A Last Word: What is to be Done?
The collapse of conservative economics leaves in place the Keynesian alternative as a practical matter. This much is clear. Consider how, in a moment of deep worry late last fall, the entire government - president and Congress - coalesced around a "stimulus" package. What could be more Keynesian than that?
Meanwhile, as I have argued over at Mother Jones, the Keynesian tools are in use at the moment, Nixon-style. It is an election year. In addition to tax cuts, we saw increased military spending in the second quarter, and sharply lower interest rates since last August, which have pushed the dollar down and exports up. These steps may or may not be enough to keep growth positive through the election - but without them, things would have been much worse. Without them next year, things may deteriorate very fast.
Lower interest rates are linked to the financial crisis. But whether cutting rates was essential to keeping that crisis at bay is doubtful. (Opening the discount window clearly was.) The point is interesting because there is a clear pattern of the Fed cutting rates in the year before an election when Republicans are in power. When the Democrats are in power, they raise interest rates. Does this sound, to you, like there might be a problem of political bias over there?
The link is to a technical paper on this topic, which I submitted to the House Financial Services Committee hearings on Monetary Policy in July 2007, just before the financial crisis broke. It predicted very accurately, based purely on past electoral patterns and without reference to the crisis, what has happened to rates over the past year. Statistics are not proof, but in the words of Henry David Thoreau, "Some circumstantial evidence is very strong, as when you find a trout in the milk."
So these days everyone is playing from the Keynesian play-book. The problem is that no-one admits to it. Academic economists, as Susan and Tom's comments note, are in denial. But while they remain important in academic life, they have lost influence in the public sphere - because they have lost contact with the realities in which policymakers live.
And the question is, to what end? To what purpose should the policy tools be put?
We have a problem of government. It needs to be dealt with in two broad phases. The first concerns dealing with predators. The second is the program going forward.
The next administration will face a vast task of rebuilding the capacity to govern, to regulate, to set standards and to plan. Predators cannot be eliminated. But they can be controlled. That task will fall to modest, competent, dedicated people who need to be brought into government and given the tools to do the job.
Part of that task, I argue in The Predator State, will require re-establishing the good credit of the United States in the larger world. That credit depends on how we are viewed: is our financial system safe and sound? Are we a reliable partner? Are we providing a useful service, such as collective security, against which the rest of the world should be willing to hold our bonds?
Perhaps the most inexcusable aspect of the present administration has been its willingness to squander the reputation of the entire country for both financial reliability and foreign policy probity. The two are much more closely connected than many realize. Modern empires tend to fail, not because they are defeated on the battlefield, but because their allies or the larger world withdraw financial support.
The implication is that our prosperity into the future requires giving the world new reasons to have faith in our usefulness as a nation. In this, we have some advantages: technical capacity, research strength, institutions that are adapted to rapid economic change. We should use those advantages. To what end? It seems clear to me that job one is to resolve the climate crisis.
And, given the renewed financial confidence of the world, it should be possible to keep Americans employed for a generation, if we do it right, working on this problem.
That's it: a desperately short summary of a not-very-long book. It's Friday evening, I'm in Vermont, and we have a trout pond.
Many thanks to Lila and to Al at TPM for hosting this exchange. And again to Sid, Maggie, Susan, Mike, Max and Tom for their writings. All were generous to an extreme fault. To tell yet another small family tale, John Steinbeck once said to JKG pere, "Ken, if a critic hasn't got the courage to give you unqualified praise, I say ignore the bastard."
Thanks also to all who left comments, whether thoughtful or captious or occasionally both. Notwithstanding Steinbeck, I read you all.
Public investment in renewable energy infrastructure.
That was easy.
It seems to me that making it a security issue (and it clearly is) means that we could repurpose much of the Pentagon's planned economy system and re-direct it building solar panels or something.
The key is to divorce this 'green' Pentagon from its 'contractors' (mercenaries) who have, just since the Clinton years, become a titanic political power.
August 15, 2008 6:03 PM | Reply | Permalink
Damn right! Capitalism -- savings invested in risky enterprises in the hope of profits -- has been dead for years!
Proof? The current "credit crisis" produced by investors refusal to invest in anything that wasn't called AAA -- whether or not it deserved to be.
