isn’t really geared toward incentives. It’s not really geared to lowering tax rates; it’s more along the lines of throwing money at people. On both sides I think it’s garbage. So in terms of balance between the two it doesn’t really matter that much.
The economists can duke it out over the possibility of successful fiscal stimulus. But is there any reason based in up-to-date economic theory to believe that this trillion dollar deficit-spending bill is not, as Barro says, garbage?
Krugman is plumping for it anyway. Hard. So what can one say about Krugman? That he is a creature of extraordinary double consciousness. Perhaps more than any economist of his caliber, Krugman understands that policy is largely determined by the outcome of the public opinion shoutfest. Yet this recognition seems to have no effect on Krugman’s ideas. Rather than bring inside his models disagreement over economic theory and the lack of political incentive to faithfully apply them, which would lead him to radically revise his prescriptions, Krugman leaves his textbook theory untouched and simply tries to win the shoutfest. Krugman’s often unbearable stridency seems to reflect an attempt to overcome the problems of democratic disagreement and incentive compatibility through sheer force of will–as if the deep reality of politics is no match for the rhetorical gifts and gold-plated reputation of Paul Freaking Krugman. It is as if his own imagined ability to singehandedly overwhelm the opposition is part of Krugman’s implicit model of how a politics-free macoeconomic theory can be made politically relevant in a time of perceived crisis, which is to say, a time of rank political opportunism.
One can see this attitude reflected in Krugman’s advice to Obama, who he says “made a big mistake” by failing to mercilessly bully his opponents into submission:
It’s time for Mr. Obama to go on the offensive. Above all, he must not shy away from pointing out that those who stand in the way of his plan, in the name of a discredited economic philosophy, are putting the nation’s future at risk.
As Krugman sees it, the big problem here is Obama, who lacks Krugman’s intransigent will to mercilessly crush any who would dare keep cartoon Keynesianism from coming to life.
Keep in mind this is legislation that Krugman admits would do little more than “improve our odds.”
This is great, but Cialis, et al. really work! This should probably be based on an Enzyte “male enhancement” spot.
So the President has taken to the pages of the Washington Post to freak people out over the terrifying, irreversible devastation that will befall us if the world-sized deficit spending bill doesn’t clear the Congress. If you’re into the macroeconomics-as-mind-control game, this is a bit of a paradox, isn’t it?
In order to “restore confidence” we are alleged to require interventions contained in the deficit spending bill. But the bill won’t clear Congress unless the President succeeds in terrifying the public into clamoring once more for his spending extravaganza kludge. So, the idea seems to be that in order to save the economy, you’ve got to get people to flip out first, so that you can do what it takes to calm them down later. This may seem a bit like dumping gas on a person on fire so that they can more easily burn through the wall standing between them and the lake. But I’m sure this feat of psychological needle-threading can be achieved with laser-like accuracy by deploying the virtuoso mood-management skills of Obama’s first-rate team of applied mathematicians.
Kevin Grier’s comment on the following section of Obama’s lamentation is pretty special:
This recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse. …
People, an irreversible recession means that GDP will shrink to zero and the USA will cease to exist. Can it really be that Porkulus is the only thing standing between us and extinction?
It’s Porkulus or starvation, nation. Choose sides carefully.
Mario Rizzo makes an important point. If, like Olivier Blanchard, you think the economic problem is pervasive “Knightian uncertainty” (i.e., folks don’t even know how to construct the relevant probability distributions, and so can’t begin to think about the expected return of various economic bets), then how is, say, federal fiscal policy supposed to help?
TARP money was going to be spent this way, and then that way, and then this way again. I was pretty sure the so-called “stimulus” package was going to pass the Senate, but then it didn’t! Now they’re changing the composition of spending and tax cuts. Once a bill is passed, how am I supposed to know it’s going to be reliably implemented? Maybe things get hung up because every single member of the Obama administration turns out to be a tax-evader and/or lobbyist. I mean, it looks to me like politics is pretty chaotic.
