IMFed

Here is Paul Krugman two days ago again noting that: 1) Keynesian economics - which prescribes fiscal stimulus in the face of an economic downturn - has come through this crisis with flying colors; and 2) that a global intellectual failure is causing both the United States and Europe to impose austerity in the face of an economic downturn.

I’m still trying to make sense of this global intellectual failure. But the results are not in question: we are making a total mess of a solvable problem, with consequences that will haunt us for decades to come.

This intellectual failure is a rejection of Keynesianism in favor of a seemingly bizarre belief in what Krugman refers to as the confidence fairy.  The general idea is that we will impose austerity in the face of an economic downturn and this will restore market confidence.

[W]hat we’ve witnessed pretty much throughout the western world is a kind of inverse miracle of intellectual failure. Given a crisis that should have been relatively easy to solve — and, more than that, a crisis that anyone who knew macroeconomics 101 should have been well-prepared to deal with — what we actually got was an obsession with problems we didn’t have. We’ve obsessed over the deficit in the face of near-record low interest rates, obsessed over inflation in the face of stagnant wages, and counted on the confidence fairy to make job-destroying policies somehow job-creating.

But, I have to say, I'm a bit surprised by Krugman's surprise.  Can this "global intellectual failure" really be a mystery to Krugman?  Here is Krugman in The Return of DepressionEconomics (1999) discussing the IMF's Confidence Fairy policies:

In the summer of 1998 Brazil was already suffering an economic slowdown . . . Then the collapse of economic reform in Russia triggered an attack on Brazil's real . . . and the country went to the United States and the IMF for help . . . .

The program for Brazil was peculiarly extreme; it was almost like a caricature of the policies that had been introduced in Asia the preceding year.  But like many caricatures, it emphasized the distinctive features of its subject.  At the core of the policies imposed by Washington over the last few years, on one country after another, is an almost perfect inversion of the Keynesian compact:  faced with an economic crisis, countries are urged to raise interest rates, slash spending, and increase taxes.

Why, sixty years after Keynes, would anybody think that it was a good idea to break so profoundly with the Keynesian compact?  The answer lies in the double standard and the perceived need to win market confidence at all cost.

Krugman, The Return of Depression Economics, pp. 111-112.

I think austerity policies are shocking in their cruelty, but these policies are not surprising - we've been consistently forcing them down the throats of developing countries around the world.  Despite Krugman's seemingly genuine surprise that austerity is now being applied to the first world, the Confidence Fairy/austerity approach wasn't cooked up for this crisis.  There is a global financial cabal that has one response to economic crisis - make sure the Masters of the Universe creditors are paid.  Period.  End of Story.  

There is a model at work - it just happens to be a model that protects the few at the cost of almost everyone else.

IMFed

How Wisconsin Changed My Life

For all of you who were involved, who may feel demoralized, I truly believe that Wisconsin has shown us the way.  As the title says, Wisconsin changed my life.  Here's how.

Okay, I'll just get down to brass tacks.  Here's what I learned.  It'll sound obvious, but, like I said, it changed my life:  Two-party politics is special interest politics.  As an individual in a political party you are nothing.  You must be part of an organized special interest group.  

This sounds really obvious, but I honestly didn't really understand this before.  Not fully.  Not like I understand it now.  

I am a lifelong Democrat.  My grandfather - a die-hard union member - used to say of our family:  "We're 49er fans, Democrats and Catholics.  In that order."  The 49er part was a joke, but the Democrats before Catholics part was dead serious.  

I thought Democrats represented the interests of working class and middle class people.  I knew the decline of the unions hurt the working and middle class, but I still thought voting Democrat and supporting Democratic candidates was the key.  If I ever had any doubt about that - as I occasionally did - my doubts were stamped out by the horrible Nader experience in 2000.  To this day, I can get teared up thinking about what might have been if Al Gore had become the 43rd President.      

So, any nagging doubts about Democrats or the two-party system were forced to the back of my mind.  Sometime back I read something in Mother Jones that has nagged me:

American politicians don't care much about voters with moderate incomes. Princeton political scientist Larry Bartels studied the voting behavior of US senators in the early '90s and discovered that they respond far more to the desires of high-income groups than to anyone else. By itself, that's not a surprise. He also found that Republicans don't respond at all to the desires of voters with modest incomes. Maybe that's not a surprise, either. But this should be: Bartels found that Democratic senators don't respond to the desires of these voters, either. At all.

