Sunday, April 29, 2012

Keynesianism on a breathtaking scale, and other odds and ends of mythology

It's fascinating to read Michael Gerson.   His view of things is clear, based on good information, and utterly different from mine. 

In Friday's column he made a long sequence of observations and assertions, and I found nearly all of them seriously debatable---and I mean that.  They not only can be debated, they should be.  I disagree with most of the things he says, but I see why an intelligent, clear-eyed, well informed conservative would say say them, and I think he has identified at least some of the elements of the bigger discussion that has been progressing through a fog for years.  He has identified some of what it is that thinking conservatives (he calls them "reform conservatives") feel, the things to which those of us who feel differently must respond.  

It will take many blog entries to get through all of the issues he raised, so this morning, since time is limited, I'll start by talking about his preemptive preamble, which was as far as I can tell just a sop to the right and a taunt toward the left to grab our interest.   It really isn't a part of the concept he was writing about.  But it's so mistaken, and he and the entire conservative world find it so unarguable, that it has to be countered before we can get to any of the other things in the column.  It's a shame; it seems like an intentional distraction from the larger topic.  But it can't be helped.  We have to clean up this toxic spill before we can get to his other points.

In his first paragraph, he says: "Barack Obama has pursued Keynesian economics on a breathtaking scale, racking up three years of deficits in excess of a trillion dollars and presiding over a national credit downgrade."  This single sentence from the Gerson column is plenty to respond to in one blog post.

So let's take the credit downgrade first.

Obama didn't preside "over" the credit downgrade, presided under it.  Or beside it.  The credit downgrade was a response to debt-ceiling brinksmanship by the far right wing of the House; it was a response to extreme irresponsibility at the highest levels of Congress, not to any action by the executive branch.  The S&P report is here, but a few quick quotes from it are really enough to see this:  

"the downgrade reflects our view that the effectiveness,
stability, and predictability of American policymaking and political
institutions have weakened
at a time of ongoing fiscal and economic
challenges to a degree more than we envisioned when we assigned a
negative outlook to the rating on April 18, 2011."


"we have changed our view of the difficulties in bridging the
gulf between the political parties over fiscal policy,
which makes us
pessimistic about the capacity of Congress and the Administration to be
able to leverage their agreement this week into a broader fiscal
consolidation plan that stabilizes the government's debt dynamics any
time soon."

S&P was absolutely right to be pessimistic about the ability of the political parties to compromise.  But the point that Gerson is trying hard to forget or to ignore is that Obama did not create the credit downgrade; he worked hard, and offered enormous concessions, in an effort to avoid it.  Coming, as it did, immediately after the stubborn refusal of Paul Ryan, Eric Cantor and other Tea Party Caucus leaders to raise the debt ceiling, after the image of rallies in which the audiences held up signs urging Congress to shut the government down rather than raise the ceiling,  S&Ps pessimism explicitly cited the political dysfunction, rather than any financial issue, as its source.   And there really is no doubt where that dysfunction starts.  It's an intentional effort by revolutionaries to disrupt the political process in an effort to impose their vision of how the country should work, and how the government should work.   One party was (and is) so convinced of the rightness of its vision that it was willing to bring the country, our country, to the edge of financial ruin to pursue it. And it was the people that Gerson calls "reform conservatives" who were at the center of that fight, pushing toward the downgrade with all their strength. It was those very people who refused to budge even an atom, even a quantum.  The extremism of the right wing rebellion has created a rift that no one knows how to cross. 

The other half of Gerson's initial taunt is even more wrong.  

Obama did try, at the very outset, to implement a stimulus plan, something that might be considered a Keynsian policy, but hardly on a breathtaking scale: many economists, including some in his own inner circle, said from the start that the stimulus was about half as large as it should have been.  That insufficient proposal was whittled down in negotiations with Congress to something even smaller, and much less stimulative.    

But government as a whole has not provided much stimulus over the last few years.  State and local governments have shriveled, and the net result has been dramatic, and has been a significant contrast to government's responses to prior recessions.  Here's a graph that Paul Krugman recently posted in his blog on this point:

The red and green lines are the responses, the changes in public employment, in the recessions at the start of the Clinton and Bush administrations.  Notice that public employment rose over time in both cases; the total public employment at all levels rose, and helped to provide employment as the recovery progressed.  The purple line is total change in public employment in the current recession.  There was a spike early on, not as a result of the stimulus but as a result of temporary census jobs.  But after that, government has shed jobs, and has increased unemployment, rather than decreasing it. 

The federal government has run large deficits over the last few years, and at least part of these deficits could be called Keynesian stimuli---the payroll tax cuts and similar policies were intended to preserve demand, and the continuation of unemployment benefits and food stamps, while motivated primarily by a desire to assist those in need, did provide stabilizing stimulus.  But the recent federal deficits has resulted not just from increased spending on recession-related aide to the unemployed or other spending, but also from a collapse of revenue, partly due to stimuli from temporary tax changes, but mostly due to the recession rather than to any intentional policy change. 

But most of the stimulating effects that have come from the federal government have been countered, in this recession, by strong contractionary responses, strong austerity responses, from the states.  The net result, from all levels of government, far from being a big Keynesian stimulus "on a breathtaking scale", was at best a mild stimulus, and apart from the initial stimulus bill possibly no stimulus at all. 

The remainder of the Gerson column outlined the tenets of "reform conservatism": that (1) the federal fiscal "crisis" and (2) America's economic challenge in general are a result of excessive use of an inefficient government that is controlled by planning rather than an efficient private sector that is controlled by consumer pressure in an impartial, unforgiving market, and (3) that America's social problems are driven by a "collapse of social capital among the poor", for which the remedy is to "transform the safety net" to "encouraging responsibility and provide training toward integration in the broader stream of American life."

A lot to talk about---but in other posts.


  1. I just some lost my comment on this entry so here goes again. Good start on commenting about Gerson's column. I look forward to reading more. Meanwhile, any idea why apostrophes are being display as ' and quotation makes as " in the comments?

    This is the contraction of it is - it's
    This is a quote - "I think that I will never see"

  2. Well that's interesting. The problem seems to only occur in the comments displayed in the sidebar on the right.

  3. Yep. Not sure what's going on there. But since I have very little time to work on debugging this thing, I may have to just let that go for now.