Monday, January 7, 2013

Jared Bernstein muses on why Washington is so obsessed with deficits and seems to care so little about jobs

This is something I've long wondered about myself. This conundrum accelerated me to old-man-yelling-at-the-radio stage yesterday listening to the Sunday talk shows while out doing errands.

Bernstein has his potential answers here. In abbreviated form, they are:

1. People believe the Recovery Act didn’t work and have turned anti-Keynesian.
2. Deep misunderstanding of the role of deficits and debt in contemporary economies.
3. Faux deficit concern as a tool to shrink government.
4. Fiscal policy we can (theoretically) control, but no one really knows how to generate job creation.

Number 4 is closely related to the "we have to do something!" reaction (do we? really? maybe we don't have to do something about the deficit but it's worth doing something about jobs).


  1. Daniel

    I have made a New Year's resolution based on this post. I hope you learn to follow its suggestions.

    The post also answers your question. You are seeing what happens to right wing cults and nut jobs when they learn they are wrong, pretty much about everything.

    For myself, I have resolved only to post when a comment will really advance the ball. That won't have to be often, for the year end brought to papers confirming most everything I have been writing as true.

    First, there is Kenneth Carlaw and Richard Lipsey, “Does history matter?, brought to attention by David Glasner.

    Second, there is the paper mentioned by Brad, yesterday, Roger E.A. Farmer, Carine Nourry, and Alain Venditti: The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World.

    Last, I hope you have the good sense to stop posting about Hayek/Austrians and to stop trolling by followers of the same in light of The ‘Early’ Logical Empiricism of J.M. Keynes versus the Rhetoric of Subjectivism, by Michael Emmett Brady.

    Brady documents Hayek's misconduct as follows:

    Both Hayek and Shackle realized that Keynes’ devastating critique of neoclassical economics, based on his analytic approach in the TP, would, if not countered, result in the intellectual bankruptcy, not only of eoclassical
    economics, but of the philosophy of self adjustment underlying laissez-faire approaches to government policy. In order to
    contain Keynes, they simply borrowed his concepts (uncertainty,expectations, risk, ignorance, probability, time, etc. ) and
    gave them different conflicting definitions. The result was total confusion in macroeconomic theory.

    Miles Kimball recently linked to the Evaporative Cooling of Group Beliefs essay, which link is above, which has the following money quote, showing why Hayek and the Austrians have no place in modern economics.

    "The flip side: Thomas Kuhn believed that a science has to become a "paradigm", with a shared technical language that excludes outsiders, before it can get any real work done. In the formative stages of a science, according to Kuhn, the adherents go to great pains to make their work comprehensible to outside academics. But (according to Kuhn) a science can only make real progress as a technical discipline once it abandons the requirement of outside accessibility, and scientists working in the paradigm assume familiarity with large cores of technical material in their communications."

    Turning to your question. In your search for an answer, I would suggest you start with two sources. First, your brother. The writers of the Bible realized that where there is no vision the people perish. And, one of the great insights of the New Testament is Matthew 6:34 "Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself. Sufficient unto the day is the evil thereof."

    In sum, there are deep psychological reasons why people develop fears of the future. The force is so powerful that it must even be preached against.

    Roosevelt had the good sense to speak that, "We have nothing to fear but fear itself."

    Face it. Large parts of America are are right wing cults that have received major shock after major shock—prophecies about their lives are failing to come true.

  2. (1) It didn't.

    (2) Deep misunderstanding only if you are of the Keynesian (and other allied ideologies) persuasion.

    (3) If you are concerned about the size of government then you're also prolly concerned about how much it spends and how much it engages in borrowing in order to do that spending; not quite sure where the "faux" comes in there.

    (4) Deficits of a large enough magnitude harm job creation. As for what the government can do right now? Nothing. The FT does have an article today though discussing how private firms are rapidly decreasing their financial surpluses, which seems like a sign of good things to come.

  3. In order to contain Keynes, they simply borrowed his concepts (uncertainty,expectations, risk, ignorance, probability, time, etc. ) and gave them different conflicting definitions.

    When did Austrians "borrow" Keynesian concepts? Austrian concepts pre-date Keynesian obscurantism by decades and were and are completely ignored by Keynes and Keynesians.

  4. From Bernstein's post:

    [M]any just believe the budget deficits are always bad, always a symbol of imbalance, irresponsibility, dysfunction, moral failure, and an unwillingness to make the “hard” and “painful” choices. I love that.

    From the linked Michael Grunwald article where he claims the anti-Keynesians believe:

    [T]he stimulus was a big-government boondoggle that blew up the national debt without putting Americans back to work, a profligate exercise in tax-and-spend liberalism, crony capitalism, and airy-fairy green utopianism.

    Obama: "Look, I get the Keynesian thing. But it's not where the electorate is."

    Yes indeed. It's reassuring to know that the public at least seems to be on the right track despite being kept almost completely from the truth.

  5. "3. Faux deficit concern as a tool to shrink government."

    Nothing "Faux" about it. I think it's fair to say that most big-government opponents care about how much the government spends because that means it must take a correspondingly large chunk in. Deficits are perceived (rightly in my opinion, but this dead horse is puree by now) transferring tax increases from today to tomorrow. In other words, deficits make big-government more palatable by externalizing its cost onto future generations. So shrinking the deficit is a necessity to shrink the size of the government.


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