Friday, February 18, 2011

The Beltway Village agrees to declare economic reality null and void

I'm always aware that two-party politics in the United States gives political conversation a kind of binomial character. People can be quick to here a criticism of the Democrats as a plug for the Republicans, and vice versa.

But in real life, it's possible to walk and talk at the same time.

That's particularly important when a bipartisan consensus has gone off the tracks of the realistic and the sensible.

Dan Froomkin, one of the Huffington Post's best hires, has an important piece of reporting called Government Spending Goes From Hero To Goat 02/16/2011 in which he discusses a dangerous current case of bipartisan denial of economic realities. The notion that the federal government needs to slash spending in the middle of the worst prolonged economic slump since the Great Depression has become, for the moment, part of the definition of seriousness in the Beltway Village. As that anonymous Administration official put it, speaking for the Democratic Administration and the Republican Party, "We both agree we should cut. The question is how we cut and what we cut."

As Froomkin reports, this flies in the face of empirical experience and the basic perspective of the economics profession:

"The uncontested premise at the moment is that the federal government's spending is 'unsustainable,'" said University of Texas professor James Galbraith, one of a handful of progressives still willing to shout Keynesian economics from the rooftops.

"A wave of programmed conformity has swept over the Washington community on this question," he told The Huffington Post. "The substance of this issue has been placed on an index of forbidden thought. And anybody who expresses those thoughts is excommunicated.

"It's exactly the same phenomenon that led to the acceptance of the war in Iraq," Galbraith said. "Those who hold a different view are by definition ruled out of the discourse, and the fact that they are right will only be accepted later, when it no longer matters." [my emphasis]
Froomkin points out that "President Obama never successfully articulated the value of government spending in the first place." And he quotes others emphasizing how serious a problem this kind of reality-averse Herbert Hoover economics may turn out to be:

Luke Mitchell, the deputy editor of Popular Science and an observer of economic policy, wrote in an email that the new narrative in Washington appears to be "that everybody knows that something must be cut. And that struck me as extremely odd, given that just a generation ago even Richard Nixon knew that 'we are all Keynesians now.'

"It's as if people suddenly forget the world is heliocentric," Mitchell wrote (referring to the fact that the earth revolves around the sun). "An entire concept, one taught in every introductory economics course, has simply disappeared from our discourse."

"The basic Keynesian position is actually one that is held pretty widely in the economics profession," said Dean Baker, co-director of the Center for Economic and Policy Research. "Spending boosts the economy; that's not what we were arguing over, and it's not as if there's been any evidence going the other way."

The reason it's not talked about anymore is that "the Republicans took control of the debate," Baker said. "And [President] Obama, he just blew it in a really huge way."
Froomkin summarizes the level of denial involved in this as follows:

The laws of supply and demand haven't changed. Nothing has happened to suddenly put Keynesian economic theory in doubt. There is still an entirely plausible argument to be made that government spending cuts are absolutely the last thing this economy needs.
But in the Beltway Village, the Serious People have a consensus: "We both agree we should cut. The question is how we cut and what we cut."

At least in Herbert Hoover's day, there was good reason to think that when business corporations started making more money, that American companies would begin creating more American jobs. But as Harold Meyerson explains in Business Is Booming The American Prospect 01/28/2011, things have changed:

When he was CEO of General Electric, in 1998, Jack Welch pithily summarized his vision for corporate America: "Ideally, you'd have every plant you own on a barge to move with currencies and changes in the economy."

Since then, corporations have discovered that they don't need barges in order to unmoor themselves from the American economy. As corporate profits skyrocket, even as the economy remains stalled in a deep recession, Americans confront a grim new reality: Our corporations don't need us anymore. Half their revenues come from abroad. Their products, increasingly, come from abroad as well.
We need aggressive economic policies aimed at changing the trajectory of the US economy to be greener, more able to create jobs at home, less bound to chasing short-term quarterly stock prices, and not nearly so vulnerable to a reckless financial industry.

Herbert Hoover economics won't get us there. And the stakes for the majority in the US are very high. Jacob S. Hacker, also writing in The American Prospect (Reclaiming Middle-Class America 02/16/2011) spells out the urgency of the Democratic Party articulating an effective vision of affirmative government, i.e., government that can do constructive things for people's lives:

For progressives, reclaiming the high political ground by addressing the bread-and-butter concerns of the middle class is the key to not just broadly shared prosperity but also long-term political success. As the last two years suggest, however, picking the ball back up won't be easy. Progressives will have to grapple with the decline of the organizations, like labor unions and broad-based civic associations, that informed Americans about what was at stake in political debates and helped them shape what government did. They will have to break the Democrats' unholy alliance with Wall Street. Above all, they will need to put forth a clear alternative to the anti-government mantra of tax cuts, deregulation, and programmatic cutbacks--one that is far more compelling than the grab bag of deficit reduction and modest new initiatives that defined the Democratic economic message for so much of the 1990s and 2000s.

Progressives will also have to confront an inconvenient truth: They are losing on economic issues not because Americans' judgments are clouded by social issues or racial animosity but because, battered by the economic trends just described and bombarded with mixed messages, many middle-class Americans are wondering whether progressives can really deliver a better economic life. And, perhaps most challenging, progressives are losing because the well of public trust in government has been so badly poisoned by the failures of government to deliver that life in the recent past.

It is a myth that Americans do not care about inequality or put unbridled faith in corporate America or believe they all will be rich one day. In fact, Americans are strikingly egalitarian in many respects (ask ordinary people how they feel about Wall Street) and relatively realistic about their own economic prospects. But one common presumption is true: Many Americans have lost their faith in government. A generation ago, the majority of Americans said they trusted public officials to do what was right. No more: In 2008, 69 percent of Americans agreed that "government is pretty much run by a few big interests looking out for themselves" rather than for "the benefit of all the people"; only 29 percent disagreed. In 1964--the first year this question was asked by the American National Election Studies--the numbers were reversed: 64 percent disagreed; 29 percent agreed. This loss of faith is the most destructive legacy of a cynical right that has torn down government to gain power and a feeble center that has too often gone along.

Today's anti-government tide is deeply corrosive. It feeds excess suspicion, fuels the disconnect between citizens and leaders, and pushes voters--who still overwhelmingly embrace current middle-class programs--toward tax cuts, spending cutbacks, and other policies that feed on anti-government sentiments. It is impossible to imagine a political movement centered on middle-class concerns that somehow avoids using activist government. Rebuilding the middle class requires rebuilding a sense that government can make a positive difference. [my emphasis]
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