All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred, and schizophrenia.
—George Orwell, Politics and the English Language, 1946
Many people know this story; many learned it as children in Sunday School. What is typically omitted from the presentation in 3rd-grade Sunday school classes is what happened when Moses got angry. He asked who of his followers were loyal to him. One faction stood by him. He told that faction to go kill all the others, and they did. They killed 3000 of their own people. This is not a footnote to history. This is one of the foundational stories of the Hebrew people.
Gracchus kept pushing, and finally the Senate got fed up and went on a rampage. They killed him and 300 of his supporters. They used clubs. It took them an afternoon. It was the first open bloodshed in Roman politics in nearly 400 years, and it put Rome one step further along the path to empire.
The Hundred Years' War was a series of conflicts waged from 1337 to 1453 between the Kingdom of England and the Kingdom of France and their various allies for control of the French throne.In France, civil wars, deadly epidemics, famines and bandit free companies of mercenaries reduced the population by about one-half.
The Peace of Westphalia ended the Thirty Years' war and the Eighty Years' war (not to be confused with the Hundred Years' War). Before that, a nation was an just an ethnic group, like Russian or Jewish, and a sovereign state was no more and no less that whatever plot of land and group of people some emperor, king, prince, warlord, or local protection racket had got control of.
The Peace of Westphalia didn't end warfare, of course, but it did establish the principle that there were states, that those states had boundaries, and that wars that breached those boundaries were in some sense exceptional and undesirable events. This was in contrast to the previous situation, where the surface of the earth was one undifferentiated expanse of land and water, with armies sloshing over it in a state of perpetual warfare.
(The fact that the Iraqi invasion of Kuwait in 1990 was an invasion of a sovereign state was one of the justifications for the First Gulf War.)
The development of the nation-state led to great advances in warfare. Wars were no longer conflicts between individual kings and armies, but between entire states, with cohesive populations and—eventually—industrialized economies. This allowed us to efficiently and systematically kill 16 million people in World War I, followed just 20 years later by 60 million people in World War II.
To start with, we took the continent from the Native Americans, in acts that today would be counted as genocide.
Southern agriculture ran on slave labor. It took a civil war to end slavery, and 3% of the population died in that war.
After slavery ended, we had a century of institutionalized racism. It is difficult to overemphasize how pervasive and vicious this was. It was written right into the laws: statutes said that blacks were required to do some things, and that blacks were forbidden to do other things. Local police policed cities and neighborhoods, harassing, threatening, driving out, or arresting any blacks they encountered. Property deeds commonly had clauses specifying that the property could not be sold to a black person—this was a way to keep white neighborhoods white. Bridges on Long Island were built to block buses. This made it difficult for working-class blacks who relied on public transportation to reach the beach. It was a way of keeping blacks off the beaches without having to post those distasteful (and legally questionable) "No Coloreds" signs.
But you didn't have to be black to be on the wrong end of a power struggle. The early history of the labor movement is a history of violence and bloodshed, with labor on one side and management on the other.
In The Gang That Couldn't Shoot Straight, a roman à clef about the Brooklyn Mafia, Jimmy Breslin writes
The foundation of the Mafia is its Sicilian blood. [...] It was formed centuries ago in Sicily to protect people [...] Like any such organization, including the police in America, it was most responsive to the needs of the rich Sicilian landowners. [...]In the depths of the Great Depression, with GDP at less than 75% of capacity and unemployment at 25%, President Franklin Delano Roosevelt pushed through the New Deal. It was a package of programs, includingIn America, where violence is loved and respected in all sectors, the Mafia leaped and spread to every major city and its suburbs as the nation grew. When the protection-minded Mafia people came to America, they found the landowners had so many guards it was ludicrous. The National Guard shot down women and children during a strike against a Rockefeller mine in Ludlow, Colorado. The fiercest dons of them all threw up their hands in defeat and admiration. "No can match," Giuseppe (Extreme Unction) Magaddino of the Kansas City outfit said. The Mafia was left with only the poor to protect. [...]
In the 1950s we had a witch-hunt called McCarthyism. This was before I was born, so I learned of it only as history, and as rather archaic 1950s black-and-white TV history at that. But the fact is it is quite recent history. The 1976 Woody Allen movie The Front is a fictionalized account of the Hollywood blacklist. At the end of the film, they roll credits, giving, for many of the people who worked on the movie, the dates that they were blacklisted.
In the 1960s, the civil rights movement finally ended institutionalized racism, but not without its portion of blood in the streets. I have a theory that television is one reason that the civil rights movement finally succeeded when it did. Television brought video of the raw brutality necessary to sustain Jim Crow into the living rooms of Middle America, and they couldn't stomach it.
At the same time, there was a pervasive sense through the 1960s that the whole system was falling apart. Within the span of a few years, President John F. Kennedy, Reverend Martin Luther King Jr., and Senator Robert F. Kennedy were all assassinated. RFK had been a candidate for the 1968 Democratic presidential nomination. His assassination left the Democrats in disarray, and Richard Nixon went on to win the presidency for the Republicans.
Youth culture was being consumed by sex and drugs and rock 'n' roll, which was either good or bad, depending on how you felt about it, but many people felt bad about it.
Crime was rising and the cities were burning. In particular, every summer seemed to bring a new round of riots in the vast urban ghettos where blacks lived.
The Vietnam War was steadily grinding towards its final American body count of 60,000. God only knows how many Vietnamese died; Wikipedia cites estimates ranging from 800,000 to 3.1 million. The National Guard was no longer protecting the landowners against organized labor, it was protecting the landowners against organized students. They opened fire at Kent State and killed four of them.
In the 1970s, the US hit peak oil production, but not, needless to say, peak oil demand. This gave foreign oil producers market power (it's a little more complicated than that, but not much.) After the 1973 Arab-Israeli war, the Arab states, operating under the banner of the Organization of Petroleum-Exporting Countries (OPEC) retaliated against the West by raising the price of oil. Oil jumped from $3/barrel to $12/barrel overnight. That may not sound like much, but in today's money, it would be like oil going from $100/barrel (today's price) to $400/barrel, which would blow the economy out of the water.
The jump in oil prices drove the US economy into recession, with both high inflation and high unemployment. This is exactly what textbook macroeconomics says will happen when there is a positive external supply shock to an economy. However, during the 1960s, there was a view that the economy faced a trade-off between inflation and unemployment: roughly
inflation * unemployment = constant
and you could pick where on that curve you wanted to be as a matter of policy.
People felt both bewildered and betrayed to suddenly be facing more of both.
Oh, and then there was Watergate.
In order to understand this, we have to understand
Today's Republican party is an alliance between the plutocrats and the preachers, plus some opportunists along for the ride—full stop.That is a fair description of the party, but it describes the leadership, not the base. And you can't win elections with just the leadership, because there aren't enough of them. The plutocrats are the 1%; I'll spot you 1% for the preachers and another 1% for the opportunists, but you're only up to 3%, and you need 51% to win an election. You need a base.
Historically, the republicans did have a broad base. The preachers could be counted on to bring many of their flock along with them. Also, there were people who voted Republican as a matter of personal, family, or group identity. For example, there are people in my family who are life-long Republicans, and as bad as the Republicans are, I'm not going to get in their face about it.
However, for the last generation, the Republicans have assembled their base from two large, disaffected groups: whites and men. (Obviously, there's some overlap here.)
In American politics, the Southern strategy refers to the Republican Party strategy of gaining political support or winning elections in the Southern section of the country by appealing to racism against African Americans.It worked because it was Democrats (especially President Lyndon Johnson) who pushed though the key civil rights acts at the federal level. Before that, Republicans had not been competitive in the South for a century, because President Abraham Lincoln was a Republican.
The Southern strategy wasn't just a matter of race-baiting. It interacted with policy issues in synergistic ways. In a now infamous interview, Republican strategist Lee Atwater explained
You start out in 1954 by saying, "Nigger, nigger, nigger". By 1968 you can't say "nigger"—that hurts you, backfires. So you say stuff like, uh, forced busing, states' rights, and all that stuff, and you're getting so abstract. Now, you're talking about cutting taxes, and all these things you're talking about are totally economic things and a byproduct of them is, blacks get hurt worse than whites... "We want to cut this," is much more abstract than even the busing thing, uh, and a hell of a lot more abstract than "Nigger, nigger".President Ronald Reagan was saying these same things—edited for public consumption—when he talked about "welfare queens driving Cadillacs". Of course, there were never any welfare queens driving Cadillacs, or even Datsuns. Reagan just made that stuff up. But it cemented Republican support among racist whites, and it gave Republicans political cover for an ongoing program of tax and benefit cuts. These systematically transfer wealth up the income ladder—from poor to rich—which is what the plutocrats want.
