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January 07, 2013 10:22 AM Impure Compromises Between Unreconcilable Perspectives

By Ed Kilgore

As should be obvious, a lot of the factors that divide progressives from conservatives these days are cultural and psychological. The former tend to view human history as in no small part a slow but steady march towards the liberation of our species from the dead weight of prejudice and privilege, often through collective action to create conditions of social justice, equal opportunity, and openness to innovation and creativity. The latter tend to defend prejudice and privilege as the product of priceless civilization, and fear social justice as contrary to nature, equal opportunity as leveling, and openness to innovation and creativity as a willful lurch towards barbarism. Beyond the “culture wars,” a host of psychological pressures attributable in part to a broken political system have steadily unraveled a rough consensus in favor of liberal or conservative variations on a general theme of regulated capitalism, a mixed economy, and a pluralistic society.

But sometimes the divide between progressives and conservatives comes down to assertion of mutually exclusive interpretations of empirical facts. And we sometimes fail to adequately grasp the extent to which that is true of the economic underpinnings of the current fiscal “crisis,” in which we are heading towards a confrontation in Congress that could produce a debt default and all sorts of terrifying consequences for the national and global economies.

There is no issue on which this Great Divide is more glaring that the explanation of why major corporations (and other investors) are sitting on unprecedented profits. Here’s the most widely accepted progressive interpretation, as presented (as he has done so often) by Paul Krugman:

The story, at this point, is fairly straightforward. The financial crisis led, through several channels, to a sharp fall in private spending: residential investment plunged as the housing bubble burst; consumers began saving more as the illusory wealth created by the bubble vanished, while the mortgage debt remained. And this fall in private spending led, inevitably, to a global recession.
For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.
So what can be done? A smaller financial shock, like the dot-com bust at the end of the 1990s, can be met by cutting interest rates. But the crisis of 2008 was far bigger, and even cutting rates all the way to zero wasn’t nearly enough.
At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn’t have a full replay of the Great Depression.
But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored.

Corporations are sitting on their profits because aggregate demand has taken a dive, and austerity measures aimed at reducing public spending move in exactly the opposite direction from what we need, according to Krugman.

The standard conservative interpretation of exactly the same phenomenon has just been succinctly stated by none other that the Speaker of the U.S. House of Representatives:

The driving passion for Mr. Boehner in these fiscal debates is his conviction that trillion-dollar deficits are sapping the country of its energy and prosperity. When I ask him when the impact of this debt will start to be felt, he says: “It’s already here today. It’s killing our economy. It’s causing investors to sit on their cash. They’re afraid to invest. It’s a wet blanket on top of our economy.”

As an indication of how cultural and empirical factors interact, there’s this additional insight about Boehner’s point of view:

He sees debt as almost a moral failing, noting that when he grew up in a “little middle-class, blue-collar neighborhood” outside of Cincinnati, “nobody had debt. It was unheard of. I just don’t do debt.”

A fine, nineteenth-century attitude to maintain if you can afford it.

The one thing almost everyone agrees on is that continuing uncertainty over fiscal policies isn’t helping. Yet the conservatives supposedly most concerned with assuaging the fears of investors are now threatening a debt default, and in Boehner’s case, a long period of politically engineered crises designed to force big reductions in public spending and radical changes in the social safety net—or else.

That prospect, plus the strong possibility that any “Grand Bargain” on fiscal issues will include policies that pull in opposite directions when it comes to aggregate demand, is why so many of the “debates” on fiscal policy are no such thing. Pols holding diametrically opposed views on objective economic reality but possessing the power to block their adversaries’ preferred solutions are speaking different languages. And this is perhaps why we will never regain sustained, stable economic growth until one party or the other obtains the power to govern according to its own perspectives and then becomes clearly accountable for the results.

It’s hard to see exactly when that will happen, and thus, the fiscal confrontation just over the immediate horizon is not likely to produce anything better than mitigated misfortune and missed opportunities.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • matt on January 07, 2013 10:31 AM:

    if debt is immoral then capitalism is immoral. boehner is an idiot who talks out of his ass.

  • arkie on January 07, 2013 10:40 AM:

    Boehner grew up in a suburban neighborhood where no one had a mortgage?

  • Barbara on January 07, 2013 10:53 AM:

    Well, obviously, Mr. Boehner must support elimination of the mortgage interest deduction, seeing how it isn't actually connected to any legitimately acquired household debt. How weird and out of touch do you have to be to understand that most Americans have negative asset levels, just like Uncle Sam, as a result of mortgage loans, car loans and increasingly education loans?

