Practical Libs, Ideological Cons

Actual economist Nick Rowe points out that I am wrong about Monetarism. It too is demand based. Some thought has shown this to be true. By lowering interest rates, the government (or Fed if you want to be technical) makes borrowing more attractive and thus increases demand. This has left me with some questions about what actual “supply side” economics is. I’m sure I’ll bring that up in later posts. It also should be noted that the current crop of crazy conservatives don’t like Monetarism because they think it to is a kind of tax. If you talk to libertarians, they usually think that the Fed is just a conspiracy to devalue the dollar and thus steal money from hard working people. Regardless, my error about the nature of Monetarism doesn’t affect the point of this article. However, I greatly appreciate that Professor Rowe took the time to correct me. I’m a generalist and need as much of that as I can get. -FM

Simon Wren-LewisThere are a lot of loony ideas in economics. The reason, I think, is because even though a particular economic policy might not be best for the economy overall, it can be very good for a particular group. And when that group is rich and powerful, there are going to be a lot of people using all their brain power to justify why such a policy is really good for everyone. But in the macroeconomics world, there really are only two serious approaches to fix an economy that is under performing. The first is for the government to spend extra money to increase demand and thus get the economy moving again. Much of this kind of stuff happens automatically: unemployment insurance works this way. We call people who believe in this kind of intervention in the economy Keynesians.

Whereas Keynesians look at propping up economic demand, the second group looks at propping up economic supply. They do this with money flow. By allowing businesses to borrow more cheaply, they will invest more and expand, thus putting money into the economy. We call people who believe in this kind of intervention in the economy Monetarists. They tend to be a more conservative lot than the Keynesians.

Matt Yglesias is always saying that if you want to help poor people, give them money. This is a response to neoliberal and conservative policies that want to do everything indirectly. Rather than just give an unemployed person money or a job with the government, we give a tax break to employers, hoping they will hire the guy. This is kind of how I see the Monetarists. I think what their real fear about the Keynesians is that more government spending will lead to higher taxes. That is a big concern. But the main thing is that the Monetarists just seem to have an ideological problem with the government spending money.

So there has been a small argument between Monetarist Nick Rowe and Keynesian Paul Krugman. And while Simon Wren-Lewis has nothing but nice things to say about Rowe, he makes a really important point in an article yesterday, What Annoys Me About Market Monetarists. And it gets right to the heart of the liberal-conservative divide in this country. (I don’t mean to say that Rowe is a conservative; I don’t know; and these days, the thinking of people like Rowe are considered terrible by conservatives; so even if he is a conservative, he isn’t a crazy one.)

To understand why I do get annoyed with MM [Market Monetarism], let me use another car analogy. We are going downhill, and the brakes do not seem to be working properly. I’m sitting in the backseat with a representative of MM. I suggest to the driver that they should keep trying the brake pedal, but they should also put the handbrake on. The person sitting next to me says “That is a terrible idea. The brake pedal should work. Maybe try pressing it in a different way. But do not put on the handbrake. The smell of burning rubber will be terrible. The brake pedal should work, that is what it is designed for, and to do anything else just lets the car manufacturer off the hook. Have you tried pressing on the accelerator after trying the brake?”

The point that Wren-Lewis is making is that Keynesians don’t say that only fiscal policy will work; they believe in monetary policy too. It is just that when monetary policy isn’t working, Keynesians believe fiscal policy should be used. The Monetarists are rigid and I think it all comes down to ideology. They don’t want to use government spending so they come up with reasons why government spending would be terrible. (Again: Wren-Lewis isn’t talking about Rowe here—just the Monetarists generally.)

My take on American politics is that conservatism has ossified into a strictly ideological movement. So when approaching any problem, they start with a long list of things that can’t be done. For example, if they are looking at inequality between school funding, the solution cannot be federal funding to equalize them. Instead they push more testing or ending teacher tenure or neoliberal policies like providing tax incentives to manufactures to give computers to low income schools.

Liberals, on the other hand, are open to all policies. That is, for example, how we got the conservative healthcare reform law now known as Obamacare. But even on education policy, I don’t see liberal resistance to the elimination of tenure as not being open to the idea. It is rather that elimination of tenure has little is anything to do with helping children, and everything to do with the conservative desire to destroy teachers’ unions.

It seems that even a reasonable academic like Nick Rowe falls into his own kind of false equivalence. He seems to think that just because Monetarists are against fiscal policy, that means Keynesians are against monetary policy. But that’s not true. It goes along with the claim by conservatives that they want small government as an end in itself. (They don’t actually want small government, but that’s what they claim.) Thus they assume that liberals want big government as an end in itself. That’s simply not true. We want certain things to be done, and it really does matter to us if it uses a little government, a lot of government, or no government.