I know this fact has got to be supremely annoying if you’re a very confident technocratic macroeconomist type who knows what to do to abolish Knightian uncertainty. But it turns out that even the brightest and best of the best and the brightest, like Blanchard, are mere sideshows in the colorful, helter skelter carnival of American democracy. Precisely calculated monetary targets can be established and then ignored. Rigorous cost-benefit analysis may indicate the wisdom of a new bridge, which may be promised, and then left unbuilt. I realize that it is not helpful to sow uncertainty when we all need to take a deep breath, get in line behind the big boys, and calmly follow their advice. But it’s also not clear to me why the big boys think government economic policy is to uncertain souls what Baby Gold Bond is to diaper rash.
[R]ecessions can make many, or even most people materially better off, because wages are sticky downward and prices are much less so. Most of what recessions do is deepen the gap between the haves and the have-nots. Those who have a job may experience declining costs and actually improve their purchasing power. But the number of the unemployed rises, the length of the time required to find a new job stretches out, and the net decrease in their welfare far outstrips the moderate increase in the purchasing power of most consumers.
I agree with the gist of Megan’s message here. But about that gap between the haves and the have-nots… My sense is that income inequality as measured by, say, the gap between the median of the bottom decile and the median of the top decile, has fallen sharply due to super-huge finance-related losses at the top. I’m pretty sure this big tumble at the pinnacle swamps the small gains in real wages for those with steady jobs. So the gap between the haves and the have nots may have narrowed overall, despite rapidly climbing unemployment. But who cares?! Maybe now some egalitarians will grasp the irrelevance of Gini-style measures. The fact that inequality tends to decline during recessions isn’t some kind of silver lining of recessions. In recessions, lots of people suddenly become have-nots, and that’s a serious problem whether or not the have-a-lots are more than proportionally slammed. Once the economy, and income inequality, starts to pick up again, the real problem will the same as ever: the opportunity and welfare of the have-nots, not some silly, meaningless ratio.
It just goes on and on, this talk of confidence, animal spirits, and what not. It now seems pretty plainly true that the thrust of prescriptive macroeconomics is propaganda. That’s why, in this post, I wasn’t even joking when I asked whether anyone had empirical evidence for the poor economic effects of state-sponsored propaganda, or whether we’ve just given up on it because we think it’s wrong.
Anyway, Robin Hanson, picking up on the macro-as-mind-control meme writes:
The consensus among macro-economists seems to be that people can in fact be fooled by such stimuli, but as Tyler indicates, it is not clear which policies most fool us. In particular, the more public attention we give to the stimuli, the less they might work. We might make people realize that they need to compensate via saving, and the more we scare folks into thinking we need huge stimuli, the more we might scare them away from normal economic activity levels.
So should we stop explaining macro-economics during this crisis, and stop saying how desperately we need stimuli?
The answer, of course, is that no one knows–especially not the macroeconomists!
Will Ambrosini is annoyed by all the macro bashing, and says that one can see that modern macro is successful, if one knows about the best new stuff. But when asked in comments what advice he’d give the president, Will says:
I’d have him give speeches about positive prospects for growth (”your company will turn the corner! your wages will go up!”); I’d have him talk about how this recession is a short term bump in the road. No more talk about how shitty things are (without, of course, denying the statistics… I assume Obama’s a better rhetorician than I am). Pessimism feeds on itself so to the extent the president controls expectations, he should try to improve them. Even though I don’t think the President has that much control over expectations, I think Obama’s rhetoric of transformation is more useful than his rhetoric of crisis.
I’d advise him that any actions he takes should reinforce his positive message.
Well, why not try this?
Or this:
Or this:
Somebody please tell me why anyone thinks Larry Summers is better at mass mind-control than Scarlett Johansson?
In case you forgot, here’s what objective political news analysis looks like. Shockingly straightforward! I think the problem with the American media is that it’s full of Americans who overestimate the importance of American micro-politics, and so, consciously or subconsciously, undertake every damn story as a public-opinion-shaping framing our counter-framing exercise and eventually forget how to report the obvious interpretation of events. This isn’t willful. The obvious interpretation of events has simply become invisible to their team-spirited minds. This is not to say that there isn’t, at the the same time, a very strong sense of the professional obligation to be “objective,” but that tends to manifest itself as pretending to take the other team’s talking points seriously, which is really not at all what objectivity requires.