There are close parallels between the racial and religions wings of the Republican base. Just as the the black civil rights movement drove whites to the Republican party, the women's civil rights movement drove men to the Republican party. The flash point was the 1973 Roe vs. Wade Supreme Court decision that legalized abortion.
Women had been making steady gains in the public sphere throughout the 20th century: suffrage, right to work, right to contraception, protection from employment discrimination. But abortion was a game-changer. With abortion as a fallback, women can fuck who they want and decide later which pregnancies to carry and which to terminate. It constitutes a HUGE transfer of power from men to women.
The power in question is not political power, or economic power. It is sexual power: the power to choose your sex partners, and to decide whether, when and with whom to reproduce. In the long run, sexual power is the only kind of power that matters, because...you know...you can't take it with you. The best anyone can do is pass it along.
It is commonly observed that the people who oppose abortion—the people who profess the greatest concern for the lives of children before they are born—seem to be the least concerned for the lives of children (or anyone) after they are born. For example, they oppose the social and welfare programs that could help children. They march in the streets to protest abortion rights, but don't even notice when congress cuts funding for the Women, Infants, and Children (WIC) program.
Liberals sometimes hold this up as an inconsistency in their position, but it's not a bug, it's a feature. Their goal is to maximize the burden on the women for having unsanctioned sex. First, force her to bear the child. Then, deny her the resources she needs to raise the child.
Over the last generation, the Republicans have delivered—very substantially—on their promises to the white wing of their base. They have cut taxes. They have cut benefits. These things are in the financial interest of the plutocrats, and they were happy to do them.
These things are also in the interest of their base, but only in the sense recounted by an old story (attributed to various nationalities)
A peasant finds a magic lamp. A genie appears and offers him anything his heart desires, on condition that his neighbor will receive double the same wish. The lucky man considers, then asks: "Poke out one of my eyes."The fact that a large—and politically decisive—faction of the American people is willing to vote against its own direct interests in pursuit of some lost idea of racial superiority drives liberals right up the wall.
In contrast, the religious wing of the Republican base has had to content itself mostly with lip service. Republican candidates do obeisance to their gods, and they can count on the occasional fire-and-brimstone speech, such as Pat Buchanan's Culture War speech at the 1992 Republican national convention. But they haven't gotten a theocracy, or even very many concrete policy goals.
Partly, this is because the key issues for the religious right—contraception and abortion—were established as constitutional rights by the Supreme Court. Even with control of congress and the presidency, there wasn't much that Republicans could do on those issues, and taking control the Supreme Court is a very long term proposition—not that they haven't been working on it. Republicans have been somewhat more effective at the state level, chipping away at abortion rights with regulations calculated to increase cost and limit access, and pushing "abstinence only" sex education, which turns out to be fairly effective prophylaxis against prophylaxis.
The other reason that Republicans never delivered as much to the religious wing of their base is that the Plutocrats don't really care about religious issues. They have enough money to attract (or buy) the women they want, so sexual politics don't concern them so much.
This may all sound like a tempest in a teapot—or excessively analyzed—but it's not. No human ever willingly gives up any kind or amount of power. Historically, the only way to take power from a human was to kill them, or maybe enslave them. Today, in the United States, we have a nearly unprecedented situation where large groups of people (whites and men) have had power taken from them, yet remain living, fully enfranchised members of society. These people are frightened and angry, and they are fighting a rear-guard action to hold onto what power they still have, and to try to claw back some of what they have lost.
In view of this, perhaps the most remarkable thing about the current political situation is just how little violence has accompanied it. The country has not descended into civil war. We have seen only a few race riots (typically in response to specific grievances, such as the Rodney King riots) and none of the kind of sectarian religious violence that plagues places like Pakistan or Northern Ireland.
Instead, we have seen the legitimate exercise of democracy, as the Republicans pulled together a coalition that managed to get 51% of the vote and hold power for an entire generation. Like any coalition, its constituent groups were in it for different ends, and like any good coalition, all its constituent groups got something in return for their support
Power is a zero-sum game. The political gains of blacks and women are, symmetrically, political losses for whites and men. When people lose, they feel bad, and when people lose politically, they feel really bad. It is hard to appreciate this unless you have experienced it yourself. It is depressing. It is horrid. Throwing in their lot with the Republicans gave large groups of whites and men a ticket out of this hell, and they took it.
This makes Hispanics the single fastest growing ethnic group in the United States. As recent immigrants, they are typically poor, and have a natural affinity for Democratic policies. At the same time, as recent immigrants, they lack the history of black/white racial strife that drove white Americans to the Republican party. So the Hispanic electorate is growing, and their votes are going mostly to the Democratic party.
Over the ensuing decades, gays gained visibility, and voice. They organized politically. Eventually, the gay vote became important in party politics. Neither the Democrats nor the Republicans much wanted to deal with this. For their part, the Democratic party establishment had to be pushed, and prodded, and in some cases shamed into supporting gay rights. But in the end, the Democratic party recognized the importance of gay rights, and the importance of the gay vote, and they backed gay rights, and they got that vote.
In contrast, the Republicans are utterly and constitutionally unable to accept gays. No way, no how, not now, not ever. You're evil. We hate you. Go away. Nominally, this is because the religious wing of the party considers homosexuality to be a sin. But if that were all that was standing between the Republicans and the votes needed to win an election, they'd have found a way around it. Religions can be flexible when it suits them.
The real issue is much deeper, and completely intractable. In the Republican party, religion is merely a cover for the struggle of men to control women. And despite the religious talk, and the religious posturing, the underlying struggle is not religious. The underlying struggle is sexual, and one of the most important, powerful, and effective instruments wielded by men against women in this struggle is sexual repression.
Sexual repression is not something that you can do by halves. You cannot be preaching hellfire and damnation to women who wear short skirts, while allowing the gays to hold hands and maybe neck in the park. It just doesn't work. So the Republicans can never accept gays on any basis at all, because if they did, the entire edifice of sexual repression would collapse, and they would lose half their base.
Faced with grudging acceptance by the Democrats on one side, and virulent rejection by the Republicans on the other, gays vote overwhelmingly Democratic. There aren't that many gays in the population; survey data suggests 2% or 3%. But in a close election, even a few percent can make the difference. Obama's margin of victory in 2012 was about the size of the gay vote.
Perhaps the most basic is simply that crazy is what's left after you take violence off the table. In other times and places, people like the Republicans would be rioting in the streets, or forming militias, or assassinating their enemies. That isn't happening in the United States today, and what they are left with is incoherent rage. What these people are really upset about is the fact that the president is a nigger, but it isn't polite to say that. More to the point, it isn't to their political advantage to say that. Instead, we have this Kenyan Muslim Fascist Socialist nonsense (inexplicably being pushed even by people who should know better, like Donald Trump).
The rise of cable television in the 1980s broke apart this broadcast hegemony. Cable operators do not need an FCC license, and operate in no interest but their own. Equally important, cable channels can target niche audiences in a way that national broadcasters can not. Indeed, this was one of the original promises of a cable system with scores—hundreds—of channels, and cable has delivered on that promise: today we have the SciFi channel, and the fishing channel, and the Spanish soap-opera channel, and...well...hundreds more.
But cable has also created channels that target political audiences, like Fox and MSNBC, and that slant news to a degree that would never have been possible in the old broadcast system. By the 1990s, "the news" was becoming a joke
Charlie Mackenzie: Hey Mom, I find it interesting that you refer to the Weekly World News as, "The paper." The paper contains facts.You might imagine that media Balkanization would expose people to more diverse views, but it actually goes the other way, due to an echo-chamber effect (the technical term is confirmation bias). People preferentially seek sources that they agree with; as a result, they are not exposed to opposing views. With so many sources to choose from, everyone today can live in their own little bubble, with their own facts and their own reality.May Mackenzie: This paper contains facts. And this paper has the eighth highest circulation in the whole wide world. Right? Plenty of facts. "Pregnant man gives birth." That's a fact.
