Archive for November 27, 2009

The vague odor of failure and defeat…

November 27, 2009 2 comments

Leon Keyserling’s bastard offspring know they are losing the debate over unemployment and how to address it. There is growing odor of failure and defeat on the left of the Democratic Party as it becomes clear that the emerging Washington consensus believes it difficult, if not impossible, to continue the occupation of Iraq and Afghanistan, fix the long term problems of the failed health and retirement insurance systems, and still address the growing problem of a permanently unemployed mass of working families.

Saint Paul leads us off with a dandy whiff:

There’s something disturbingly familiar about the current deficit hysteria. There’s the way that fear, and a demand for action against a supposed threat, has spread despite the lack of any solid evidence to support it. There’s the way that many news stories seem to present only one side of the argument, and suppress or neglect contrary evidence (e.g., writing articles about how nervous investors are turning on Japan while never mentioning that the current interest rate on Japanese long-term debt is, um, 1.3 percent).

And I suddenly realized what it is: it’s like the runup to the Iraq war, when all the serious people knew that Saddam was working on nukes and invasion was the only option, and anyone who pointed out that there was no evidence to that effect was a flake.

It’s amazing, and dispiriting, to see it happening all over again.

Apparently, the prospect of trillion dollar deficits as far as the eyes can see is not convincing enough for Paul. Given the prospects of 11, 12 or 13 percent unemployment next year, trillion dollar deficits might seem to him to be of far less consequence. Paul sees this onrushing freight train – the light at the end of the tunnel – and hopes to convince the Messiah that, in the words of the Great Dick (Cheney), deficits don’t matter compared to what will happen if and when the unemployment check is no longer in the mail.

Jimmy Galbraith too wonders at the willingness of Washington to ignore the warning signs of an impending apocalypse. And he knows exactly who is responsible for the impending wreckage:

I mostly don’t blame President Obama; he and his team went as far as they felt they could. I blame the head-in-the-sand politicians in Congress, the over-optimistic forecasters, the half-educated press, and the power of the financial lobby. I blame the avatars of fiscal virtue, the public debt scare-mongerers, the astrologers for whom thirteen significant digits (a trillion) for the stimulus package was just too much. I blame the Senate, which hands the balance of power to small states at the expense of disaster areas like California, Florida and New York. I do blame the Bush-Obama financial policy team, who either believed that “credit would flow again” if you stuffed the banks with money, or knew that it wouldn’t.

As against this crowd, Galbraith knows what needs to be done:

Technically it would have been fairly easy, 10 months ago, to get this bus back on the road. There could have been open-ended fiscal assistance to stop the budget hemorrhage of the states and cities. There could have been a jobs program and effective foreclosure relief. There could have been a payroll tax holiday. There could have been a strategy for sustained massive effort on infrastructure, energy and climate. There could have been prompt corrective action to resolve, instead of coddle, the worst of the banks.

And all of this could be done – we suppose – while the US continued to occupy Iraq and Afghanistan, threaten Iran and Pakistan, maintain a global carrier fleet, and pursue its stated objective of preventing the rise of any competitor.

Isn’t it interesting how Mr. Galbraith conveniently fails to mention those costs as well?

The problem, Jamie tells us – his friends call him Jamie, but if he is going to fuck us, we might as well take the liberty, as well – is the mindset of the Washington insiders and their Wall Street allies who are incapable of grasping the approaching disaster:

I’m tempted to say that the United States is plainly unable to cope with the economic crisis in a serious way. The barriers are philosophical, procedural, and constitutional. So long as economic thinking is mired in a world that disappeared with the collapse of the Bretton Woods system in 1971, so long as any action requires 60 Senate votes, and so long as political capital erodes from the start of a fixed four-year presidential term, we’re stuck.

The Party of Washington is trapped by outmoded thinking, anachronistic institutions, and political cowardice, says Jimmy. But, his real target is the view that somehow Washington’s debt load limits options in this crisis. Washington’s debt, Jimmy reminds us all, is an obligation written on paper, and carrying all the value inherent in the instrument. As long as suckers in China are willing to hold these pieces of paper – and interest rates show they still are willing to hold them – we can print our way out of the tidal wave of unemployment heading ashore:

Since the early 1980s, the world has held the Treasury bonds that the U.S. chose to issue. The system is fragile. But so long as it lasts, it doesn’t discipline our budget (and if it broke, we could replace it). Low interest rates prove this: despite all the dire predictions, there is no difficulty in placing Treasury debt. Hence, we are free to pursue high employment, if we choose to do it.

High levels of unemployment will be tolerated by Washington, and the unemployed will be told to be patient as a hoped for recovery materializes. But, will it materialize? Who knows, since you being patient is the entire point of the exercise – as long as you are patient, Washington will ignore you. And when you are no longer patient, Jimmy fears it will be too late: Another failed Democratic Party administration will be washed away in a flood of anger:

So we’ll be told to wait, to be patient, and to make sure we don’t buy what we can’t afford. And double-digit joblessness will linger on, breeding frustration and anger — perhaps all the way through to the mid-term elections. After which, what will be possible is anyone’s guess.

Peter Dorman thinks that problems is even more depressing than articulated by either Krugman or Galbraith: The Messiah is an empty suit, a charlatan hiding behind the curtain pretending to be the Great and Powerful Oz:

… [T]here has been and is no program. Obama’s “program” in health care is to get a bill passed, whatever its content. His “program” on climate change is to get a bill passed, eventually, of some sort. His “program” on finance is to prevent a collapse and hope that the system will reform itself. His “program” on Afghanistan is to identify the minimum number of additional troops that will protect Democrats from the accusation that they are soft and unpatriotic. In short, he is likely to further hollow out the Democratic Party as a political enterprise and leave little legacy of social progress. The only reason the Democrats will not implode as their European counterparts have is that our system effectively excludes minority parties, and the Republicans are scarier than ever.

His solution is simple, if unspecified:

We need a dramatically different direction in politics.

Peter, there is term for people who propose to take you in a new direction without specifying the destination: Kidnapper.

In absence of specificity by Dorman, Brad DeLong provides both the destination and the road map for this new direction:

We could cushion the impact of another big downward shock by a lot more deficit spending–unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government’s money is as good as anybody else’s.

The problem with this scheme, DeLong admits, is that no one in position to implement it supports it:

But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer (sic) 2030. The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments.

Here’s an argument Brad, Jamie, Peter and Paul neglected to advance: If all of this domestic spending were so important, why can’t it come out of the defense budget? Wouldn’t that address the problem of public debt that so preoccupies the Washington consensus?

By the way: How much do we spend on defense anyway? Have you ever seen two sources on this subject which agree? Did those sources include the cost of domestic and foreign suveillance – The CIA, NSA, DIA and the alphabet soup of hidden agencies? All those civilian jets taking kidnapped victims to the torture dungeons of Egypt or Bagram Airfield?

Just asking…

The continued focus on government spending as a means to increase employment by Krugman, DeLong, and Galbraith is nothing more than attempt to convince Washington that it can continue to occupy Iraq and Afghanistan even as it combats unemployment here at home. It is a warmed over regurgitation of NSC-68. The lack of imagination among these economists is shocking – but no more shocking than the realization that they are quite willing to prolong the agony of the peoples of Iraq and Afghanistan so long as it provides necessary boost to their full employment agenda.