Thursday, August 11, 2011

The Austerity Debate (18 June 2010)

Steve Randy Waldman delivers, as usual, a clarifying post on the ongoing "austerity debate" -- the discussion among economists and pundits and politicians about whether the government should engage in more stimulus spending to support an economic recovery that may or may not be starting and help create jobs to reduce the unemployment rate (still hovering near 10%), or whether it should impose austerity measures to control the deficit and ostensibly protect the currency and prod the jobless into looking harder for work by cutting off their unemployment benefits. Waldman links to several posts that set the stage.

This debate has come to head recently with the Senate voting to block an extension of unemployment benefits, among other fiscal measures. This infuriates a lot of people (me included) because it seems to privilege political demagoguery about deficits and the interests of the leisure class over economic growth and the rest of us. It plays upon the idea that the unemployed are merely too lazy or fussy about taking jobs, not that they lack relevant skills or that employers aren't willing to hire. It also depicts downward mobility as something the unemployed should simply accept, as if moving down the wage-chain in jobs doesn't have a permanent effect on one's earning potential and prospects.

Also, austerity preaching from government sends the signal to businesses that the climate will be unfavorable, and prompts them to buy back shares rather than seek out other investment opportunities or expand. And everyone around the world can't be austere at the same time; that just amounts to worldwide depression.

Waldman's entire post is well worth reading, but a few things jumped out at me:

1. This is relevant to the notion of free labor, of the sort the networked economy has made more prominent. Waldman is question the idea of austerity at the expense of putting unemployed people to work: "Doing paid work has social meaning beyond the fact of the activity, and doing what is ordinarily paid work for free has a very different social meaning. It is perfectly possible, and perfectly common, that a person’s gains from doing work are greater than their total pay, so that in theory you could confiscate their wages or pay them nothing and they would still do the job. But in practice, you can’t do that, because if you don’t actually pay them, it is no longer paid work. The nonmonetary benefits of work are inconveniently bundled with a paycheck." I'm perhaps under the influence of all sorts of quasi-utopian "end of work" literature, but I wonder if the pleasures of work are inseparable from the paycheck. Perhaps under capitalism, the "in practice" Waldman is talking about, it is. The point I take away from this is that as our society is configured, free work is irreparably stigmatized and thus demoralizing. You have to be working for wages first in order to secure what capitalism makes into the second-order benefits -- job satisfaction, meaning, participation in the "general intellect" or what have you.

2. Waldman is worried that increased fiscal intervention could promote an aura of corruption: "Transfers of relative purchasing power from other citizens to the beneficiaries of government spending may call into question the legitimacy of the distribution of opportunity, wealth, and influence and of the government itself. Perceptions of make-work or corrupt contracting are deeply corrosive." This is what Tea Party types tend to harp on -- freeloaders soaking up their hard-earned tax dollars, etc. Demagoguery certainly helps encourage this attitude; it is easy to put across in sensationalist terms and highly divisive and useful politically. Strangely, no one seems to have much incentive to sell the idea of stimulus; the establishment media is apparently more interested in maintaining an appearance of political balance than in encouraging the economic growth that might in turn help their businesses. But some corruption is probably inevitable with government handouts, particularly since the alibi of "market forces" cannot be invoked to explain unfair distributions. And there is the Hayekian fear of the central planner, unconditioned by meaningful price signals, using resources inefficiently. Waldman suggests such effects are not merely a danger in the short-term; rather, they acquire momentum: "Since economic activity is habit forming and temporary interventions become permanent, the cost of poor government choices can be high. It matters very much what work the government is paying for. Work must be well-tailored to the talents, interests, and future prospects of individuals. Employing people badly is much worse than just giving them money." One might point to the farm-subsidies situation in that regard.

3. This is just well-put, clarifying what is ultimately at stake in these often abstract discussions: "Savers really could flee the euro, dollar, yen or yuan. Interest rates here or there could suddenly spike. A sudden dash to gold is possible. None of these financial market events would directly affect the real resources at our disposal, but any of them could devastate our ability to organize economic behavior, and would call into question the legitimacy of economic outcomes and the stability of governments." The "real resources" of an economy can't put themselves to work for our benefit automatically -- we can't put ourselves to work in a socially beneficial way through sheer force of will. There needs to be a communicative system that relays what society actually needs, revealing what uses of resources are desirable and useful and which are corrupt and which are wasteful and so on. Markets, for better or worse, are the main way this information is revealed, but the markets themselves need to be regulated so that they serve this purpose (and not the purpose of further enriching the fat-cat class and their running dogs). Production must be socially organized in such a way that the outcomes are recognized as legitimate -- are markets the only way to secure social legitimacy when capitalism has become hegemonic? -- and this legitimacy redounds to the ruling order, legitimizing the government as serving the people and not itself.

4. Waldman says we should expect, perhaps even hope for more "austerity theater" -- political noise about austerity while stimulus continues in the shadows. "We should expect policymakers to justify their actions with a lot of intuitive but awful theory. As the Modern Monetary Theorists remind us, the analogy between a fiat-currency-issuing government and a budget-constrained household is poor. It is, nevertheless, the framework under which most citizens and savers understand government accounts, and forms the basis of conventional discourse." Basically, governments are not like households (I can't just go and print more money for myself to pay my rent, for instance), but voters can seemingly only understand discussions about the federal budgets in terms of what they themselves have to do to make ends meet. And politicians feel obliged to cater to this ignorance, helping reproduce it by endorsing the "common-sense" view that you can't go on running deficits for ever and that the piper must be eventually be paid.

5. His conclusion: "We have intellectual work to do that goes beyond choosing a deficit level. The austerity/stimulus debate is make-work for the chattering classes." In other words, the austerity debate is a stalling tactic to prevent the consideration of specific interventions that might allow policymakers to assert some control over the economic cycle. Engaging in the debate is tantamount to conceding there's nothing we can do.

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