IDEOLOGY MATTERS

IDEOLOGY MATTERS

Who would have thunk it?

In this post-modern, post-Marxian, post-it seems-everything world, ideology turns out to matter.  

This was not supposed to be the case.  For years now, politicians, academics, businessmen and women, and -- it seems -- pretty much everyone else, have been telling us the exact opposite.  With the fall of the Berlin Wall in 1989, and the Soviet Union a few years later, ideology -- the notion that decisions are made in a fashion pre-ordained by an all-encompassing theory or world view -- was to have died.   Even the Chinese seemed to have killed it, though they refuse to re-name it.

We were all Einsteins now.

Or, if not that smart, at least Deweyites (as in John, not Tom) -- practitioners  of the possible and the practical, pragmatists who always kept their eyes on the facts. 

Yeah, right!

The number of ideological waves hitting our existential beach is starting to be uncountable.  On the economy, both here and with a vengeance in Europe, Hayek's heirs have turned austerity into a religion to be practiced at all costs and in the face of any evidence to the contrary.  Like the good apparatchiks of old, no fact is too true to be ignored in pursuit of fidelity to the overarching idea.  

This past week, the European Central Bank (ECB) decided not to lower interest rates ostensibly to keep political feet to the fire and force continued fiscal austerity.  This was done in the face of unemployment rates across the Eurozone that are north of 10% overall and astronomically high in certain countries and demographic groups.   In Spain, the rate is way over 20%, and the same is true among Eurozoners under the age of 25.  For Spaniards under the age of 25, the rate is over 50%.  These are catastrophic numbers.

Though the ECB continues to promote the theory that fiscal excess caused the financial collapse of the last four years (and therefore the current problems), this is false.  The collapse occurred as a result of conduct in the private (principally housing) sector, and there is no real correlation between debt to GDP ratios (an ostensible measure of fiscal profligacy) and national crisis.  In fact, both Spain and Ireland had pre-crisis ratios below those of Germany but the latter is thriving while the former suffer enormously, mostly because there were private credit-induced housing bubbles in Spain and Ireland which never materialized in Germany, a nation of renters (and bankers, who were stoking the bubbles -- in housing and later in sovereign debt -- everywhere else).

Meanwhile, the hammerlock that is the European Currency Union marches on.  The union is a sort of financial Articles of Confederation, the grossly unworkable plan of union initially created for the United States.  The Articles made it impossible to fashion national policy, leading to different currencies and de facto trade policies throughout the country, which were then rendered impermeable to change given the narrow writ granted the national government and the power individual states effectively had to veto any national plan.  The treaty establishing the ECU created an equally hamstrung central institution (the ECB), which lacks the power most other central banks (e.g., the Fed and the Bank of England) have to act as lenders of last resort, but with a mandate to combat inflation above all else.  Inflation is the bugaboo of Germans who have studied the Wiemar '20s and do not want to repeat them.  So instead, the Germans -- who are enthrall to fiscal austerity -- are endorsing policies that repeat the global '30s -- namely, Depression.

The solution here could be Eurobonds backed by all nations in the ECU.  So far, however, Germany has resisted that tack, and even as it seems to ease its opposition, it attaches long term fiscal conditions to any possible policy reversal that, if not disingenuous, will certainly delay any response.  And delay here is Europe's enemy.  The unemployment Europe faces is exacting its toll now, and will continue to do so going forward (the data on the effects of underemployment and  unemployment on new entrants into the labor force -- principally college graduates -- are scary;  indeed, if you come of age in a Depression, your lifelong prospects are considerably reduced, and for some, just ended).   There is also no evidence of structural problems, like a mismatch between jobs and skills.  The austerians, of course, trumpet the need to take a long view.  But (1) most of the austerians themselves have jobs, and (2)  as Keynes remarked, "In the long run, we are all dead."

In a non-euro world, Spain, Ireland and Greece all would have devalued their currencies by now and solved any competitiveness problem vis a vis the north by simply producing cheaper goods and services.  The ECU, however, makes this approach impossible for those in it.  Not, however, that this necessarily matters to the austerity ideologues.  Great Britain, for example, is not in the union and could have devalued the pound,  but its conservative government has practiced fiscal austerity with such abandon that the British are now suffering a second recession along with the rest of Europe.  This did not have to be the case.  Iceland, which also is not in the union, suffered the same real estate bubble induced implosion that killed Europe and the US, but it just devalued its currency and told the banks to behave like good capitalists and suck it up (i.e., fail), which is what is supposed to happen in our ostensibly free market but often does not among the "too-big-to-fail" banks that get a pass (and a government handout to survive).

This is the ideology of austerity.  In it, government debt is the villain (even when it isn't)  and fiscal rectitude the solution (even when it won't be).  Real villains -- like the lenders who induced the Spanish real estate bubble -- often get a pass, and  institutions that in the past would have combated the problem -- like the European Central Bank -- lack the tools to do so.  Sensible solutions like Eurobonds are suffocated in the ponderous treaty changes that would have to occur for them to take effect.  Meanwhile, spectators who do not have to follow this path nevertheless do so.   This is the case with Britain and it is the case with the American Republican Party.  They are both preaching at the altar of austerity and  embracing the false claims necessary to keep that failed approach afloat and alive. In this, they are in league with their Euro-brethren.

Ideologies are magnets.  They create force fields of group think so strong that few are able to resist.  

They did not end in 1989, or in our post-modern world of supposed uber-empiricism.

They just changed.

ELITISM AND ITS ERRORS

ELITISM AND ITS ERRORS

The history books are filled with the errors of the elite.