—So I Married an Axe Murderer (1993)
The echo-chamber effect seems to be stronger on the right than the left. At Talking Right—About Torture I wrote
I was listening to our local talk radio station ... [*]and at Euro Delusions, Paul Krugman writes[* in the hopes of understanding why our country has gone off the rails]
I've been browsing through the collected speeches of Olli Rehn, the vice-president of the European Commission, who has emerged as the face of denialism when it comes to the effects of austerity. What I wanted to do is pinpoint what, exactly, he and those who share his position see as the evidence that their view is right.but at Revenge of the Reality-Based Community: My life on the Republican right—and how I saw it all go wrong, Bruce Bartlett recounts
I assumed I would get a lot of grief for my comments in the Suskind article and was surprised when there was none at all.The rise of the internet after the turn of the century only pushed these trends further. Today, anyone with a computer and an internet connection can put their voice and their views out there, and many do. Cable television balkanized the broadcast world, but the internet shattered it into millions of tiny shards. We can no longer even keep track of what is being said in the media, let alone form any kind consensus.Finally, I started asking people about it. Not one person had read it or cared in the slightest what the New York Times had to say about anything.
I was flabbergasted. [...] This was my first exposure to what has been called "epistemic closure" among conservatives—living in their own bubble where nonsensical ideas circulate with no contradiction.
The internet is also killing off newspapers, partly by competing with them for people's limited time and attention, but mainly by soaking up more and more of the available advertising revenue. Classified ads were always a major revenue center for newspapers, and the migration of the classifieds from paper to Craig's List has been an especially severe blow to the newspaper business.
"Haven't you heard, it's a battle of words?" the poster-bearer cried.and he turned out to be prescient. The Republicans have recognized that in our current media maelstrom they can say whatever is convenient at the instant with no fear that they will ever be contradicted, or even held to their own words.
For example, Fox News gave cover to Wisconsin governor Scott Walker when he was union-busting, with commentators disparaging those public-sector unions, and those public-sector employees pulling down $50K, $60K, really big money, and this has to stop, and on and on and on...
Within the year, those very same commentators were earnestly explaining why the Bush tax cuts had to be preserved for people at the $250K income level, because, you know, $250K, that's not rich, that's just middle class, and these people have mortgages to pay, and on, and on, and on...
This is all (obviously) done right out in the open, and the problem is not that no one sees it, the problem is that no one seems to care. The Daily Show fights the good fight, splicing together contradictory clips and showing them back-to-back. That's good for a laugh, but it doesn't shut down the Republicans, or Fox News, or even break their stride.
By the time George W. Bush was in office, Republicans were expressing open contempt for "reality". In Faith, Certainty and the Presidency of George W. Bush, Ron Suskind quotes a Bush aide
The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." I nodded and murmured something about enlightenment principles and empiricism. He cut me off. "That's not the way the world really works anymore," he continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality—judiciously, as you will— we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors...and you, all of you, will be left to just study what we do.The Republican undertaking to "create our own reality" is broadly supported by two other developments
A policy institute (often termed "think tank" by journalists) is an organization that performs research and advocacy concerning topics such as social policy, political strategy, economics, military, technology, and culture.A think tank will typically have some offices somewhere, and some staff. They do research, they write white papers, they give talks. It's a living.
Some think tanks are funded by governments or clients to do actual research. But others are funded by corporations or billionaires, like Exxon or the Koch brothers, for the express purpose of advancing the political and social agenda of those corporations and billionaires.
Research is much easier when the sponsor tells you the answer up front. You can dispense with all that tedious, ummm, research, and just write down the answer. The sponsor gets the results they want, and you get paid. See how easy it is?
There are many of these bought-and-paid-for research houses, with names like the Heritage Foundation and the CATO Institute and the American Enterprise Institute. They provide intellectual cover for the Republicans when they need to tell a particular lie. They provide a ready source of facts (or "facts"), white papers, quotations, commentators, and spokesmen when the Republicans need to get a message into the media. More subtly, they contribute to the background of things that "everyone knows", which helps to shift the Overton window in directions favorable to the Republicans. The effect of moving the Overton window is illustrated by the statement
Some say the sun rises in the east; some say in the west. Probably the truth lies somewhere in-between.There was a kerfuffle in 2012 when the Koch brothers made a push for control of the Cato Institute. Libertarians who had long looked up to the Cato Institute as a standard-bearer of libertarianism were forced to confront the fact that in the end, it was merely doing the bidding of its paymasters, and, worse, that those paymasters were not especially libertarian.
Having hot-and-cold running facts is convenient, but if you want to control policy, you have to get your facts out there: you have to get them into the media. The Republicans have been enormously aided in this by the relentless and ongoing shift from news-as-facts to news-as-entertainment.
But reading that entire city paper would take you a couple of hours each day, and probably no one does that except for journalism professors and maybe some news junkies. Most people can keep up with the facts that matter to them with a glance at the front page, or maybe 5 minutes of radio news at the top of the hour. The 6:00 news on television takes those same 5 minutes of facts, adds bumpers, filler, the weather forecast, 8 minutes of commercials and manages to stretch it to a half-hour broadcast, but that's about the limit for news as facts.
The fundamental problem with news as facts is that facts just aren't that interesting. I was on a college campus one week when I was a teenager. I found the room where the college newspaper was produced. There was a teletype machine, with a live wire feed. It sat there, all day long, printing out little slugs of news. At first, I was excited: here was the raw data behind the news! After reading it for 10 minutes, I got bored and wandered off.
With the advent of cable TV came the 24-hour news channels, and the 24-hour news channels need some way to make people watch the television while those little slugs come off of the teletype—if not 'round the clock, at least long enough to make the cable news channel profitable. They need the news to be entertaining.
The news channels made the news entertaining by changing it from something that reports facts to something that tells stories. Facts are boring. Stories are interesting. Stories hold people's attention. Stories are entertaining.
Stories are actually not a bad way of conveying information: humans are very good at telling stories, and equally good at apprehending and remembering them. But facts alone do not make a story. To make a story you need drama, and to make drama you need conflict.
So more and more, the news is about reporting the two sides of a conflict. I suppose if a house burns down at 123 Main Street, a reporter can still report that as a fact. But for something controversial, like "sun rises in the east", he can't. If he did, he might be accused of bias. Instead, he has to get a spokesman for the east theory, and a spokesman for the west theory, and report the two conflicting theories. That way, he remains neutral.
You think I'm exaggerating? Not much. Read Mediterranean Diet Shown to Ward Off Heart Attack and Stroke.
This is an important study: published in the New England Journal of Medicine, controlled, large sample size (7447 people), longitudinal (5 years), and it measures real endpoints: stroke, heart attack, and death from heart disease. It shows that a Mediterranean diet—one rich in olive oil, nuts, beans, fish, fruits and vegetables—can significantly reduce serious health risks. You might think that the New York Times could report these results as, well, results. Facts.
No. It's not a long article, just 24 paragraphs. But the Times nonetheless gives over three of those paragraphs to the competing views of the Preventive Medicine Research Institute, which is pushing—wait for it—a vegan diet.
In a way, I'd almost rather see the Times give those column inches to the man from Hostess, who tells us that really, Twinkies are good for us, or maybe even the man from Philip-Morris. (Are they still denying that cigarettes cause cancer?) That would just be ordinary venal corruption: the press bowing to big corporate interests.
What the diet article shows is a more profound corruption. The Preventive Medicine Research Institute has nothing on the New York Times. No money and no influence. And, needless to say, no study or data to support their own theories. The reporter drags them in not to satisfy any corporate masters, but to create a controversy for his story, and to show that he is somehow "neutral" in this controversy.
By doing so, the reporter abdicates his fundamental responsibility to the reader, which is to identify and report the news—as the reporter sees it. The front page of the New York Times proudly displays their motto, "All the news that's fit to print", but an article like this one is better characterized by the parody, "All the news that fits, we print", or—as Fox News blithely puts it—"We report, you decide".
There's nothing special about the diet article. I chose it as an example because it happened to be in the paper the day I was writing this paragraph. Once you know what to look for, you start seeing this phony neutrality everywhere.
