Deficit Hysteria by David Atkins

Deficit hysteria
by David Atkins ("thereisnospoon")

Dave Dayen has a must-read post again today:
I might pinpoint the source of the problem a bit earlier – the pivot to the deficit occurred with the 2010 State of the Union, when the first Catfood Commission was enacted. That started to move public opinion and focus media attention on deficits, at a time when the economy was still weak. But in general, this is correct. We’re having the wrong conversation. And we’ve been having it for some time. You could argue that having this argument squarely on GOP turf led to their sweep of the 2010 midterms, ensuring that the conversation and the policy outcomes would tilt in this direction for at least the next two years.

So when you read that this could be one of the longest and most difficult recessions in history, and that it’s due to the “unusual nature” of the financial meltdown, essentially the Ken Rogoff/Carmen Reinhart “This Time Is Different” analysis, understand that such an analysis ignores the self-inflicted wounds from Washington at a time when the economy could have been revitalized. We have a demand problem, and government didn’t do what was necessary to boost that demand. What’s more, to the extent that this is a balance sheet recession (and it is), reducing household debt, particularly through the largest source of such debt, mortgages, would be the appropriate response, and yet the housing policies have been utterly useless if not actively harmful. You can talk about structural factors, the particular past performance of financial crises, and what have you. Government had the ability to fix this – at the absolute least ameliorate this – and they chose not to.

In short, there is no deficit that cannot be plugged except for our political deficit. It sustains the defeatism of years of no growth, stagnant wages, high unemployment. The political tendency toward right-wing and corporatist policy ideas over the past 30 years, tied up with the cost of running campaigns, the failure of traditional media, the conservative movement’s public relations machinery, has widened that political deficit between what government can provide and what it will provide.

Continuing this morning's theme, again this is a failure of leadership from the White House to even try to have the right conversation about what needs to be done.

The point here is not to endlessly criticize the President, nor is it to ignore the very real constraints placed on him by the right wing propaganda infrastructure and the Republican House, as well as his need to look forward to re-election in 2012 with independent voters who are wary of "government spending" and desirous of "compromise."

It may be that between the S&P shakedown and the GOP House's willingness to take the entire economy hostage, some version of austerity was necessary, and that a real jobs program in the wake of the 2010 elections would not have been possible. The counterargument by Administration defenders against Krugman and progressives is that we lack the political savvy to understand what is politically possible given realities in Washington. That we're political rookies, so to speak.

But let's say the defenders of the Administration are right on the political realities of the situation. That doesn't mean the President had to embrace austerity with open arms. He could just as easily have laid out his jobs program and his desire to put America to work, while warning about the effects austerity would have. He could have called out House Republicans for taking the country hostage, and made clear that he was signing austerity measures under duress. He could have demanded real concessions in exchange for the austerity measures put in place.

We've all been stuck in no-win situations before, where our only options are bad or worse because our hands are being forced by others. Smart people know that the way to handle those situations is to get everything we can out of the bad deal, while making it clear that it isn't how we would have preferred to handle it. When things go wrong, we make clear why they went wrong, and hopefully we get more leeway to make the right choices next time. This is basic politics--and not just Washington politics. It's basic family politics, office politics, organizational politics.

But the Administration didn't do that. It chose to embrace austerity. Even if austerity was inevitable, the embrace of austerity was an unnecessary slap to the face of the progressive base, of intelligent followers of Keynes' economic ideas, and of working people everywhere, while doing little to shore up the President's credibility with independents or feed the confidence fairy in the markets.

The reason that many progressives are so over the top in suggesting that the Administration is corrupted and acting in bad faith is because it's an easy answer to a hard question: what is going through the heads of the policy and political advisers at the White House? The embrace of austerity seems so basically stupid from both a policy and political standpoint that people looking in on the situation from the outside are left with either corruption or weakness as an answer.

If there's some brilliant strategy involved here, perhaps it's time White House advisers shared it with the rest of us.