  • FlipYrWhig on January 07, 2013 11:04 AM:

    What is the causal connection supposed to be between the government running budget deficits and investors being afraid? Afraid of what? Interest rates going up? Higher taxes? I don't understand the conservative explanation at all. I'm very sure I disagree with it, but I don't even understand what "it" is, and I don't think they do either. That's why it so often comes back around in moral terms, that it's just plain bad to owe someone money, full stop.

  • Josef K on January 07, 2013 11:05 AM:

    Yet the conservatives supposedly most concerned with assuaging the fears of investors are now threatening a debt default, and in Boehner’s case, a long period of politically engineered crises designed to force big reductions in public spending and radical changes in the social safety net—or else.

    There's the ignorance factor to contend with as well. Its unlikely many of the newest-elected officeholders really understand what a default would mean to the country and the world. And even if they do, they likely seriously believe they would continue to go untouched by the consequences.

    To be fair, I'm not sure I fully understand the impact of a national default myself, and I've got an Masters with an emphasis in public policy; does the average Joe-on-the-street understand how financial markets interact with his everyday life? I only barely understand the origins of the 2008 financial meltdown, never mind the whys and wherefores of the bailout, so the ignorance factor isn't exclusive to the GOP's side of the ledger.

    The underlying point however is well-taken, if somewhat terrifying. If the two sides involved hold such diametrically irreconcilable interpretations of reality, and one side's interpretation involves basically destroying the public sector and leaving us all at the mercy of the private...well, cynicism seems the only rational choice of response, doesn't it?

  • Josef K on January 07, 2013 11:08 AM:

    And can the webmaster please block shite like this "nvcxbviu" and ilk from the comments section?

  • FairbanksRick on January 07, 2013 11:11 AM:

    John Boehner was born in 1949. Claiming that "no one had debt" in 1950s working class Cincinnati is simply another example of rewriting reality and he should be called out for making such a claim.

  • PTate in MN on January 07, 2013 11:14 AM:

    " in Boehner's "little middle-class, blue-collar neighborhood” outside of Cincinnati, “nobody had debt. It was unheard of. I just don’t do debt.””

    Yeah, because a little middle-class, blue-collar neighborhood is just like the federal government. Totally. I suspect his neighbors also didn't print their own currency.

    And if Boehner doesn't "do" debt, why was he such an enthusiastic supporter of the Bush deficits? Why does he propose cutting taxes and raising military expenditures? Because he is a effing hypocrite, that's why.

    You make it sound like the data support both liberal and conservative interpretations of that huge pile of cash that corporations are hoarding, and that just isn't true. The data support the liberal interpretation, and the conservative interpretation is just malarkey. Boehner is not just a hypocrite who "doesn't "do" debt. He is also an ideologue who doesn't "do" evidence. His interpretation of the debt is analogous to a conservative belief that killing the golden goose will produce more eggs and cost less to feed.

  • Peter C on January 07, 2013 11:15 AM:

    The idea that the Republicans are driven by ideology is oversold. Mostly, they are out of power and they see blaming the national debt and the economy on the Democrats as a strategy to regain power. They don't want the economic pain to go away; it is what they hope to use to attack Democratic Party popularity.

    The rank-and-file Republican voter is just mad and confused. They don't understand any of this shit and they are taking it on faith that their side is right. That's the power of a 'faith-based' constituency; they don't need evidence to form their opinions. They can't be swayed by what we say because they won't listen to it.

    Sadly, their 'faith-based' positions are economically disasterous. So, the reality-based community must intervene and act without them and sideline their opportunisitic leaders.

  • Mike M on January 07, 2013 11:19 AM:

    I found this paragraph to be along the same lines as you:
    The president's insistence that Washington doesn't have a spending problem, Mr. Boehner says, is predicated on the belief that massive federal deficits stem from what Mr. Obama called "a health-care problem." Mr. Boehner says that after he recovered from his astonishment—"They blame all of the fiscal woes on our health-care system"—he replied: "Clearly we have a health-care problem, which is about to get worse with ObamaCare. But, Mr. President, we have a very serious spending problem." He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: "I'm getting tired of hearing you say that."

    Clearly Republicans see the deficit as a spending issue only, regardless if you show them that if we bring employment back to pre-crisis levels that the deficits would be smaller then under Bush pre-crisis.

    To me this means all the deficit cutting will be for naught because health care spending will increase and wipe out the current savings. Republicans will be back asking for more cuts to government.