So, that leaves the government as the only institution willing to take a risk (of course, with other people's money).
We're all socialists, now!
August 15, 2008 10:23 PM | Reply | Permalink
rE: keeping that crisis at bay is doubtful. (Opening the discount window clearly was.) The point is interesting because there is a clear pattern of the Fed cutting rates in the year before an election when Republicans are in power.
Not bias at all, but a simple correlation: Republicans tend to produce recessions when they are power for too long. That's why the Fed alawys seems to be cutting rates when a GOP era is coming to an end.
August 15, 2008 6:31 PM | Reply | Permalink
Actually, not so. We control for both the rate of inflation and the rate of unemployment. So the effect of recessions is already in our model.
JG
August 15, 2008 11:32 PM | Reply | Permalink
Now, if you had said energy crisis, no one would dispute the value of a concerted set of incentives. Climate, not so much.
August 15, 2008 6:43 PM | Reply | Permalink
Thank you for saying that. I've been writing that here at TPM and I am sure that many who see what I have to say roll their eyes and skip over it.
A great deal of the current set of crises is a direct result of the Reagan Revolution and the power garnered by the conservative movement over the last 30 years.
I have watched as the banks, Credit card issuers payday lenders, used car dealers and such have been literally farming workers for as much income as possible, and it keeps on getting worse. Reagan's destruction of the Air Traffic Controller Unions and backing off of enforcing labor law is another part, as was the Bankruptcy Bill. So is the refusal to pass universal health care. So is the increase in college tuition rates together with the shift of tuition assistance from grants to ever larger loans (my physician graduated from med school with a 30 year student loan. Yet Cuba trains doctors and sends them to the US to work in poor ares at no cost to the students.) And so on. The list seems to be infinite, but it's all tied together by the Reagan Revolution and the conservative ideology.
This is all obvious. Just look and put it together! Why do so few Americans see how America is being raped by the wealthy conservatives?
August 15, 2008 7:57 PM | Reply | Permalink
Richardxx asks;
I've always worked closely with union members and other blue collar people, and back in 1980, most were politically unsophisticated. They were born and raised in Philadelphia, a Democrat/Union town, got a union job, and became Democrats, the natural progression for that time and place.
The one political issue they thought they knew about and that they all had in common was their hatred of Welfare, and I think this was the view of unionized people all over the country. I think they had a warped view I won't get into, but suffice to say, it was warped.
One day, a Presidential candidate came along and promised to get rid of "that welfare queen in her
Cadillac." You know the one, we all saw her;
A big fat black lady in a red Cadillac convertible who would go to the Supermarket, park that Caddy at the front door and go inside and buy the best of the best; Steaks, chops, shrimp, lobster, Ice Cream, candy, cookies, cigarettes, soda, and beer if available. Of course she would pay for all of this with food stamps, then drive that Caddy back to her taxpayer paid for house.
So the union guys and other blue collars all over the country flocked to this guy and became the Reagan Democrats. Why, even the Air Traffic Controllers jumped on this anti welfare bandwagon. (define irony)
Richard, in the end, many Americans, those in the unions, other blue collars, and now many white collars, by voting with emotion instead of fact, continue to build the gallows the Republicans/Conservatives used to hang them.
August 15, 2008 8:36 PM | Reply | Permalink
That makes sense. But at the same time I also recall that while Reagan was campaigning against welfare queens, the corporatocracy and media were demonizing unions and union members - every union was run by the mob and Jimmy Hoffa and the Teamsters were super-crooks.
Even the union members I knew were buying that line. Of course there was a heavy class element in that propaganda. Middle class union members fell for the line that they had earned everything they had on their own as individuals, and the union was a barrier to greater advancement. There seemed to be some strange idea that America was a classless society (an idea the wealthy have never fallen for.)
Besides the class elements there was also the overlay of racism and fear of liberated Blacks. In the early 60's I had a summer job in the shipyards, and the management was continually making separate deals with the Black and White unions. The two groups each undercut the other, as well as didn't trust each other and management loved it. Each groups felt they had some degree of security and were afraid they'd lose it. Both groups were afraid of the changes the Civil Rights movement seemed likely to bring.
