Oct 21, 2012

The Failure of the Liberal Idea Machine

I was talking to a colleague in the office the other day, critiquing the first presidential debate. He was talking about how Romney's responses were all organized around the theme of jobs, and Obama needed to calibrate his answers similarly. He suggested the lack of maintenance of the Bush years as a theme, something along the lines of how for 20 years we did nothing about spiraling cost of healthcare, didn't fix our education system or rotting infrastructure, and made no investments in renewable energy. I pointed out that he could also organize around the idea of economic stimulus, Keynesian or otherwise, that being the whole point of the Recovery Act, which prevented depression.

"People don't want to hear about more government spending to hire a bunch of bureaucrats," he replied. "Trust me, they just don't."

I assume my colleague, who is a lot more experienced than me, is probably correct about general belief. But I got to thinking, and more and more I believe this is an enormous problem. Because on the straight economics, all those policies about fixing long-term problems, while worthy in themselves, are totally irrelevant to the question of creating jobs in the short term. In an economy with weak demand and a slack labor market, there are two ways to create jobs: Keynesian fiscal stimulus (government spending) or monetary stimulus through the Fed. Those are the only games in town, and if Democrats don't convince people they work, the Republicans certainly won't.

This is why I get so frustrated when progressives like Steve Benen buy into the deficit cutter's frame:
To add a little historical context to this, over the last four decades, only two presidents have reduced the deficit this much, this quickly: Bill Clinton and Barack Obama...
Obama, whether the public realizes it or not, has a record he can brag about when it comes to deficit reduction -- very few president in American history can boast about having inherited a massive deficit, then cutting it by nearly a fourth in just one term.
Dean Baker explains what this means in practical terms:
That is why those of us who believe in national income accounting and arithmetic praise the budget deficits every day of the week. In the short-term there is no alternative way to drive demand. The folks pushing for lower budget deficits are calling for less growth and more unemployment.
In other words, all that deficit cutting is a major reason the unemployment rate remains so high. If it were a lot bigger, Obama would probably be cruising to an easy re-election on a rising tide of prosperity. To his credit, Steve does admit that deficit reduction may well be a bad thing, "but for the purposes of political conversation, such an argument is probably a non-starter; the public has come to believe a deficit that's getting smaller is good news." The problem with this kind of reasoning is well explained by David Dayen:
The public has come to believe the wrong thing, and if Democratic partisans refuse to straighten them out on it, there’s no way to change that mentality. Partisans who use the deficit data to bolster the case for their party consign the country to continuing austerity and will make it impossible for government to carry out the functions of progressive policy, or to stimulate the economy when the need arises. It’s an extremely dangerous game.
This confusion about deficit spending and economic stimulus has a very long pedigree. Hoover was a fanatical deficit cutter, and FDR's first vice president, Jack Garner, ended up trying to sabatoge Roosevelt's presidency in part over balancing the budget. Fast forward to 2011, and witness House Blue Dogs complaining about Obama's lack of deficit reduction. As Yglesias points out, this is directly at odds with their electoral interest:
Democrats in marginal seats have the most at stake in short-term macroeconomic fluctuations. Liberal Democrats aren’t going to lose their seats no matter what happens, but [Blue Dogs are] at risk. The problem here, which has been a problem from the beginning, is that lots of members of congress genuinely don’t believe in Keynesian economic prescriptions and nobody’s managed to persuade them.
Emphasis mine. So maybe the economics of stimulus is just too intuitive, and the logic of cutting the deficit too intuitive, to ever gain traction in the mainstream discourse. Still, the Republican propaganda machine has seen remarkable success driving coverage of total nonsense. It seems worth a shot to get people talking about the actual economics of jobs.

 And by the way, when voters got to pick the questions in the last debate, not a single one was on the deficit.

[Cross-posted from Political Animal.]

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