Self-Defeating Economic Orthodoxy and Its Media Moutpieces
So much for the background. Over the weekend, of course, the G20 leaders got together and managed to embrace the conservative point of view, namely that deficits are out of control and, at the risk of suppressing economic recovery, they are going to cut government spending. See the story here. Cavuto no doubt feels vindicated. But he might want to check the gloating. On Sunday Paul Krugman offered this assessment of the G20 decision:
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense. And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. [. . .] you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.Given his lack of economic acuity, it seems to me that Neil Cavuto ought to be the one looking for a job. Yet, his fight with Ron Blackwell isn't about economic analysis, its about politics. That is what FOX "News" is mostly about - rationalizing policies that screw the poor, the working class and the otherwise vulnerable. So Cavuto will continue to shill for the sort of right wing policies that the FOX folks peddle. Listen, I think I just heard him shout "Hey Paul, where did you get that Nobel Prize?" I know what Krugman's reply should be.
As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.[. . .] Why the wrong turn in policy? [. . .] I don't think this is really about . . . any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.
P.S.: (Added 30 June 2010) This morning The New York Times is running this story on the resurgence of conservative orthodoxy. The author seems to find the move to cut deficits pretty dubious. He writes:
"The reasons for the new American austerity are subtler, but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go — laissez-faire economists, Congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.Some remarks. First, the ability to shout effectively is pretty much reserved for the right these days. It perfectly describes the spectrum from FOX to "Tea Party" types. Second, no one thinks massive deficits are sustainable indefinitely: not Ron Blackwell, not Paul Krugman, not me. Everything rides on the word "eventually." And the right is simply willing to dump risk and hardship on the vulnerable. Finally, here is something the Times piece gets right. This is about politics. If you asked me how to best cut the U.S. deficit (or at least most, yes most, of the growth therein) I'd say (1) get the hell out of Iraq and Afghanistan and (2) start repealing the idiotic right wing tax policies that favor the rich. Tomorrow. No one on the right is willing to look at the real sources of our deficit woes. They are too busy shouting to drown out the data.
Finally, the idea that the world’s rich countries need to cut spending and raise taxes has a lot of truth to it. The United States, Europe and Japan have all made promises they cannot afford. Eventually, something needs to change.
In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that."