Of more interest is the opposite-the-editorial, or op-ed, page. This is where you find regular columnists and outside writers who have something to say on a topic. What you should expect an op-ed writer to do is express some kind of opinion or view, and then support that opinion with reason and/or evidence. Some writers do this, but others abdicate their responsibility to express and support an opinion, in much the same way that the reporter in the diet story abdicated his responsibility to identify and report the news. Instead, they describe the two sides of a controversy, and then claim that they have some new insight, analysis, compromise, or approach that can solve the problem. They want to make every controversy into a dialectic, with a thesis and antithesis, so that they can provide the synthesis that transcends the conflict. This allows them to look wise and constructive, without having to dirty their hands in the actual...you know...controversy.
This is fine if you can do it, but dialectics that are waiting for a new synthesis don't come along all that often. For centuries, it was an open question whether light was a wave or a particle; there was evidence supporting both theories. It wasn't resolved until quantum mechanics subsumed all the evidence into a radically new theory, in which light has characteristics of both waves and particles. This was a true synthesis, but it took 400 years, and it didn't happen in the pages of the New York Times.
The rest of the time, we have rather more mundane controversies, like whether the sun rises in the east or the west, and a stable of columnists telling us that if we would just set aside our petty differences and accept the wisdom being dispensed by—who else?—the columnist, then we could reach a compromise between these two opposing views and move on. Duncan Black has a series of blog postings cataloging and excoriating these columnists. Black argues that such columnists are afflicted with
a kind of glib narcissism, the belief that everything is about them while simultaneously disavowing any responsibility for anything.So we have symbiotic relationships between the Republicans, the think-tanks, and the media. The Republicans fund the think-tanks. The think-tanks manufacture facts that support Republican positions. The media use these facts to construct the conflict-driven stories that they present as news. The media exposure establishes and maintains the credibility of the think-tanks. And if all goes well, the Republicans reap their rewards in election victories and political power.
They knew that Hussein was responsible because Bush told them. Over and over, Bush told them: Hussein, 9/11, Hussein, twin towers, terrorism, Hussein, Iraq, Iran, flight 93, Hussein, WMDs, Al Qaeda, Islam, Hussein, terrorism, 9/11, WMDs, Iraq, Hussein, 9/11, over and over, in a whirlwind of fear and words, Bush said that Hussein was behind the 9/11 attacks.
In fact, if you recorded Bush's words, and transcribed them, and read them, you would find that Bush did not say that. For the most part, you would find that Bush never said anything at all: large tracts of his parole contain nothing resembling a complete sentence. What's more, reporters (presumably, ones from the reality-based community disparaged by Karl Rove) have asked Bush point-blank whether Hussein had anything to do with 9/11, and when so asked, Bush's answer is a simple and consistent, "no". But none of that matters. What matters is that Bush created a reality for millions of Americans where Hussein was behind 9/11, and that got him the support he needed for his war.
It is easy to look down on people who are taken in by such trickery, especially when survey data shows that believing such falsehoods correlates strongly with watching Fox News. Surely these people are stupid, or inattentive, or uncritical, or biased.
In fact, these are just ordinary people, with ordinary brains, and their brains are doing for them what all our brains do for all of us, all the time: taking in sensory data and trying to build a model of reality that is good enough to get through the day in one piece.
Over the last 100 years, we have learned much about how the brain works. One thing we know is how the brain recognizes things. The brain recognizes things by detecting specific features of things; when it sees all the features of something, then it recognizes that thing.
If you give the subject enough time, they will look at all the shapes on the screen, and check each one, and tell you reliably whether there is a triangle there. But if you just flash the image on the screen for an instant, the subject doesn't have time to do that, and they may make mistakes. In particular, they may see a triangle when there is no triangle there.
If the only thing on the screen is a bunch of horizontal lines
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then people will not see a triangle. You can add in some slanted lines
-- \ --- \
---- /
--- \
and people will still not see any triangles. But if you then put a
circle somewhere on the screen
-- \ --- \
---- O /
--- \
then people will sometimes say that they see a triangle when there is
not one. Apparently, the brain recognizes a triangle by looking for
four things: the three sides of the triangle, and a closed loop of
some kind. If it sees all these things, then it sees a triangle.
Again, given time, like an entire second, the subject will check whether the three sides and the closed loop are all part of the same figure, and if they are not, will realize that there is not actually a triangle there. But that involves higher centers of the brain that are slow, and complex, and have their own jobs to do. Someone who requires the fully engaged services of their critical reasoning faculties in order to recognize a YIELD sign is going to be road kill before they get home. All our ordinary second-to-second (actually, 100 mS-to-100 mS) visual processing is done by lower centers of the brain, using simple feature recognition schemes.
As I got closer, I understood what had happened. There was a telephone pole and a road sign just beyond it. In the low light, all I really saw was the combined profile of the pole and the sign, and my brain mistakenly identified that profile as a person. For a few seconds, that person was entirely real to me, and I was taking care not to hit them. As I got closer, my brain resolved the pole and the sign into separate shapes, and in that instant, the person vanished.
Again, this was a low-level perceptual error. The brain takes in a stream of sound and analyzes it into words. One syllable woman's name staring with "M". The brain grabs what it has: "May". Once the word "May"—or, more precisely, my brain's model of the word "May"—was activated within the auditory centers of my brain, that is the word that I heard, long A and all, never mind what the actual sounds were.
These were low-level perceptual errors. We like to think that we are ultimately above this kind of thing: that the higher levels of our brain will detect errors and return us to reality. In some cases, they do. I did eventually hear my co-worker's name correctly. But recognition errors can occur at higher levels than you might think.
We could argue the fine points of Hume's philosophy, but such experience and expectations are almost certainly how the brain does identify cause in the world. One thing happens, then another thing happens, and we perceive that the first thing caused the second thing. The mechanism is strongly biased towards seeing cause where there is none. This leads to various bad effects, like superstition, and gamblers who think they have a "system". On the plus side, it is simple and fast. The evidence of evolution (vis. we're here) is that it is adaptive, or—at least—better than the alternatives.
Anyone who is willing to devote a few years to studying laboratory science and statistics can learn to draw better conclusions about causation (whatever that is), but for most of us, that's just not on. Most of us have day jobs, and dinner to cook, and the kids are running around, and Fox is on the TV, and Bush is on Fox, telling us about 9/11, and Hussein, and 9/11, and terrorists, and 9/11, and WMDs, and Hussein, and 9/11; day after day, week after week, and we know that Hussein did the 9/11 attacks; the president told us, we heard him say so on TV.
For millions of Americans, hearing the president say that Hussein caused 9/11 was part of their reality, just as seeing the pedestrian and hearing the long A in my co-worker's name was part of mine. Bush made it part of their reality. Bush can stand with Karl Rove and proudly say, "we create our own reality."
We engaged in a few minutes of verbal sparring. He allowed that he had never spoken to an actual Obama supporter, and was genuinely curious about my views. I don't know what conclusions he drew about me, but he said several things that told me where he was coming from.
First, he stated that the housing bubble and subsequent financial crisis were caused by the federal home lending agencies, Freddie Mac and Fannie Mae. This is false, and has been extensively debunked, but when I expressed skepticism, he stood by his assertion.
Then, he asked me what I though about tort reform. Tort reform is the idea that companies keep getting dragged into court by gold diggers and nuisance lawsuits. We need to reform the legal system to stop this from happening. Against the backdrop of the financial crisis and recession, tort reform is merely a sideshow, and a minor one at that. If anything, tort reform is a push by big corporations to change the rules so that they can't be held responsible for the damage that they do. Yet this was something that the mechanic thought was important.
Ideas like this come directly from Republican talking points that are fed to outlets like Fox News. They can't ignore the financial crisis; it's too big and obvious. So they blame it on Freddie Mac and Fannie Mae. This distracts attention from the real causes, which were, mostly, bad behavior on the part of the 1%. It has the added advantage that some of the government lending programs have roots going back to the Clinton administration, so we can blame the whole thing on the Democrats. If you need more things to talk about, see if you can drum up public support for "tort reform". That will shut down those do-good environmentalists who will be wanting to sue us the next time an oil well blows out some place like the Gulf of Mexico. Make sure the anchors know how to pronounce "tort", and try to keep a straight face when emphasizing the vital importance of something that doesn't matter at all to 90% of your viewers.
