Friday, December 17, 2010

The Trouble With Lefty Commentators

-- Posted by Neil H. Buchanan

In my FindLaw column this week, I describe the worrisome opportunism of some of the leading progressive commentators regarding the politics of deficits. With the Obama-Republican tax bill becoming law, it has become all too tempting for people like Rachel Maddow and Keith Olbermann to become committed deficit hawks. And really, if you were looking for a good situation in which to oppose a policy's effect on the deficit, the tax cuts for the rich (both income taxes and estate taxes) are Exhibit A. There really are bad ways to increase the deficit, and this is a great example.

My problem is that this short-term fun -- not only attacking the bad policies, but pointing to the Republicans' utter hypocrisy about deficits -- feeds the narrative that deficits are bad, bad, BAD. Not just these deficits, but all deficits. And that is not just false, but it is false in a way that completely undermines the progressive agenda. Public investment and counter-cyclical policies require deficit spending. Saying, "Look, everybody! The Republicans are doing a bad thing by increasing deficits," is self-defeating.

It is not, however, always a bad idea to point to the other side's hypocrisy. The idea of "judicial activism" has been effectively defanged by pointing out that Republicans love judicial activism, as long as it is hyper-conservative judicial activism. Saying as much does not feed a narrative that uniquely undermines the Democrats' long-term interests. A good liberal can defend Roe v. Wade and condemn Alden v. Maine with equal vigor, and there is nothing lost in that debate by all sides agreeing that there is something bad about judicial overreach. Those who like Roe can argue that it was not overreaching, and those who like Alden can make their arguments. Calling the other guys hypocrites is fun, and it does no strategic damage to either side.

Not so with deficits. In my FindLaw column, I mention a recent segment on Rachel Maddow's show, in which she tied the Chinese government's boycott of the Nobel Peace Prize ceremonies (a boycott currently being joined by something like 18 other countries) to China's supposed power over countries that owe money to China. She concluded that it was "intolerably gross" for the U.S. to owe money to China. The next night, after I wrote my FindLaw column, Keith Olbermann had a segment on his show in which he also talked about how bad it is that we are running deficits financed by the Chinese government. (Apparently, there is also a move afoot to determine how much of the debt is held by the Saudis. Yeesh.)

Much to my surprise and delight, however, Olbermann's interviewee Chris Hayes (of The Nation) pointedly disagreed with that narrative, pointing out that China holds less than one trillion dollars of the thirteen trillion in gross debt. Wall Street banks, in fact, hold the largest chunk of the federal debt. This is still not the real point, but it was at least nice to see someone put the numbers in perspective. The bigger issue is that owing another country a trillion dollars does not give them power over us. They can threaten to dump bonds on the open market, but the Fed could buy them up and stabilize the market overnight. The Fed would not even have to buy the entire amount of bonds held by the Chinese government, because the Chinese would have no reason to continue to dump the bonds if their putative goal of destabilizing the US economy was not being achieved. Even more importantly, the Chinese have no good reason to harm our economy: We are their best customers.

But back to the issue of lefty commentators going astray on economic policies. "The Daily Show" recently ran a piece on the evils of creating money "out of thin air," and all that nonsense. Keith Olbermann also sat attentively through an interview with David Stockman in which Stockman made the same ridiculous argument.

I realize that Jon Stewart claims not to be in the same game as Olbermann and Maddow, but he is frankly deluded about that. His show does exactly what the MSNBC shows do; but he has better jokes. When he peddles patently inane arguments about economics -- like the idea that creating money is illegitimate -- that is a problem. (He also has a blind spot about federal spending, with a peculiar inability to say the world "trillion" without making it seem like an unimaginably large -- and dangerous -- number.)

In the past, I have criticized Democratic politicians for this very sin. Listening to Obama talk about the importance of "fiscal responsibility" -- and making it clear that he is using that phrase as a synonym for deficit reduction -- makes my skin crawl. Yet the pundits are different from the politicians. Obama and his party need to worry about re-election, after all. (These days, Obama really needs to worry about re-election.) As much as I find it regrettable, political reality does require Democrats to make anti-deficit noises. I do believe that they could do so in a more careful way, identifying the problem as "bad deficits," not all deficits. Still, they clearly have strong reasons to be worried about violating the conventional wisdom.

This is also true of the pundits, I suppose. They need to be seen as credible; so they would risk something if they were to adopt positions that are viewed as simply loopy. That constraint, however, does not require anyone to do what Stewart, Maddow, et al. are doing. There is nothing forcing them to make stupid comments about China, or to attack the new tax bill from an orthodox perspective. They could easily take the time to deal with nuance, or at least to avoid bumper-sticker arguments that are simply embarrassing.

Part of the problem is that none of these people actually know what they are talking about, when it comes to most economic issues. Smart non-economists like Stephen Colbert and Keith Olbermann are ultimately flailing when they get to these issues. Economics training is neither a necessary nor sufficient condition to get these things right. (Former Senator Phil Gramm, after all, had a Ph.D. in economics.) Still, one cannot help but suspect that economics coverage from these progressive commentators suffers from their presumption that they can fake it. Clearly, they cannot.


egarber said...

Hi Neil,

This reminds me of a conversation we had a while back leading to a basic question: what's the proper definition of "fiscal responsibility"? Obviously, it can't simply be revenues equaling expenditures, since borrowing is a key component of finance.

That leads me toward the notion of return on investment (ROI). In a corporate setting like mine, we justify our capital projects (which are effectively financed via borrowing) with extensive ROI analysis -- i.e., writing this software will eliminate third-party costs and create workflow efficiencies that justify the expenditure.