Thanks for reminding what was happening back then. I had forgotten how it felt and I need to refocus on those feelings. Oh, yeah, and it was largely pre-television and pre-air conditioning so people did not isolate themselves in their homes as much. Groups mattered. They were where you got your information.
Except for some evangelistic churches, those groups are largely ineffective now, and all the public information comes through the idiot box during the few hours people aren't passively watching the real opiate of the people - sitcoms and cop shows.
August 16, 2008 9:41 AM | Reply | Permalink
Richarddxx says:
Television used to have some value, maybe you could date it as the pre-color TV age. Entertainment and 30 minutes of news, sports, weather, each night in glorious black and white.
Here's what TV has evolved to:
Wolf Blitzer on CNN reported on Obama's Philly speech on Race. Blitzer commented on how powerful the speech was, then he said...."but is it enough, stay tuned for our next segment."
Blitzer was churning the story to fill the 24/7 air they broadcast on. Its no different on MSNBC, or FOX. Keep that story churning. Fill that air time, sell "advertising".
I also heard Chris Matthews on MSNBC ask the same question when discussing terrorism under Clinton;
"But did Clinton do enough"?
Its an asinine question, one formulated to fill air time and sell ads.
August 16, 2008 11:10 AM | Reply | Permalink
It's funny how SAT scores were dropping as TV grew to saturate the markets. But No Child Left Behind seems to have solved that problem.
Teach to the test, while simultaneously rewriting the tests to better match the training in how to take them. Voila! SAT and ACT scores have recently begun to rise.
Of course, the graduates can't perform the jobs that the diplomas used to say they could, but you have these great numbers in test scores that are (slowly) trending upwards.
I didn't use to be a cynic. Then conservatives, Republicans and evangelists took political control of Texas. Then the infection combined with that of Nixon and Reagan from California and spread to Washington,D.C.
Bull Moyer's interview with Col Bacevich last night explained a lot, and it's worse than even the worst cynics have claimed it was.
August 16, 2008 12:03 PM | Reply | Permalink
"Why do so few Americans see how America is being raped by the wealthy conservatives?"
Mostly for two reasons:
First, the corporate media (and they don't watch, listen or read any other) provides no information about how the wealthy rape the people and indeed does all it can to deny this ever occurs,
and
Second, they make no effort at all to find out what is actually going on. Americans look for "common sense" answers which means they look for simple/easy explanations they can grasp and which fit neatly into their limited understanding of the world around them. They especially like to blame the nation's ills (and their own) on people who are lazy and "won't work". It's too hard to find out about and comprehend how the big boys are bending everyone over and screwing them till they bleed. Besides, if they acknowledged it, they might actually have to do something about it.
And I suppose upon reflection that I must add a third reason which is the failure of our political leaders aka Democrats to point out clearly and loudly what the problem is. For the most part, they stopped doing his about 35 years ago. Most of them in Washington cannot honestly point the finger at the culprits because they have prostituted themselves to the very same class of people and interests that are doing the raping. They feel and have actually become dependent upon the contributions of predatory wealth to stay in office. Unless and until the DC Dems realize they cannot serve two masters (the interests of the wealthy and powerful or the interests of the people)then the population will not see what's going on unless and until they find themselves poverty stricken and can no longer blame those who don't "want" to work.
August 16, 2008 8:30 AM | Reply | Permalink
35 years ago - right after Nixon crushed the war hero George McGovern. And TV had come to dominate Presidential races, requiring amazing amounts of money just to run a credible campaign. OK. I think I get it.
Without money politicians could no longer get elected. The 1972 election was really a watershed. Here in Texas we have at least six major TV media markets, and the distances make non-media campaigning for statewide and national offices impossible. So our politicians here have become dependent on the money suppliers. At the same time they also have to be approved by the media people, primarily TV. The power structure of TV, newspapers, and radio put the power to create or destroy a political image into a very few anonymous hands. Then redistricting has placed the rare state and federal representatives and state senator who are outliers into a few districts where they can be isolated and prevented from doing any damage to the powers that be.