But sometimes, there is an identifiable harm to a particular group within the 99%. When this happens, conservative media leap into action to show that this group is somehow unworthy, irresponsible, greedy, or sinful, and undeserving of our sympathy and support. Without this demonization, there might actually be sympathy and support for people who have suffered harm. In the worst case, there might be political pressure for the government to help them.
For Republicans, any government action that aids or benefits the 99% is a terrible thing. Partly, this is on a narrow calculus that a dollar spent on the 99% is a dollar that can't be cut from the taxes of the top 1%. More broadly, they fear that helping someone within the 99% would tend to establish the principle that the government can help people within the 99%, and that isn't what they want. They only want the government to help the 1%.
Government aid to distressed homeowners would help the individuals; help communities, by reducing the number of foreclosed homes in the neighborhood; and help the economy, by putting money into the hands of consumers who will spend it. But early in the housing crisis, a reporter popped up on a trading floor somewhere spouting indignation at the idea that his tax dollars might be used to bail out homeowners.
His tirade went viral, and the media used it to lambaste all homeowners. Never mind that it was mortgage traders who both supported and profited from the housing bubble. Never mind that the government was already spending his tax dollars to bail out banks. Why should we help the homeowners? They took out those loans; they are responsible for their debts; they deserve whatever they get.
So, a group that needs help; a group that we probably ought to help as a matter of social policy; a group that we might even want to help as a matter of social justice. And once again into the breach leaps Fox News with a multi-week media blitz dedicated to the proposition that college students are lazy, and privileged, and pampered. That students think college is just a 4-year party with daddy's money, and when the bill comes due they expect us to pay it? No way.
The right wing went ballistic. Here was an attractive, sympathetic young woman, making a straightforward and reasoned case that the government should help ordinary people. Worse still, the proposed action—covering contraception—empowers women. It had to be stopped. The usual Fox News blitz wasn't enough. They called in their big gun: Rush Limbaugh. Rush got on his microphone and called her a slut and a prostitute. Other conservative media picked up his words and rolled them into a generalized attack on women who have sex. Which is...you know...pretty much all of them.
The total amount of stuff (bread and everything else) produced by the entire economy is called the gross domestic product (GDP). GDP is measured in dollars. In 2012, the gross domestic product of the United States economy was around $16 trillion. (That's Trillion, with a T and 12 zeros.)
The ups and downs (called booms and busts) are of particular concern. During booms, people have more stuff. During busts, people have less stuff, which causes very real pain and suffering.
Busts are often precipitated by some kind of financial crisis. During the 19th century in the United States, these happened about every 10 or 20 years: there was the Panic of 1819, 1837, 1857, 1866, 1873, 1884, and 1890. Coming into the 20th century, it only got worse: there was the Panic of 1896, 1901, 1907, 1910, and then the granddaddy of them all: the stock market crash of 1929, followed by the Great Depression. The Great Depression lasted for an entire decade, reduced employment and output (GDP) by 25%, and caused untold suffering and misery. And yet, throughout the 19th century, all that macroeconomics could say about the business cycle was that it was undesirable but poorly understood.
The problem was that microeconomics was founded on some crucial assumptions
When an economist says that humans are rational, he is not making a general statement about their mental health. Rather, he is making a very specific statement about how humans make economic decisions. Faced with any choice in the market, a rational human
Of course, there is more to life than the best price, and anyone who observes humans, or considers their own preferences and behavior, can easily find instances where humans do not behave this way. This is captured in the quip, "an economist is someone who knows the price of everything, but the value of nothing."
One example that comes easily to mind is sentimental value, but this is not actually a problem for the economist. If you won't sell a particular $2 trinket for $2 because it brings back fond memories of the trip where you acquired it, that's your decision to make. The economist grants to each individual sole discretion to set their own prices on things. What the economist does demand, however, is that the individual set some price, and then make decisions based on that price in a consistent way.
Either
As it happens, most people would rather take the $1000 sure thing than gamble it on a coin flip. This is borne out by experiment: psychologists have offered people this choice, with real money, and most people take the sure thing.
This is a problem for the economist. The problem is not that there is a random element (a coin flip) in the scenario. Economists deal with randomness simply and easily: they take averages. The average value of the sure thing is $1000. The average value of the coin flip is also $1000. Economists call these averages expected values. Economists assume that people will choose the alternative with the greatest expected value. This is called utility theory.
The problem for the economist is that according to utility theory, people should not have a preference between the sure thing and the coin flip. The expected value is $1000 either way, so they shouldn't care.
But wait, it gets worse. Now a daemon pops out of a manhole, and demands of you a different choice.
Either
Again, most people have a preference, but this time, most people would rather flip the coin. This preference is also observed experimentally.
Now the economist is really unhappy. Here are two situations where people should not have a preference in the first place, yet they do; worse, they have different preferences depending on whether they face a gain or a loss, and that shouldn't matter, either.
This may seem like a small detail in the broad scope of human behavior, but it's not. To appreciate how profound this issue is, consider another theory of human behavior, called prospect theory, which seems to account for the observed facts better than utility theory.
Utility theory is about maximizing expected value. In contrast, prospect theory is about prospects: what is going to happen to me going forward? In a state of nature, most animals exist on the edge of survival. Say that $1000 represents food for a month. If you are already on the edge, and then you starve for a month, you probably die. You'll be just as dead if you starve for two months. Your only chance against the daemon is to flip the coin and hope it comes up heads.
On the other hand, acquiring a one month reserve of food would give you a buffer. Whether it is a one month buffer or a two month buffer isn't so important: getting any distance away from edge will greatly improve your prospects. If you see the genie, take the sure thing.
This is just armchair theorizing, but the point is that humans do not always act in the rational way that economists assume they do, and this has real consequences for economic theories.
But many prices change slowly, or infrequently. Worse, many prices do not change even when the underlying supply and demand do. Prices that do not change when they ought are said to be sticky.
Why prices should be sticky is not entirely understood. There are many theories, some more plausible than others. For example, a restaurant that wants to change its prices has to print new menus. This costs money, so perhaps the restaurant will do this infrequently.
On one level, this is surely true: it does cost money to print new menus. But still, are we really to take it that our economy doesn't work right—things are mispriced, resources misallocated—because of printing costs?
There are other explanations that bite harder. For example, producers may be reluctant to change their prices for fear that their competitors will match their price decreases, but not their price increases.
Probably the stickiest of all sticky prices are labor costs: what people get paid to do their jobs. Some of this is easy to understand. The wage rate for a union worker may be fixed by a multi-year contract. Many salaried workers receive annual salary reviews, which fix their salaries for the following year.
But there is another sense in which labor costs are even stickier. Firms sometime increase pay rates. Firms virtually never decrease pay rates. If a firm's demand for labor falls by, say, 10%, it does not reduce it's workers' pay by 10%. Instead, it lays off 10% of its workers.
If one firm does this, those workers may get jobs elsewhere. But when many firms do this, then there are more workers than jobs, which leads to persistent unemployment. This is another way of saying that the labor market does not clear. There are workers who cannot sell their labor at the going rate for labor in the market. This is what it means for a market to not clear: you can't sell (or buy) at the market price.
This asymmetry between pay raises and pay cuts is universally and strongly felt by both employers and employees. If you propose to an employer that they cut wages, the typical response will be a flat refusal: it's just not done. If an employer does impose wage cuts, employees feel indignant and betrayed. At the same time, economics provides no theoretical explanation for any of this. Rational economic actors aren't supposed to become attached to prices per-se: they are supposed to accept prices as given and then make decisions based on those prices. And there is nothing special about the number zero in the theory of supply and demand. Nothing dramatic is supposed to happen at the boundary between increase and decrease. (In contrast, prospect theory does recognize a crucial difference between gains and losses.)
To make all this worse, wages do go down all the time, due to inflation. From an economic standpoint, there is no difference between a 5% wage cut and 5% inflation. Either way, you get 5% less stuff. Yet the same employers who would never cut wages and the same employees who would never accept wage cuts blithely go along from year to year as inflation has essentially the same effect on compensation. Again, this is not something that 19th century macroeconomics explains.
So humans are not always rational economic actors, prices are not always flexible, and markets do not always clear. It seems that the foundations of microeconomics are somewhat rotten, which calls into question macroeconomic theories that are built on microeconomic theories.