To a large degree, we can quantify those numbers in our closed setting, and hence justify borrowing the upfront investment. But what's the equivalent on a public level? Is ROI measured in returned revenues, in that galvanizing the economy pumps up tax collection? That seems too narrow, since it’s impossible to quantify in these terms say, protecting our shores. Economies can only prosper in a safe environment free from the threat of invasion, but how much tax revenue can we attribute to national defense spending – 10%, 30%? You could theoretically say all of it (because without security, there’s no economy), but that would lead you to double dip with other investments. In short, there’s really no way to know. So ROI in a literal sense seems pretty limited as a model for defining public “fiscal responsibility”.

Maybe it’s defined as keeping total debt at some level of GDP. But that can’t be the full picture, because it says nothing about the quality of the actual investments.

Or perhaps it's just some simple aggregate measure, such as the point where additional borrowing drives up interest rates (bonds flooding the market), or when interest on the debt passes some threshold in future on-budget outlays.

Sam Rickless said...

Hi Neil,

I agree with a great deal of what you say, but it seems to me that there is an argument against increasing deficits and debt that is at least consistent with left-wing premises. The argument itself rests on a combination of economic and political premises, and not merely on economic premises. I'm sure you've thought of it and I may have missed an earlier post on the subject, but here goes anyway.

The most important political fact about the Federal Government is that it is not a parliamentary democracy. If one party (or even a coalition of parties) were in control, we could in principle see the enactment of rational economic policies over the objections of the minority party. (Of course, as is happening in the UK right now, we could also see the exact opposite. Live by the sword, die by the sword.) Here, at any rate, we have been living with de facto, even if not de jure, divided government. Things get done through vote-trading and other non-rational political maneuvers. The problem with these agreements is that the players (senators and representatives) are responsive to (a) those who fund their campaigns and (b) those who vote and scream the loudest. Even in the absence of such factors, representatives love to tout how much money they have managed to secure for this or that project in their constituency. Sometimes these projects are well worth the money. Oftentimes, they are bridges to nowhere.

The political reality, then, seems to be that the influences on politicians in our system of government are such that rational economic decisions are almost impossible. Every economic decision creates winners and losers, but every representative wants to be a winner (if only to win the next election). The latest deal on taxes (income, estate, payroll) and unemployment compensation is a perfect example. The Republicans, who want lower taxes to please the folks who vote for them and who finance their campaigns, got lower income and estate taxes for the wealthy. The Democrats, who want to stimulate the economy and create jobs and better the lives of those who vote for them and finance their campaigns, got lower payroll taxes, lower income taxes for the middle class, some extension of unemployment compensation, and something in the way of estate taxes. The result is the extension of government debt, with its attendant evil, interest payments on the debt or the threat of inflation by increasing the money supply.

The political argument for reducing the national debt is that the chances that this political situation will change are very very small. There are very few incentives in the system to tax wisely or to spend wisely. So fiscal decisions *over the long term* will be disastrous unless there is political will to fight debt and deficits (even if, on occasion, deficits and debt are a good thing). This argument is not left-wing or right-wing. But it can be combined with premises that can turn it into a left-wing position.

These premises concern the burgeoning inequality in income and wealth that we have been witnessing for roughly thirty years. The argument is that we can actually afford to spend more on desirable social programs (the right kind of infrastructure, funding public schools and universities, improving health care, reducing pollution and greenhouse gas emissions) by raising taxes on those who have reaped the greatest benefit from reduced taxes since 1980, the rich and the super-rich, without adding to the deficit. (This can't be done without effectively ending the wars in Iraq and Afghanistan.) Indeed, the argument that we shouldn't be adding to the deficit is one more reason to raise taxes on the very wealthy, which reduces inequality and produces a stronger society.

best wishes,


Charles Wolverton said...

I agree with Sam's assessment with one quibble:

"The result is the extension of government debt, with its attendant evil, interest payments on the debt or the threat of inflation by increasing the money supply."

Ever since reading Jeff Faux's "Global Class Warfare", when confronted by seemingly counterintuitive actions by the power elite (those who have significant impact on policy decisions), I ask myself the classic question "Cui bono?" - in this case, "Who wins if continuing deficits finally lead to substantially increased inflation?" And I am shocked, shocked to find that it appears to be the very affluent, a group that increasingly overlaps the power elite as being a media figure becomes more and more lucrative.

The affluent will typically have assets that increase in value as inflation increases and continuing discretionary income that can be invested (possibly effectively on margin using debt repayable with depreciated dollars) in those same asset classes. Therefore, their real wealth will steadily increase even in the face of inflation - especially if the government effectively provides them free puts by acting so as to preclude long term market declines. On the other hand, those stuck with marginally adequate incomes will at best stand still (if their incomes rise with inflation) or lose if raises, COLAs, etc, are low-balled. If fear of deficits and consequent inflation can be parlayed into cuts to subsidies, benefits, etc (not that this could ever happen, of course), those affected will suffer the double whammy of rising nominal costs and declining nominal incomes.

In short, if this analysis is right, inflation appears to be an "evil" only for some. For the power elite, it seems quite a "good" deal.

Charles Wolverton said...

And I would like to say a kind word for Stockman. In one or another of his recent interviews (with Zacharia IIRC) he at least explicitly argued that what is needed is a restructuring of the whole economy, not merely trying to get consumers spending again, an objective that completely ignores that we almost surely aren't going to spend our way back to the previous GDP trend line, substantially shifted upward as it was by psychological effects of phantom wealth.

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