The media creates the image, the politician is only the raw material. See the war hero - McGovern - who flew 35 combat missions as a B-24 pilot. I never saw that in the media in 1972. What was repeated ad nauseum was his supposed liberal anti-war views.
I guess we have gotten the Democratic Party that the money-men could buy and the media men could create and sell. Pelosi and Reid are the survivors of a long process of winnowing out those less acceptable to the media and money men.
As for the Republicans, the Reagan Revolution was really about putting together a political coalition of political outcasts (Libertarians, radicals like the John Birchers, NeoCons, radical evangelists and fundamentalists who have been out of step with the Enlightenment, etc.) and funding that coalition by conservative wealthy families who main goal is protecting their family wealth and social status by selling the free-market fallacy. Each of those groups got something in the way of patronage when the Republicans won, which held the coalition together until Bush/Cheney have destroyed its attraction. This year they haven't been able to buy a candidate they can all trust. Money, together with a message of fear, have sold their message to the public while graft in key districts has provided the margin of national victory.
The economists that provide the free-market propaganda merely provide ammunition for the media men, and the propaganda has to be approved by the money men. Someone once said that the economic theory you hear politicians spouting today comes from economists who wrote the theory a century earlier.
But as Galbraith says, modern academic economics departments are primarily propaganda mills for current politicians, preparing the more educated voting public for their tasks in electing the "right kind of politicians" (to support the wealthy money men like the financier of the Swift Boaters, Bob Perry or like Steve Forbes, publisher of Forbes Magazine.)
It's interesting to me that most University academic departments do not similarly act as propaganda mills the way Business Schools do, but it seems to me that most Business Schools are funded by private donations from the very wealthy. I guess that's why the network of conservative think tanks is necessary - to develop new and more modern propaganda. (Those think tanks also provide temporary employment between patronage jobs in the conservative political hack career path. Most academic departments, even poor ones, have much higher standards.) I'd also guess that's why academic Liberal Arts schools tend to be underfunded. They don't provide propaganda for the wealthy. Of course, by teaching "Atlas Shrugged" some liberal arts departments are currently getting donations or so I have read.
Anyway, thanks for your thoughtful response to my earlier question. You set off a lot of thought and I feel I do have a better understanding now, though I may have gotten some of it wrong. It's always a work in progress, of course.
August 16, 2008 10:50 AM | Reply | Permalink
"Why do so few Americans see how America is being raped by the wealthy conservatives?" Richardxx
Fun facts: (1) if you take out just fifteen counties (most of them the obvious info-tech centers in California, Washington and elsewhere, plus Manhattan) the entire increase in between-county income inequality in the US in the late 1990s disappears. James K. Galbraith
It seems to me that Galbraith's "fun fact" goes a long way toward answering Richardxx's question.
People are not doing anywhere near as badly as we liberals may believe -- that is, people compare their situations to the situations of those around them. If they see that everyone's in the same boat, they don't feel that they are being unjustly used.
There's no need to accuse them of intellectual laziness or lack of concern. They may sense there are problems (the media lives by shouting about any and every old "problem"), but for as long as they're doing as well as the neighbors -- and they appear to be -- those problems are abstract, don't affect them, and don't enter into consciousness.
August 16, 2008 10:09 AM | Reply | Permalink
Payday loans used to be something we court-martialed GI's for doing in the military. Now they is standard banking practice.
The various forms of crooked (but not illegal) practices credit card issuers practice to jump your interest rates from 9% to 30% even if you haven't missed a payment, the way credit cards have jacked up unannounced fees so that they collect more money from fees than interest, the provision of credit cards to the newly bankrupt because they know that such individuals cannot file again for bankruptcy for - is it still five years?
ARMs, sub-prime mortgages, Liar loans and all sold by offering mortgage brokers higher commissions for selling the riskier loans so that a lot of people with decent credit were steered into high risk mortgages.
A lot people still have uncertain jobs, so their income is uncertain. But their bills are not. Write a check and lose your job so that it bounces. You can't cover it,so your bank account is closed. The bank reports to that check agency, so no other bank will open an account for you. Suddenly every check you get you have to have cased at a check-cashing store at rates that run from 5% to 10% of the face value of the check - plus an administrative processing fee.