Individuals save in the present so that they will have more in the future—for example, when they retire. This seems straightforward, but there are some subtleties. To begin with, people think of savings in terms of money, but the money itself won't help you, now or in the future. You can't eat it, etc.
What people really want is the stuff that you can buy with money, and the problem here is that you can't save stuff. In the first place, 80% of the U.S. economy is services, and services absolutely cannot be saved. A haircut produced today is necessarily consumed today. But even goods can't be saved, at least, not for long. The shelf life of food ranges from a few days to a few years. Cars built today will be rustbuckets in 20 years. Even a house has a service life of perhaps 50 years; houses typically last longer than that, but only because the owners perform ongoing maintenance on them.
Someone who did try to save actual stuff for the future would encounter all kinds of problems. Mormons stockpile food for religious reasons. They have to follow complex schedules for rotating, expiring, and restocking these stores.
I once found a particular style of shoe that I liked. When the manufacturer discontinued that style, I bought a few pairs so that that I could continue wearing them into the future. It didn't work. After a year, my current pair was worn out, and the ones stored in the closet were falling apart, because the glue that held them together was disintegrating. They weren't constructed to last that long, whether they were worn or not.
Another problem is obsolescence. Consider the saver who bought an automobile in the 1960s, and never drove it, and drained the fluids, and put it on blocks in a climate-controlled garage. Today, that car is useless. You can no longer buy the leaded gasoline that it requires, and even if you could, it would be illegal to drive it, due to changing safety and emission regulations. Perhaps he also saved a stereo system from the 1960s, so that he could listen to music in his retirement. Today, he will be scrounging dusty bins in second-hand stores in search of vinyl records to play on it. The television set that he saved gets nothing but snow: we abandoned analog television transmission in 2009. And for all that, he won't have many of the nice things that we have today, like computers and iPods.
Finally, the real power of saving—especially long term saving—comes not from transporting stuff from the present to the future, like a time machine, but from investing your money, so that it grows with compound interest.
What we see from this is that stuff is never saved. Everything that we produce now, we consume now. Everything that we will consume in the future, we will produce in the future.
Individuals typically think of saving as something that they do by themselves, for themselves. They consume less now, and save the money. Later, they spend the money, and consume more. The reality is that an individual who saves is engaged in a social transaction. They consume less now, and—crucially—someone else consumes more now. In the future, the roles are reversed: they consume more, and someone else consumes less.
In modern economies, this transaction is mediated by banks and other financial institutions. Those who wish to consume less now lend their money to a bank instead of spending it; those who wish to consume more now borrow money from a bank and spend it.
There is a certain brand of conspiracy theorist who holds that Social Security is a Ponzi scheme, on the grounds that the government uses contributions from current workers to pay benefits to current retirees. They seem to think that the government should deposit their social insurance contributions in a special account with their name on it—or perhaps put their dollar bills in a special safe-deposit box with their name on it—for them to draw on in their own retirement. I sometimes wonder if these people's heads wouldn't explode if they stopped to think about how the economy really works. Even if their own special dollars were kept in their own special account with their own special name on it, it wouldn't make any fundamental difference. When they consume less now, the stuff that they produce but do not consume is necessarily consumed now by other people, such as current retirees. When they retire, they will be consuming stuff that is produced but not consumed by future workers. There is no other way to do it.
So saving is a bit more complicated than it might appear. What's more, saving can lead to problems. Since one person's saving is another person's consumption, everyone can't save at once. This fact is grounded in the same iron logic as this joke
Even the best of friends cannot attend each other's funerals.If that seems too silly, consider Alphonse and Gaston, two cartoon characters from the early 20th century. From Wikipedia
—Kehlog Albran, The Profit
The strip's premise was that both were extremely polite, constantly bowing and deferring to each other. Neither could ever do anything or go anywhere because each insisted on letting the other precede him.The total amount that everyone in the economy wants to consume is called demand. When everyone wants to save, and no one wants to consume, demand falls. Firms respond by cutting production—firms only make what they can sell. With reduced production comes reduced labor demand, so firms lay off workers. And wages are sticky, so those workers do not get other jobs at lower wages, they just remain unemployed.
Now look what has happened. People wanted to have less stuff now and more stuff later. They got half of what they wanted. They have less stuff now. The economy employs fewer people now and produces less now. But there won't be any more stuff later. There isn't even any more stuff now. The stuff that the economy isn't making now is just lost—wasted. Empty factories, idle workers—it's a dead loss. When this happens, the economy is said to be in recession (mild) or depression (severe). These are the modern terms for bust.
The imagery from the Alphonse and Gaston cartoons captures the situation precisely. Someone has to go first (consume), or no one gets anywhere.
There are several things that can cause everyone to save at once. Sometimes, everyone wants to save for their retirement. This is happening right now in Japan. Historically, Japanese were supported by their children in their old age. Today, birth rates in Japan are very low. As a result, workers do not anticipate having enough children to support them when they retire. Instead, they are saving money at very high rates. This has contributed to a demand shortfall that has kept the Japanese economy mired in recession for nearly 20 years.
More commonly, demand falls in the aftermath of a financial crisis. Again, banks are the intermediaries between lenders and borrowers. When the banking system stops working, savers can still save, in the sense that they can decline to spend their money. But borrowers can't borrow, because the banks aren't making loans. The savers who were previously consuming less typically continue to consume less—most people consider a banking crisis to be a bad moment to go on a spending spree. But the borrowers who were previously consuming more can no longer do that. The net effect is a reduction in total demand, and the economy goes into recession.
Keynes' theory has since been named after him, and is referred to as Keynesian economics. Keynesian economics explains the business cycle. It also provides policy prescriptions for governments that want to stop a boom or a bust. (Both extremes of the business cycle are considered undesirable.) To moderate the business cycle, you need to be able to control demand: to increase it during busts and decrease it during booms. The government has two big levers that it can use to do this
In modern economies, interest rates are usually controlled by a central bank, and the central bank is usually under some kind of government control. In the United States, the central bank is called the Federal Reserve, and it sets interest rates. The Federal Reserve is quasi-autonomous, but it operates under a charter from congress, with a mandate to manage interest rates so as to keep the economy working well.
The other thing the government can do to increase demand is hire people and buy things. When the government buys things, that is demand. When the government hires people, those people have money, which they spend, which creates demand. (They also have jobs, which is better than being unemployed.) This kind of government spending is sometimes called stimulus.
Keynes developed his theory during the 1930s, but it came too late to inform government policy during the Great Depression. The Great Depression was finally ended by a $300B government stimulus program called World War II.
During the 1940s and 1950, Keynes' theory became part of mainstream economic thinking. At several points in the 1960s, the United States government made adjustments to spending and interest rates intended to moderate the business cycle according to Keynesian economic principles, and these worked pretty much as they were supposed to.
Then the economists went crazy. Actually, not all of them, just some. It was science that drove them 'round the bend.
Economics lies just at the midpoint of this ranking. It is either the softest of the hard sciences or the hardest of the soft sciences. As such, its practitioners are perhaps more prone than others to math envy. They want economics to look more like physics, and less like sociology. And to them, looking like physics means having lots of math.
However, it turns out to be very difficult to build complex mathematical theories on a Keynesian economic base. There are two problems, one technical and one foundational.
The technical problem is that in Keynesian economics, humans do not always behave like the idealized rational economic actor. Prices stick. Markets don't clear. These things are very difficult to deal with mathematically. For example, a human who reacts differently to gains and losses, or to pay raises and pay cuts, throws a monkey wrench into the works. His asymmetrical behavior creates a corner—or worse, a break—right at zero, where gain becomes loss. Mathematicians would much rather deal with straight lines and smooth curves. Corners and gaps mess up all their equations.
The foundational problem is that Keynes gained the key insights that inform his theory by setting aside the idealized assumptions of classical microeconomics. He watched how real people act in the real world. He observed the messy, inconsistent behavior of individuals and thought about how that would affect the economy as a whole. That kind of science is hard. You have to get your hands dirty. You have to get your mind dirty.
The freshwater economists found it much more pleasant to build an ivory tower on the shores of Lake Michigan. They rejected Keynesian economics. In their world, people are rational, prices flex, and markets clear. They spun their theories and they ran their models.They refereed each other's papers, so eventually there was a large peer-reviewed literature to vouch for the legitimacy of their enterprise. It takes years of study to master the relevant mathematics, so they got to be the high priests of their own religion. And while economics is a hard enough science to admit a mathematical treatment, it is a soft enough science that clear empirical evidence can be hard to come by. This meant that the freshwater economists were rarely challenged by experiments or current events that could not be explained away, or—at the last resort—simply ignored.