What?  Nothing?  Nothing from the Democrats?  I think in my heart I knew this was true - I sensed that no one cared (I remember seeing the bankruptcy legislation that huge banks pushed through - it had overwhelming bi-partisan support).  But usually I convinced myself that it was the Republicans - Democrats (like Obama) really wanted to help, they just couldn't.  Their hands were tied.  I don't believe that anymore.  Democrats and Republicans alike respond to the special interests that fund them and that elect them.  Period.  End of story.  The rare exception (Bernie Sanders, Russ Feingold) proves the rule.  

And I realized that the only reason we have ANYTHING left is because of the few special interest groups that are fighting for them.  The AFL-CIO, the Teacher's Union, the AARP - this is the only thing that keeps anything for the bottom 99%.

And then in Wisconsin, I saw what is possible.  If the unions and progressive groups could come together, we could do something.  Wisconsin was ad hoc - it was a ragtag of several groups thrown together on the fly.  But the blueprint is there and I truly believe we could do better.  If we could organize nationally - not behind a party, but behind these groups - there's a chance.  And I truly, truly believe it is the only chance.  It is our only way forward.  Our money, our time and our votes must go to the organizations, not to a party or to politicians.  We vote as the group tells us to vote.  If the group tells us to march, we march.  The group can give money to the party and politicians in exchange for something real - not just a hope that they want to do what is right.  Supporting organizations and only organizations is the only hope we have, but I could see in Wisconsin that it is a real hope.

The vision I have is for disparate groups - who are each losing individually - coming together.  Not necessarily merging, but agreeing to collective action.  Like an alliance of labor and progressive groups that can organize and mobilize our money, our manpower and our votes.  That could make a difference.  But just voting Democrat will never ever do it.  It's just not how the two-party system works.  And Citizens United ups the ante.  

I am not a Democrat any longer.  I will give my money, my time and my votes to unions and progressive organizations.  And I will continue to convince everyone I can that  these groups must come together and make the Democratic Party legislate to our interests and make them pay when they don't.

And that is how Wisconsin changed my life.  

Stay strong Wisconsin.  Keep fighting and we'll keep fighting with you.  

How Wisconsin Changed My Life

Wingnut's Law

Here is Jared Bernstein commenting on the fact that progressives didn't get the the deal they wanted in the disastrous debt-ceiling negotiations.  Dr. Bernstein opines that although Obama is not a great negotiator, the real problem is that voters don't understand what government does to help them.

Okay, where to start?  It's so much worse than progressives not getting the deal they wanted.  No one sensible thinks austerity is a good idea to begin with.  See here, here, here, and here.  It's a really bad idea.  In fact, it's the type of bad idea that leads to economic disaster, violence and repression.

So, if economic policy is not being driven by legitimate economic theory, what is driving it?

Here is my theory, I'm calling it Wingnut's Law:  Any time policy decisions are made contra sound science, there are billionaires or religious fundamentalists at work.  Since there is no one on CNN quoting the bible (only in America), it must be billionaires.  See here, here, here and here.  

This brings me to Dr. Bernstein's point:  Billionaires have engaged in a decades-long PR campaign to convince people that government is the problem.  I mean think about it, the government-is-the-problem slogan is the Swiss Army knife of the billionaire – it saves the day any time pesky regulation is in the way, it keeps corporate and capital gains taxes low and it provides the rationale for slashing the social safety net. Oh how billionaires must love the government-is-the-problem slogan. In fact, I wonder what billionaires love more – the government-is-the-problem slogan or a taxpayer-funded bailout (only suckers care about hypocrisy, silly).

So yes, I agree with Dr. Bernstein, we need to convince people government isn’t the enemy.  But we should be clear about the nature of that task.  The fact is extremely well-funded interests – Big Tobacco, Oil, Insurance, Wall Street and on and on and on – have told the American people for decades and in every forum imaginable that government is the problem.  We are fighting an idea that has been as aggressively and as consistently advertised as any idea in my lifetime.  That is what we are up against.  

Wingnut's Law