You have to have a car to get a job. Nopublic transportation. You have no credit, but you can still buy a used car at a "Bad Credit - No Credit" lot that carries the loan (the banks fund this, of course. Great money-maker for the banks.) But if you miss a payment they repo the car. Then they resell it for the same price as originally. But if you pay it off, the interest and fees are more than the car was worth at the beginning. Then you get into another financial bind (illness or layoff) but you can get a loan by signing the title of the car to the lender. Miss a payment, they repo it and sell it. They paid less than 10% the value of the car.
You earn enough to pay income taxes, but are intimidated by the tax forms. So you go to H&R Block or Jackson Hewitt or one of their many competitors. To save two weeks wait to get your refund, you are encouraged to take a rapid refund loan. Encouraged strongly by high commissions to the tax preparer. He/She also won't get hired back next year or get more hours work this year if he/she doesn't push rapid refund loans. The annual interest rate ranges from 400% to 600% for those loans, but since you are only saving two or three weeks on the time IRS would take, it doesn't seem like much. Besides, an income tax refund is "Free Money" even if you intentionally set your tax withholding a bit high to avoid having to suddenly be out of pocket to pay taxes. A lot of people use it as enforced savings to get a decent sized check to spend.
Note that these business processes hit both the upper and lower middle class, as well as the working poor.
It is large organizations acting as predators on individuals. Very few people have enough education or experience to make reasonable decisions in all those areas, and the large organizations carefully avoid providing anything close to full disclosure in understandable language. Besides, the organizations set up commission structures that encourage the sales individual to skate over the items that might trigger a "No Sale" response. One example - Jackson Hewitt offers what they call a "Gold Guarantee" for $29 with each tax return they prepare. If JH makes an error and IRS audits the return as a result, JH will pay the additional interest and penalties. Of course, since the process is computerized, JH will not make an error this fits in that definition. The only likely error is that the taxpayer gives wrong information or none at all, and that's not covered. But the tax preparer gets an additional $3 for every Gold Guarantee sold. So a lot of them simply check the box to add it to the return without even asking the taxpayer.
Financially rape the customer in large ways and small. Most will never get caught, and the few that are caught are just an "Oops. Sorry." That's the way the system is designed, you see. Bankers have gotten very good at that since their lobbiests paid politicians to eliminate the usury laws. Those are all on the theft side. Then there was teh rewrite of the Bankruptcy law that made credit card debt harder to eliminate and increased the cost of taking bankruptcy, something that has acerbated the foreclosure rate.
Ellen, if that's not raping the public and farming them for all the money that can be taken from them, then the term "rape" has no meaning in financial contexts. Though you might, for personal reasons, prefer the less emotional term "Predation" in such contexts. I find "rape" quite appropriate, myself.
Income inequality is an entirely different issue.
August 16, 2008 11:37 AM | Reply | Permalink
But your question wasn't whether people are being "raped by wealthy conservatives"; it was why don't they "see" it.
I continue to think Galbraith's "fun fact" is the best explanation of why they may be less up-in-arms than many of us would expect (hope?).
August 16, 2008 12:43 PM | Reply | Permalink
So your observation is that since the wealthiest of the wealthy tend to live isolated in a few enclaves, the rest of Americans do not connect them to the injustices that banks/corporations conduct on a daily basis to everyone around us?
Of course we all know that kindly avuncular Donald Trump is a nice guy because he has a TV show, and the rest of them either get no publicity or positive coverage since they own the media or are close friends with the owners.
If that's not your argument, then I obviously don't get the connection. If it is your argument, I'll have to consider it more carefully.
August 16, 2008 2:46 PM | Reply | Permalink
Re: Write a check and lose your job so that it bounces.
Checks usually clear within a couple of days so I doubt anyone would bounce a check they write before they are laid off unless the money wasn't there to start with: after all they’ll still get their last paycheck, so they won’t run out of money for another month (or two weeks at a bare minimum). Plenty of time for checks just written to clear. As for people who bounce checks later on, why bother to write them at all? The bill won’t be paid by a bounced check after all. You’re better off just having an unpaid bill, rather than an unpaid bill plus bad check writing on your record.