This can’t be said enough: liberalism is practical. Liberals are not trying to turn the United States into a socialist utopia. This is in stark contrast to conservatives who are ideological. They are trying to turn the United States into a utopia, although they disagree as to whether it would be a theocracy or an anarchy. This difference between the ways that liberals and conservatives see policy is our fundamental problem. Liberals can’t compromise with conservatives who won’t even consider any ideas outside their tiny ideological box. And as we saw with Obamacare, even when liberals do squeeze into that tiny ideological box, the conservatives make the box even smaller.

And if fairly reasonable Monetarists can’t agree that when monetary policies aren’t working, we should use fiscal policies, how can we possibly get Ted Cruz to admit that tax loopholes for oil companies ought to be closed?

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

0 thoughts on “Practical Libs, Ideological Cons

  1. American conservatism is weirdly attached to the idea of punishment. I recall all of the opposition to bailing out homeowners from their bad mortgage contracts always included the idea that it wouldn’t be fair to those who had not made poor decisions. Or the evergreen ‘Why should I work (at a job I hate) when those people collect welfare?’. So, I want to ask, are we talking about fixing the economy or are we discussing theology? Because we can fix the economy right now by giving money to people. If it has to be a fix that fits with Calvinism, that’s a problem.

  2. @Lawrence – As Paul Krugman likes to say, "Economics is not a morality play." You are right, of course. But there is something that I still find mystifying and it is not limited to the US. People get mad at others from taking out mortgages they couldn’t afford. (In many cases, this isn’t even true; the economic downturn caused a lot of people who [i]could[/i] afford their mortgages to not be able to afford them.) But borrowers are expected to to be stupid about finance. It is the bankers–the people who loan the money–who are supposed to be the adults in the room who say, "You cannot afford this loan!" But the anger is at the borrower and not the banker.

    We see this same thing in Germany where people are angry at the borrowers in Greece, as though they tricked the poor German bankers.

    How it is that people came to see bankers as sympathetic is really interesting. But of course, no one is ever presented the case like I just did. They simply don’t talk about the bankers and just dump all over the poor. And that is the result of having a stunningly bad news industry.

  3. Frank: "Whereas Keynesians look at propping up economic demand, the second group looks at propping up economic supply. They do this with money flow. By allowing businesses to borrow more cheaply, they will invest more and expand, thus putting money into the economy. We call people who believe in this kind of intervention in the economy Monetarists."

    No. Both monetarists and Keynesians are demand-siders.

  4. Part of this comes from the belief that most subprime mortgage lendees were Black/Hispanic. As far as I understand, the majority were Caucasians refinancing their homes to take advantage of skyrocketing property value rates. Even if the belief has some accuracy, the stories of homebuyers who qualified for regular loans and were conned into taking subprime loans are well-documented. So it wasn’t greedy "others" looking to easily get what only hardworking white people deserve. But that’s how a lot of people perceived, and still perceive, the mortgage meltdown. I’m sure the same thing is going on with German attitudes towards Greeks.

    I’ve wondered about the Calvinist heritage for a long time. It seems to have disappeared in the 30’s, when plutocrats were roundly loathed, and made something of a philosophical comeback in the immediate post-war period, where having a good job was really pretty well available to those who worked hard (not women or ethnic minorities, of course.) Poor people were looked down upon, but the super-rich weren’t trusted, either. (The local business leader was community hero, not inherited wealth or CEOs.)

    Maybe our Calvinist roots never went away. Maybe the growth of civil/women’s/gay-rights movements upset the temporary alliance of working-class white males against vast inequality. There are so many historical factors to consider, it’s difficult to say where the Calvinist/puritan heritage figured in everything that happened.

  5. @Nick Rowe – No actual economists around here! Haven’t you read the TOS? ;-)

    It has taken me some thinking, but I now understand. The distinction in my mind is between direct fiscal stimulus: the government spends money to make roads, for example. And the indirect process of money flow. But this is not actually correct, because tax cuts are a form of Keynesian stimulus, and they too are indirect. Just as people could look at a 1% rate loan and not take it, someone could take the money saved on taxes and put it in under their bed.

    I’m now confused about just what supply side economics is. I will update the article based upon your comment, however. Thank you for pointing out the error!

  6. @JMF – I really don’t know. It does seem that most conservatives look on the poor with brown colored glasses. Conservatives still act like anyone can just go out and get a job. That’s not even true of McDonald’s anymore. I suppose people could become migrant farm workers, but I don’t think there is a great excess of employee demand there either. Personally, I would head west, but I’m not that strong a swimmer.

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