Nancy Rosenblum’s apology for partisanship put me in mind of some thoughts on the perils of strong party identification in the section on inequality and democracy in my forthcoming Cato paper.
[T]he danger of “capture” in democratic politics is not primarily a matter of systemic conflicts of economic interest between those occupying different strata of the income distribution. Rather, the problem is that political power in democracies flows to those able to put together winning electoral coalitions, and this ability necessarily involves maintaining the loyalties of special interests whose demands may not be in the public interest.
[...]
[W]e’re unlikely to make real progress in improving the quality of public policy if otherwise sophisticated minds continue to be surprised by the fact that the party promising security may leave us less secure, or that the party promising to lift up the poor may leave them stranded. Strong partisan identification is dangerous because it can pressure even the best and brightest into accepting that the policies best for the electoral success of their favorite party — a fragile and contingent consortium of often conflicting interests — will somehow turn out best for the country.
[...]
It is not enough for the privileged and the powerful to wish with their whole hearts to make ours a society in which all people have a real chance to make the most of their liberties and lives. Our democracy has to deliver the policies that can actually make this happen. But just as special interests can capture democratic coalitions, our coalitional minds can be captured by democratic politics. What the poor need is not party faith, but good faith in the effort to find policies that really deliver.
That “our coalitional minds can be captured by democratic politics” is my main concern about partisanship. Party ID can become a powerful social signal of moral rectitude. But electoral dynamics provide strong reasons to believe that each major party must rule out of bounds some policies that would be best for the poor. Perversely, the more strongly a particular party ID signals care for the poor, the more protected will be large factions within the party whose interests oppose the poor. This is how our coalitional minds reason: Because the success of the party is so important to the welfare of poor, and these factions are so important to the successes of the party, their interests are ipso facto important to the welfare of the poor. And so their actual antagonism to policies in the interests of the poor becomes most invisible to those most eager to communicate their solidarity with the poor through party identification. Our need to signal care can produce viciously careless results.
We might as well move macroeconomic policy to the Office of Faith-Based Initiatives.
- Megan McArdle, out of context.
Some libertarianish and conservatives types sometimes like to think of the territory of the U.S. as a big piece of real estate over which citizens have a kind of shared property right. There are lots of things that are wrong with this way of thinking, especially for people who think their philosophy is grounded in a strongly moral conception of property rights. Perhaps the primary flaw in the national-territory-as-collective-property schema is that very little U.S. territory was gained legitimately. Mostly it was gained in the way political territory is generally gained: war, theft, and purchase from thieves. Some worry about the fact that the Louisiana Purchase was unconstitutional. But why not worry instead about the far more troubling fact that the French state could not have been the legitimate owner of large swathes of land already owned by natives? Can James Polk’s brinkmanship really be principle that determines that I have a stake in what happens in in Portland, but not in Vancouver?
I understand that this is the way the territories of kingdoms, principalities, and states are formed. Colonial criminality drew the map. That’s the way it is. No turning back. But shouldn’t we be long past the idea that these traces of regrettable history have truly weighty moral significance–that the Treaty of Guadalupe Hidalgo or the Gadsden Purchase somehow create deep moral facts about where some human beings should and should not be able to go?
If the discussion of Harvard political theorist Nancy Rosenblum’s On the Side of Angels: An Appreciation of Parties and Partisanship at Jacob Levy’s digs isn’t enough for you, try this month’s Cato Unbound, where Rosenblum makes her case for partisanship in today’s lead essay. In the coming week and a half, we’ll have replies from Cato’s own Brink Lindsey, GW political scientist Henry Farrell, and Stanford’s James Fishkin.
My problem with partisanship in the U.S. is that, due to the structure of the electoral system, there’s really no place for more than two parties. My own disenchantment with active political participation is in part driven by the fact that there is next to no chance that any party I would be willing to join could be a real force in government. I suspect that in the possible world where the U.S. suddenly became a proportional parliamentary system, a party with roughly my politics could pick up a fair number of seats and would have a chance of sharing power in coalition governments. But in the actual world, the best I can do is be a Libertarian and totally irrelevant, or I can join the Democrats or the Republicans and be actively hated, for one reason or other, by my co-partisans. So, no thanks.
I’m curious to see how my partisan sympathies shake out when I suddenly become Canadian.