August 9, 2011

It’s no wonder that we misunderstand economic issues. They are complicated and theoretical, and at times seem divorced from ordinary experience. Worst, economics seems to be half politics, which guarantees disagreement among the experts. For most of us, some considerable guidance is required, and that, unfortunately, is just what is lacking in media reports and many editorial columns, which, in addition to reflecting the political orientation of the authors, betray more than a little ignorance. A case in point is today’s Seattle Times house column.

It began with an inaccurate comment on stimulus: “Following the Bush bailouts, the Obama administration has responded to the recession with even larger doses of borrowing and spending. . . . This was the stimulus that did not stimulate. There has been almost no recovery. That may be because the medicine wasn't strong enough, or that it wasn't much of a stimulant.” There was stimulus and there has been recovery, although certainly not enough. At least the writer(s) recognized the possibility that the stimulus was too small or was misdirected, or was of the wrong sort. The conclusion might be to do it again and do it right, but no: “Greater and greater doses are simply unaffordable.” We can’t afford to do it right; the deficit is the most important issue. Even if the latter is true, don’t we want to take the action which will reduce the deficit in the long run? No; only the short term matters: “All the countries in trouble have to cut back.” Austerity is the only course, even though experience shows that it is the wrong course. No surprise there: “[W]hat experience and history teach is this - that peoples and governments never have learned anything from history, or acted on principles deduced from it.” ⁶⁷

The Times cited as authority an unreliable source, Standard and Poors, which has lowered its rating of U.S. bonds. “The reason for the downgrade, S&P said, was that the debt-ceiling deal ‘falls short.’ . . . Stabilizing the debt requires deeper cuts ‘in the growth of public spending, especially in entitlements,’ S&P said, plus the expiration of the Bush tax cuts or equivalent increase in taxes.” Why would anyone would rely on S&P’s opinions? It rated Enron bonds as investment grade until four days before Enron declared bankruptcy. It didn’t downgrade government bonds when the Bush administration ran huge deficits — and guaranteed more in the future — by cutting taxes and waging unnecessary wars. Any agency truly concerned about fiscal responsibility or, as it now claims, about governmental competence, would have denounced that pair of policies. Instead, it busied itself giving high ratings to toxic mortgage packages, thereby helping cause the bubble-collapse-recession sequence which further worsened the deficit it now worries about. To top it off, S&P mangled the numbers in its bond rating analysis but plunged ahead with its downgrade as if getting the math right was of no importance.

Stuck with its source, the Times reluctantly supported the tax-increase part of the formula, sort of: “We concur, in part, on targeted tax increases.” That must have hurt.

Ironically, the editorial ended by describing the situation accurately: “All of which means less medicine from Washington, D.C. There may be some little stimulants made to look like big ones, but essentially the patient is on its own. That is why the market plunged.” Does that suggest that austerity is the wrong plan, that abandonment by the government is the wrong policy? Alas, the Times was unable to follow its observation to its logical conclusion. Voters trying to understand economic issues also are on their own.

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67. G.W.F. Hegel, Philosophy of History, Introduction, II, 2