Whether it's European policymakers and monarchs assuming, on both sides mind you, that World War I would be a gloriously short march to victory unencumbered by the carnage of machine guns, chemical weapons and mass death; or Robert MacNamara and his State Department whiz kids assuming that they could arbitrarily measure and then predict victory in South Vietnam on the basis of dubious body counts; or Andrew Mellon, captain of finance in the first third of the 20th Century, confidently advising anyone who would listen that the proper response to the Great Depression was to "liquidate" everything,  those who are supposed to know better have proven with regularity that they often, very often, do not.

So you would think that, armed with this evidence of error, either today's elites would be suitably humble or all of us would be suitably skeptical.

But they aren't . . .

And neither, it appears, are we.

Here in the United States, Americans are entering into a Presidential general election campaign.  In that campaign, the opposition party -- the GOP -- has staked its chances on the claim that, by cutting government deficits and reducing marginal income tax rates,  the country's current anemic recovery can be turned into something robust enough to create jobs.  Meanwhile, Republicans are also claiming that President Obama is somehow responsible for the economy -- that he now "owns it," in the parlance of all those Sunday morning talk show pundits.  

Neither claim is remotely accurate.  

The former ignores today's economic reality, while the latter ignores the reality of the eight yesteryears when Obama was not President.

We are in what professional economists call a "liquidity trap."  These occur when interest rates approach zero and growth is still anemic.  At the point of this zero lower bound, there is nothing more the monetarists at the Fed can do other than buy enough short term Government debt to drive down long term rates, known to the wonks as "quantitative easing."  Though the Fed -- to its credit and in the face of idiotic blow back from the right wing --  is doing plenty of this as well,  demand still lags as a long term consequence of the financial implosion of 2008.  Consumers -- the actual buyers -- just don't have the money.  They are saddled with too much debt of their own, many in the form of underwater mortgages.  So  corporations are holding back enormous amounts of productive capacity and naturally will not produce what their customers cannot buy.

None of these problems can be solved with more tax cuts for the rich or cuts in Government spending, and every economist worth his or her salt knows as much.  In fact, they have known as much for about eighty years.  The only solution is Government spending sufficiently targeted to restore robust consumer demand.  That means infrastructure spending (road, bridges, highways, and yes, even clean energy, and even in the face of Solyndra, which was a loser in a sector that is still a sea of success).  It means getting money to the states so they do not have to lay off teachers and police and firemen  or close hospitals, all of which takes money out of the pockets of the middle class.  And it may even mean an FDR-like commitment to public jobs, lest this generation of college graduates wind up permanently underemployed.

There was a time to worry about the deficit.  It was when the economy was growing.  Clinton did that in the '90s and solved the problem; Bush didn't from 2001 to 2008 and it  has come back.  Now, however, is not the time to compulse about the deficit  George W. Bush left us.  Now is the time to end the Depression he put us in.

So why won't the Government do it?

The answer is simple.

First, the GOP-- which controls the House and can filibuster in the Senate -- will not permit it.  And second, too many elites -- in think tanks, at the University of Chicago, on the Sunday talk shows, and on K and Wall Streets -- are pushing a false narrative on how we came to this pass  and what can be done to solve it.  The false narrative starts with the notion that de-regulation had nothing to do with the financial crisis of 2008, continues by blaming the Government for the real estate bubble and all those toxic mortgage backed securities, and then ends with the claims that businesses are not selling because they lack confidence (either as a result of over-regulation, over-taxation, or (preferably) both) and that the bond markets will turn us into Greece if we don't end the deficit now .  

All of these claims, however, are false. 

The repeal of Glass-Steagal in the '90s allowed commercial banks to get into the securities business.  Private sector giants liked Countrywide -- aided and abetted by their investment bankers -- then invented those never under-written (and thus toxic) mortgage-backed securities that Wall Street doubled down on with credit default swaps and that fueled the real estate bubble long before Fannie or Freddie tried to catch up.   The ensuing debacle that followed the inevitable burst left consumers with the debt but not the dough.  Demand then imploded.  

There is not a single piece of economic data to support the claim that businesses lack confidence rather than customers.  Nor is there any data to support the notion that inflation is about to rear its ugly head or that the bond market is about to revolt and send interest rates through the roof on account of the deficit.  To the contrary, rates are so low that the United States is literally refinancing its debts at near 0%, which more or less means that paying down the debt at this point would not just be counter-productive . . .

It would also be stupid.

But the elites march on.  

You cannot watch a Sunday talk show without some airhead with a title or a fancy degree ignoring these facts as he or she seriously suggests that Government spending has skyrocketed under Obama (it hasn't) and must be cut by orders of magnitude (it shouldn't).  A whole generation has been raised on the platitudes of right wing ideology that make these sorts of empirically false assertions a kind of transcendent truth that cannot ever be questioned.  The carnival barkers of this drivel have oodles of cash backing them, not to mention a Supreme Court that laboriously does their bidding under the guise of merely construing the First Amendment (memo to Scalia: money is not speech, it's property, and the Founders never envisioned a world where only the rich got to talk).

Political  pundits are aghast that President Obama now has the temerity to run on a platform that calls out the do-nothing GOP and accurately notes that their obstruction eliminated the Administration's ability to win a bigger stimulus, fashion tougher financial regulation or  craft a better health care bill.

Too bad.  

Because it's all true.

Too many of the elites have gotten it wrong over the course of the last thirty years, attempting to repeal settled economic lessons learned in the hard days of the Great Depression.  

This election has to be about telling them they are wrong.

As they have been so often in the past.