So there was a split, between the saltwater economists who accepted and built on Keynesian economics, and the freshwater economists who rejected it. The freshwater economists not only rejected Keynesianism, they didn't even consider it worth teaching to their students. So their students didn't learn Keynesianism, and after a generation, the freshwater school is now populated by economists who genuinely do not know what Keynesian economics is or what it says about how the economy works. In contrast, saltwater economists do study the theories of the freshwater school. They can tell you what those theories are, and express an opinion on them.
As mentioned above, a good theory should explain things. Since the freshwater economists reject Keynesian economics, they need their own theories to explain things like the business cycle and unemployment. And they do have theories. Mankiw describes some of these theories in his book. It is hard to tell what Mankiw thinks of these theories; he keeps a pretty straight face. I find the freshwater theories to be implausible, bordering on sophistry.
Fair enough, but what about our current recession that began in 2008? Nothing physical changed in 2008. The recession was precipitated by a financial crisis. It clipped fully 6% off of GDP, drove unemployment into double-digits, has persisted for 5 years, may well continue for another 5, and all because—what?—a bunch of bankers got their panties in a twist?
The skills mismatch theory is at least tenable. It is also testable, and the evidence is lacking. If there were a mismatch between the skills workers have and the skills employers seek, then we would expect to see labor shortages and spiking wages in at least some job categories: the ones with the desired skills. But we do not see that. Employment is down and wages are flat across all jobs categories.
Anyone who believes the leisure-time theory of unemployment needs to spend some time with the long-term unemployed.
The freshwater/saltwater schism might be just another academic squabble, except for two things
Very broadly, freshwater economists believe that the economy works best when the free market is allowed to operate, well, freely. They believe that the free market produces optimal allocation of resources. They discourage anything that might "distort" the free market, such as government regulation or intervention.
Think about it. You're rich. You've made a lot of money in the market—in some market—in the economy. According to freshwater economics, whatever outcome the free market produces is good—optimal. So if you have lots of money, then it is necessarily right that you have lots of money. And all those other people, who are poor, and unemployed, and suffering? Well, that's a market outcome, too. That's the best that the economy can do for them, or that the free market can do for them, or maybe that they can do for themselves—responsibility seems to be a bit vague on that point. But you definitely earned your money, and it is right for you to have it. In freshwater economics, success is self-validating. The whole thing harks back to 19th century social Darwinism.
The financial crisis hit in late 2008. By early 2009, GDP had dropped below $14T/year. The official unemployment rate was 10%; I contend that if you add in discouraged and underemployed workers, it is easy to justify a true rate of at least 11%.
So GDP fell
($15T - $14T) / $15T = 6%
below capacity, and unemployment rose
11% - 5% = 6%
I think an economist will tell you that there is more to it than that,
but not much. We just shut down 6% of the economy. We did not make 6%
of what we could have, and we did not employ 6% of the workers that we
could have.
An economy that suddenly contracts 6% is a Bad Thing. We would like to understand why it happened, and maybe even do something about it.
To a Keynesian, the 2009 recession is very straightforward. Before the financial crisis, rich people were not spending all their money. They were spending some, and lending the rest to poor people, who were spending it. The financial crisis shut down the flow of money from rich people to poor people. Rich people still weren't spending all their money, but now poor people weren't spending it, either. So the money didn't get spent. Any Keynesian can tell you what happens when total spending in the economy falls: the economy contracts.
To a freshwater economist, the 2009 recession was startling and mysterious. The economy wasn't supposed to contract without some physical cause, like a drought or a war. The financial crisis was merely a paper crisis: nothing physical changed in the world. For the most part, nothing even changed on paper. The same banks were still there, with the same accounts, containing the same dollars. Really, the substance of the financial crisis was nothing more than some bankers changed their opinion as to how likely some borrowers were to repay some loans. That opinions could somehow take down the economy was simply inconceivable.
In fact, it was even worse than that. In the freshwater world, the financial crisis wasn't supposed to happen in the first place. Markets are assumed to correctly price everything, including risk; market discipline and self-interest were supposed to keep bankers from taking the kind of risks that lead to a banking crisis.
Bank losses in the 2008 crisis were unusually large: more than the Fed could lend on its own. Panicked treasury officials went to congress to ask for money, and congress appropriated $700B to stabilize the banking system.
Having to bail out the banks that both created and profited from the financial crisis was annoying, but it had to be done. We need banks, in the same way that we need farms and oil refineries. When a refinery catches fire, you send the fire department to put it out, and you do so even if you don't much like oil companies.
For its part, the Federal Reserve did cut interest rates: right down to zero. Unfortunately, that wasn't enough. What we needed to restore the economy to full employment was an interest rate of something like negative 6%. But interest rates are one of those things that have a corner at zero. You can't set interest rates below zero; people just put their money in the mattress.
That left government spending. Again, the Keynesian prescription was straightforward. If you have an economy with a capacity of $15T/year, but people are only spending $14T/year, then someone needs to step up and spend the last trillion. Just as the Fed is the lender of last resort, congress should be the spender of last resort. What we needed was a $1T jobs bill.
You would think it would be easy to get congress to spend $1T to create jobs and restart the economy. After all, isn't that what congress likes doing: spending money and creating jobs? Not so. There were several issues.
One problem was that the money was going to the wrong people. The bank bailout went to banks. Rich people. But to create jobs, congress needed to put money into the pockets of people who would spend it. Ordinary working people. Those aren't the people that congress cares about.
Another problem was that there was less urgency. When Lehman Brothers went bankrupt in 2008Q3 and the banking system locked up, there was a real sense of crisis. Senior government officials were panicking. People worried that the economy might collapse the way it did in the Great Depression. But by 2009Q1, the banking system had largely stabilized. There were still worries about the economy, but it wasn't the same.
Also, there was bailout fatigue. Congress had already put up $700B to rescue Wall Street. Now people were asking for another big spending bill to rescue Main Street. It seemed like too much.
But the biggest problem—the real problem—was that Barack Obama was president. The Republicans absolutely were not going to permit the economy to recover while a Democrat was in the White House. Destroying Obama was far more important to the Republicans than rescuing the economy. As senate Republican leader Mitch McConnell put it, "The single most important thing we want to achieve is for President Obama to be a one-term president."
The Republicans wrecked the economy, yes, but now they needed it to stay wrecked. They needed double-digit unemployment. They needed there to be millions of desperate, angry, unemployed people rolling around the countryside, so that they could harness that anger, turn it against Democrats, and win back congress.
As it happened, the Democrats controlled congress in 2009: both the house and the senate. That meant that the Republicans couldn't actually stop the jobs bill. All they could do was obstruct, delay, subvert, confuse, obfuscate, and misdirect. And they did all those things, with the aid of a few foolish Democrats, who somehow, inexplicably, failed to understand what was going on.
In the end, we got a $500B jobs bill, which was about half of what we needed. It was enough to keep the economy out of Great-Depression territory, but not enough to produce a real recovery, and we are still suffering for it.
The cost of the jobs bill is usually headlined as $800B, but only $500B of that was for job creation. The other $300B was tax cuts for rich people. That $300B was, more or less, the pound of flesh that the Republicans demanded in order to get any jobs bill at all through congress. But that $300B didn't create jobs.
The problem with giving money to rich people is that rich people don't spend all their money. This is a very important point, so I'm going to say it again: rich people do not spend all their money. That's just about the definition of a rich person: someone who doesn't spend all their money. If you have a rich person who is already not spending all their money, and you give them more money, what you get is a rich person who isn't spending more of their money. You haven't put any money into the economy. All you have done is transfer money from the government's bank to the rich person's bank, and that doesn't help.
At some point during the debate on the jobs bill, the Republicans realized that the slogan "tax cuts for rich people" didn't play well on the 6:00 news. So they rechristened rich people as job creators. See, if we cut taxes on rich people, I mean...uhhh...job creators, then they will take the money that they aren't paying in taxes and use it to start new companies, and those companies will hire people.