    If Obama and his team were smart they would pivot the talk as best the can to more reforms to health care in general, not just a cut to benefits that hurts people. We need to get our health care spending more in line with the rest of the world.

  • Stetson Kennedy on January 07, 2013 11:27 AM:

    I just don’t do debt.

    Well, unlike the obviously wealthy Speaker, most Americans (and I'm guessing a majority of homeowners in Cincinnati) don't have the cash to plunk down on a home and/or car.

    Don't fear the weeper.

  • Josef K on January 07, 2013 12:27 PM:

    From Stetson Kennedy at 11:27 AM:

    Don't fear the weeper.

    Agree. Rather, fear the lunatics he 'leads'.

    Sitting here in my office, a few blocks away from Ground Zero, its easy enough for me to say this. I'm not sitting in either the Oval Office nor the Speaker's office, so I'm not obligated to nor pressured by the various parties they have to deal with on a daily basis.

    No, I don't fear the Speaker. I do fear he's not strong enough to bend his caucus to his will, and I further fear the President will calculate that the likelihood of a national default is too great not to give into the GOP here.

  • Ron Byers on January 07, 2013 12:38 PM:

    John Boehner doesn't want to understand that refusing to pay for medical care isn't going to improve the health of all Americans. Most Americans, unlike most members of Congress, can't pay for health care out of pocket.

    Now Obama needs to get back out on the stump and tell the American people John Boehner is full of it.

  • T2 on January 07, 2013 12:59 PM:

    the Rich are already rich and they don't care about anyone else. That is the underlying fact of our situation.

  • Doug on January 07, 2013 4:22 PM:

    Sorry, I can't go along with the idea that progressives and conservatives are merely interpreting the same data differently; especially not when, as an example of that differentation, Speaker Boehner is cited as making the ludicrously false statement that "nobody had debt, it was unheard of" when he was growing up in 1950s suburban Cleveland.
    In the 1950s, my parents, and 90% of the adults in my small town in Indiana were blue collar, and they most certainly did "do" debt; to pay for houses, cars and sometimes medical emergencies.
    Perhaps, if only to be fair, the Speaker is referring only to those who are the same age as himself - you know, those six, seven and eight year-old entrepeneurs who created the industrial giants that spurred the economic growth of the 1950s and 1960s. After all, those lemonade stands, mown yards and paper routes have to count for something!

  • Yellowdog on January 08, 2013 4:51 AM:

    As others here have noted, Mr. Boehner is not speaking the truth about debt in his own community. Any blue-collar neighborhood in Ohio when he grew up was made up of houses with private-sector mortgages that were insured against default by VA or FHA. Those mortgages were also aided considerably by something known as Fannie Mae, which the government rechartered in 1954 to boost the nation's mortgage market. Private lenders, mortgage brokers, and the credit markets on Wall Street all wanted--and got--lots of consumer debt. Expansions of VA, FHA and FNMA took place frequently, under both Democratic and Republican presidents. Herbert Hoover praised the concept of ownership of homes and in 1932 initiated a home loan bank system, to aid lenders and, at least in theory, keep borrowers from getting foreclosed on or refinanced upward to oblivion. Boehner appears to lack basic knowledge of economic history. He is relying on a nostalgia for a kind of reality that never actually existed. Perhaps Boehner does not realize that his own hometown was built on a mix of private and public debt--or perhaps he knows what he is saying is false but he does not care.

  • paul on January 08, 2013 9:06 AM:

    Doug: You mean those paper routes served with bicycles that were simply given to the entrepeneurs? Or the lemonade stands built with surplus materials donated by others?

    And not only that (and the mortgages and the car loans and the lay-away) but the tabs. Any retail business in the days before credit cards and big box stores ran tabs or offered charge accounts or sent out monthly bills. All methods of offering credit, perhaps not as centralized as what we have now, but try explaining to the milk delivery service that what you owed them for the month wasn't really a debt.

  • smartalek on January 08, 2013 11:05 AM:

    "I suspect his neighbors also didn't print their own currency."

    And why would you assume this?
    Doesn't criminality tend to cluster geographically?
    I'd be completely unsurprised to find that our Congressional Liar-In-Chief had been entirely surrounded by crooks and miscreants of all kinds in his youth (much as he is today).


    "Don't fear the weeper."

    Now that is just brilliant.
    But thank you SO much for the BoC earworm I'm now gonna be stuck with for the rest of the day -- cowbell and all.