August 17, 2008 4:54 PM | Reply | Permalink
Ellen says;
Ellen, but what you see of your neighbor is superficial. You don't see how much disposable income they may or may not have, the debt they may have, whether or not they have retirement accounts, or how well those accounts are doing. Whether or not they have savings apart from the 401Ks, IRAs. Whether or not they're sitting on a sub prime mortgage that's ready to adjust.
But you're right, they may see everyone in the same boat so they feel secure, but they're fooling themselves.
August 17, 2008 4:22 PM | Reply | Permalink
What also appears obvious to me is that the academic discipline of Economics has become a branch of applied Math, with all the numbers provided by prices that are aggregated from individual economic transactions. As you wrote earlier, these transactions are characterized as being from a free market, but generally they are not.
What is also obvious to me is that the accounting numbers drop any connection to the power differences between buyer and seller. Economics today operates on the fiction that those power differences do not matter, but that is simply because there are no easily obtainable numbers to measure those power differences that can be plugged into the highly sophisticated economic math models.
In short, modern academic Economics is the statistics of accounting events, but to become that discipline it has abandoned political economics. I think that is the basis of much of the irrelevance of modern economics. Where are the accounting numbers that describe the power of advertising? Those numbers are not measured by the FASB or the SEC, so economists don't get them.
August 15, 2008 8:07 PM | Reply | Permalink
A minor objection to this point by JKG: "We should use those advantages. To what end? It seems clear to me that job one is to resolve the climate crisis.
And, given the renewed financial confidence of the world, it should be possible to keep Americans employed for a generation, if we do it right, working on this problem."
I don't want a job working on the climate crisis. It doesn't interest me at all. The idea isn't just to employ Americans for a generation, it's to employ them in jobs that they want and at wages that increase faster than inflation throughout their lives.
People who are interested in working on the climate crisis will do so but our national plan has to be far broader than that.
August 16, 2008 10:38 AM | Reply | Permalink
I think there are two classes of people that vote for the modern Republican/Conservative Party.
Those at the top who are better educated and know fully that the Conservative mantra is simply a grand con job by the wealthier among us to get those at the bottom to put conservatives in office.
Rush Limbaugh and Sean Hannity types preach to those at the bottom; the mile wide, half inch deep gang, the easily led, the undereducated, the ill informed, the racists, the homphobes, the anti semites, and those that like to experience combat vicariously by constantly supporting wear.
This crowd believes everything they read in Jerome Corsi's new book
Does anyone here think Limbaugh, Hannity, etc. actually believe what they preach?
August 16, 2008 11:28 AM | Reply | Permalink
JohnW1141 said:
"Those at the top who are better educated and know fully that the Conservative mantra is simply a grand con job by the wealthier among us to get those at the bottom to put conservatives in office" .....add:
August 16, 2008 11:37 AM | Reply | Permalink
Is there any indication that Limbaugh has the intelligence or education to realize that what he is promoting is crap?
My impression is that what he says emotion that his audience buys into in advance. He is very good at reading his audience and responding to them, but not much else.
A few Democrats who could similarly read their audience would be quite useful. Like maybe Pelosi or Reid. They are too busy trying to get consultants to read polls to them to listen to their actual public.
August 16, 2008 8:55 PM | Reply | Permalink
Oh Please. The worst example of the wealthy RAPING the unwashed and unaware is a semi-legit warranty for all of $29? If that's the worst thing you have to worry about, you are doing very well indeed.
In reality, you NEED the wealthy. They pay more than their share of income and payroll taxes. They create jobs. They endow public works. For all the public and some private benefits you might enjoy, the wealthy paid their share and part of yours.
The country can't function without the wealthy, and they only add to the general welfare rather than take away from it. I'm sure there are examples coming that dispute this. No worries. what I've seen so far isn't much different than superstition.
August 16, 2008 10:39 PM | Reply | Permalink
In an earlier thread I set forth a number of questions economists should have answered before the onset of the credit crisis not because I wanted answers -- in fact, just the opposite -- to show they'd provided no answers.
Apparently, Krugman agrees>/a> with me -- with the exception that he doesn't state the conclusion: "Economists: Dangerous Incompetents."
August 17, 2008 10:59 PM | Reply | Permalink