This rebranding was cynical and Orwellian, but it was effective. It helped the Republicans get their tax cuts, and the term is still in use today. It was also ironic, because those job creators certainly could have created jobs. All they had to do was spend their money. If they had taken the $300B—or any of the other billions that they already had—and bought fleets of yachts and Learjets and Lamborghinis, and hired legions of maids and cooks and gardeners and dog walkers, then the money would have gone into the economy, and people would have had jobs, and we would all be much better off today. But they didn't. I think it is fair to say that our vaunted job creators are falling down on the job!
You can stimulate the economy by giving money to people, but you have to give it to people who will spend it. Exactly who isn't important. If you care about social justice, give the money to everyone; if you care about economic utility, give the money to the poor.
As of 2013Q1, the economy is still underperforming by about $1T/year. The current population of the United States is 315M. If you do the division, the output gap comes to about $250 per person per month. If the government just started mailing every U.S. resident a check for $250 each month, the recession would end and the economy would return to full employment within a few months. Once this happens, the recovery will become self-sustaining and you can stop mailing out the checks. Oh, and the increased tax revenue and decreased expenses will then push the government's finances into surplus.
Plan B would be to give the money to the states. Block grants, no strings attached, $250 per capita per month. Then the states would start hiring back the police officers and firefighters and nurses and ambulance drivers and social workers that they have laid off during the recession. These are working class people. They need the money, so they will spend the money and the economy will recover. As an added bonus, when you hire police officers, you get police protection. Regrettably, none of this is politically feasible.
When the financial crisis first hit, the freshwater economists didn't have much to say. Perhaps they were bewildered to find themselves in the midst of a crisis that their theories said couldn't happen. Whatever the reason, their silence was probably a good thing. According to their free-market ideology, they would presumably have counseled the government to stand idle while the entire banking system imploded (and, I suppose, while the refineries burned).
However, by 2009 the freshwater economists had regained their footing, and they definitely had something to say about the jobs bill. They said it wouldn't work.
In fact, they said that it couldn't work. This is a crucial point. The freshwater economists could not stand by silently while the saltwater economists advocated for a Keynesian stimulus plan, because according to freshwater theories, Keynesian stimulus cannot work on principle. The freshwater economists couldn't just offer that they had a different plan, or a better plan. They had to positively deny that Keynesian stimulus can work. Like members of a religious cult, freshwater economists cannot coexist with those who believe differently.
If freshwater economics were really a religion, its adherents could simply cite divine revelation—or perhaps the authority of Saint Rand—for their policy prescriptions. But it purports to be a scientific theory, so the freshwater economists had to have some explanations for why Keynesian stimulus can't work. They do have explanations, and a review of these explanations shows just how bankrupt the whole enterprise is.
In the freshwater world, the economy is always at full capacity and full employment. Furthermore, every part of the economy is perfectly connected to every other part, through an intricate system of financial gears and levers, chains and pulleys. There is no slack or lash or friction anywhere in the entire system. When you push or pull on any one part, the entire system responds smoothly and immediately. Any attempt by the government to increase spending is exactly offset, dollar for dollar, by a corresponding decrease in spending somewhere else.
There are three fundamental ways that the government can spend money, distinguished not by where the money goes, but by where it comes from
In the freshwater world, everyone always spends all their money, so tax and spend cannot increase total spending. In the real world, poor people spend all their money, but rich people do not. Indeed, the recession can be viewed largely as the result of rich people not spending all their money. So a policy of taxing the rich and spending the money could help the economy after all. Needless to say, this is not politically feasible.
But in the freshwater world, all humans are fully rational economic agents. Even someone who chooses not to lend to the government still sees that the government is borrowing money. They know that someday the government will have to repay that money, and when that day comes, the government will have to raise their taxes to cover those payments. So each individual, as a fully rational economic agent, voluntarily reduces their spending now, and saves the money, in anticipation of the day in the future when their taxes will rise to repay the government debt. The spending reductions of individuals exactly match the spending increases of the government, and once again, the whole thing is a wash.
It is arguments like this that show how utterly disconnected freshwater economics is from reality. There are millions of people out there carrying credit-card debt at 18, 22, 33 percent interest; there are millions more carrying payday loans at 50, 100, 200 percent interest. These people are strapped. The idea that they are going to take note of increased government borrowing and then start saving money against some supposed future tax liability is absurd. A government policy of borrow and spend would absolutely help the economy.
They get it, they spend it, it's gone.
—my sister, on the cash management strategies of her working-class boyfriends
In the freshwater world, prices are flexible, so the inflation is immediate and we don't get any economic stimulus. In the real world, prices are sticky. This means that it takes time for them to adjust. Between the time the government spends the money and the time prices adjust, we do get economic stimulus. In the long run, prices do adjust, which is why we can't keep printing money to stimulate the economy indefinitely. But in the short run, it works, and we only need it to work until the economy recovers.
There are some additional issues concerning inflation. For one thing, we may not get any, even if the government prints a trillion dollars (or mints a trillion dollar coin). Some people seem to think of inflation as a bogeyman that jumps out in the night and jacks up prices, but it's not. Inflation is a specific economic phenomenon, and it has causes. In order for inflation to occur—in order for prices to rise—the demand for some thing has to exceed the supply of that thing.
The usual place where inflation enters the economy is through the labor force. If we put more money into circulation, then people buy more stuff. Firms respond by increasing production. To do this, they have to hire more workers. If everyone already has a job, the only way to hire more workers is to hire them away from other firms, and that means bidding up wages. Firms that bid up wages have to raise prices to cover their increased labor costs, and now we're on the merry-go-round.
On the other hand, if we have 11% unemployment, and some firms need to hire more workers, they will be able to hire those workers from the ranks of the unemployed at current wages. No bidding war, no price increases, no inflation.
On the gripping hand, actually getting some inflation would help the economy, for two reasons. The first is that it would push real interest rates below zero. Estimates are that we need a real interest rate of negative 6% to restore the economy to full employment. Nominal interest rates cannot fall below 0, but with a nominal interest rate of 0 and 6% inflation, we would have a real interest rate of negative 6%, and the economy would recover.
The second is that many people are spending less because they have large debts to repay. In particular, after the housing bubble burst, many homeowners were left with houses that are worth less than the balance on their mortgages (AKA "underwater"). This means that they can neither sell nor refinance, and will be stuck making large mortgage payments for a long time. Inflation would reduce their debt burden, and allow them to increase spending sooner. This would help the economy (as well as the homeowners).
It is hard to say how much difference the freshwater economists
ultimately made. The fundamental argument over the stimulus bill was
always political, not technical: the Republicans were not interested
in helping poor ordinary people, and they
did not want the economy to recover while Democrats were in power.
Still, the arguments of the freshwater economists gave the Republicans intellectual cover for their obstruction. With economists themselves in disagreement over what to do, there was nothing but politics to inform the debate.
If, instead of squabbling among themselves, every economist in the country had stood shoulder-to-shoulder before congress and said we need a $1T spending bill, no, better make it $1.2T because this is serious and you don't want to risk sliding into recession, and tax cuts for the rich don't count, the money has to be fed into the bottom of the economy where we know it will be spent...if all the economists in the country had said something like that, we might have gotten a bigger spending bill, and the economy might have returned to full employment by now.
To add insult to injury, when the inadequate spending bill that we did get failed to return the economy to full employment, the freshwater economists took that failure as proof that stimulus spending does not work—see, we tried it and the recession didn't end—and the Republicans banked that failure as political capital to ensure that there would be no additional stimulus bills.
So here we are, four, five years down the road. The economy is still underperforming by $1T/year—productive capacity just lost, wasted. The unemployment rate has finally broken below 8%, but that's not because we are employing more people, it's because so many workers have given up—lives, careers wasted. The economy is technically out of recession, but in terms of things that matter to people, like jobs and income, it is still terrible. The latest political train wreck—the sequester—could send the economy back into recession. Europe is in worse shape than the United States, with potential for far worse outcomes. And as bad as it is, there is very little sign of improvement on the horizon.
Self-Inflicted Wounds: From LBJ's Guns and Butter to Reagan's Voodoo Economics, by Hobart RowenI didn't buy it (I don't read much history), but the title stuck with me. I began this essay by asking if the Republicans have gone crazy, but now that I've come to the end, I don't see crazy. I see self-inflicted wounds.