How the Economist magazine crushed my soul
I started reading this Economist article with hopes that it was going to point out the failure of the fiscal cliff nonsense with a call for American politicians on the right to stop trying to destroy the economic recovery that is starting to get momentum, only to find that it is simply another hand-wringing, both-sides-are-at-fault moralism about America’s long-term debt problems. The Economist writes:
FOR the past three years America’s leaders have looked on Europe’s management of the euro crisis with barely disguised contempt. In the White House and on Capitol Hill there has been incredulity that Europe’s politicians could be so incompetent at handling an economic problem; so addicted to last-minute, short-term fixes; and so incapable of agreeing on a long-term strategy for the single currency.
Aha, let’s watch Europe fail at doing more than short-term fixes for a big problem, but the same thing is happening to the United States. Surely the answer is to stop this series of manufactured crises and focusing on a long-term strategy for getting the economy going. It continues:
“Rather than facing an imminent debt crisis, as many European countries do, it needs to deal with the huge long-term gap between tax revenue and spending promises, particularly on health care, while not squeezing the economy too much in the short term. But its politicians now show themselves similarly addicted to kicking the can down the road at the last minute.”
After making sure I didn’t hurt myself from smacking my hand firmly into my face, I thought, “wait, what?”. The problem is not dealing with any long-run problems in matching spending and revenue. After all, the long-run projections are based on estimates which, while made with credible inputs and a well-understood methodology do not provide much certainty with how much revenue and spending there will be in 20-50 years from now.
What will make a dent in a long-run problem that we can see with much more accurate data, and have a much more readily available solution to? Growth. Raising Employment. As much as the solution to the current slow economy is clear to anyone who has not put on a blindfold and stuck their fingers in their ears (“na, na, na, I can’t hear you!”), the solution to the slow economy is 1) at least stop adding a drag on the economy in the form of government spending cuts; and 2) maybe think about spending increases in areas that will benefit the US economy in the long run since debt can be issued cheaply and there are plenty of unemployed people so it will be cheaper to hire workers to build it now than it will when the economy fully returns to health.
Of course, the Economist realizes that the problem is primarily on the Republican side with the idea that government spending is heresy. Oh, wait:
“America’s Democrats and Republicans have proved similarly incapable of reaching a grand bargain; both are far too driven by their parties’ extremists and too focused on winning concessions from the other side to work steadily together to secure the country’s fiscal future.”
Seriously? Words are hard to come by to describe how much hokum this is. Both parties’ extremists? Let’s see, when it came to the stimulus bill in 2009, how many Republicans supported it? That’s right, zero, none. Because government spending is socialism and Kenya, and blahblahblah.
I read the Economist because it generally has a more rational coverage of the news than the useless crap that comes out here where the media is so afraid of being accused of being ‘liberal’ that they always play the ‘both sides are at fault’ angle (something Krugman referred to years ago as the “Shape of the World: Views Differ” idea). The Economist is not a liberal (in the American sense) magazine, and its typical conservative (although not by American Republican Party standards) outlook should give it cover to point out that, no, in fact it is not both sides at fault. The Democratic Party was not coming out in 2011 and suggesting that defaulting on our debt might be no big deal (which has unfortunately been said again with reference to the debt ceiling that will create a US default again in March 2013).
The big lesson from the European crisis was that the obstinacy of one party (Germany in the case of the European debt crisis) will force a situation of greater and greater economic damage in order to avoid abandoning their fixation on one issue (for the Republicans, it is allowing any success for Obama, any increase in government spending or the expiration of any tax cuts). In 2010 it was the initial expiration of the Bush tax cuts (Obama wilted and allowed a 2-year extension). Then it was the debt ceiling in 2011 and the debt commission that came up with an incredibly unappealing solution that was still unacceptable to Republicans. Then it was the “fiscal cliff”, which has been pushed back 2 months (the spending cuts, Obama gave up enough of his leverage to get a deal done on the Bush tax cut expiration). Now it is the debt ceiling again and the sequestration again.
This is what caused the prolonged damage from the European crisis. The desire by Germany to crush those sinners in Greece, Italy, Spain, Ireland and Portugal made no actual solution possible (the solution largely requires economic growth and debt write-offs) and the result is a series of recurrent crises, many of which appear the same as earlier crises that were ‘solved’ by late-night agreements. And it is not because they didn’t cut spending enough (they couldn’t because every spending cut added to the intensity of the recession guaranteeing that the targets set for economic growth and deficits would fail to be met, creating another crisis). The political equivalent is happening because of the Republicans’ intransigence. Every politically-generated crisis leads to a late night agreement that postpones the issue and promises no help to the economy and after the commission set up or whatever fails to find a solution because the Republicans refuse to negotiate in good faith, the cycle repeats itself.
And until people are honest about what the major problem is (and what it is not) and who is at the center of the failure to deal with the problem (if you missed it, that problem is slow economic growth and high unemployment), then it will be hard to find a solution. The more things are hidden by the media discussing other non-pressing problems or describing the situation in false equivalence (both sides are at fault), I’m going to keep pulling my hair out. </rant>