The Stakes of the Austerity Debate

The Stakes of the Austerity Debate

Is Economics a Morality Play?

Those economists arguing for Keynesian stimulus policies are having a very hard time getting people on board. We've only been able to muster a half-measures stimulus plan and now we (and all of Europe) are on a course of pretty savage austerity plans, which are going to result in a lot of suffering and - as Keynes recognized - will end in violence if not solved (Keynes accurately predicted that austerity for Germany after WWI would lead to another world war). 

Keynesian liquidity-trap policies prescribe massive state borrowing and spending. This is a tough sell. We're trained to see debt as dangerous. This is certainly true on a household level, but it seems there are plenty of macroeconomists who are debt worriers as well. The retort - which is insightful, but dangerously inaccurate - is that economics is not a morality play. In liquidity-trap conditions, virtue is vice and vice is virtue. This is insightful, but dangerously misleading. To understand why, you have to first understand Virtue Theory.

Virtues are Tactics

Virtue Theory, developed by the Greeks, is a theory that states that whether something is a virtue or vice depends on context: Specifically, it depends on what your situation is and what your goals are. Virtues are those tactics that help you achieve your goal in a given situation and vices are those tactics that hinder your progress towards that goal. Homer brings home this insight.

Homer's situation is that the Trojan War happened, which was definitely a big war by the standards of the day. So, the Greeks sail over to Troy, expecting to roll over the Trojans, and end up in a protracted battle. Their tactics get more sophisticated as the war goes on and they ultimately win the war with the Trojan-Horse tactic. However, the war is now over and people forget about the Trojan War. As an important side note, cultural amnesia is really common; the economist Hyman Minsky noticed this tendency of cultural amnesia with respect to debt. There is a societal tactic for dealing with cultural amnesia: You write the lessons into your myths or holy texts or, in our case, into a constitution. Putting such historical lessons into legislation or regulation does no good because they're too easily unwound; lessons prone to cultural amnesia must be contained in documents that are very difficult to revise, which explains the rules against alteration of holy texts (though even that happens - the Council of Nicaea, the King James Bible, etc.).

Homer is telling a story (creating a cultural myth) to make sure the lessons of the Trojan War are remembered by future generations. His analysis is basically this: If your only tool is a hammer, you're going to lose (no matter how great your hammer is). Hammers are good; we like hammers; but you need more tools or you're going to be in trouble. So, in Homer's story, Achilles is the hammer. Best hammer ever to live, in fact. But even the best hammers have an "Achilles' heel."

So, the second half of Homer's epic focuses on the clever Odysseus. Odysseus has a lot of tools in his tool box. When he meets the Cyclops he rules out the tactic of physical force and instead outwits the large, but dense cyclops. At times Odysseus uses trickery, at times he uses charm and so on. He is a man who is able to accurately analyze the situation and successfully devise tactics to solve the specific problem he's confronting. So, what Homer teaches, is that what is virtuous (tactically smart) in one situation is actually a vice (not tactically smart) in another situation. Virtues are tactics. 

How Historically Specific Tactics (Virtues) Gain Moral Force

So, let's say you're a warrior society. What are the virtues of being a warrior? Aggression, strength, bravery and so on. As a society, these are the virtues you teach your young and there's lots of stories of brave heroes, etc. These are the attributes that the society praises. These attributes quickly gain a moral force. Perhaps you see retreat as cowardly (even though retreat is often the best tactic in a given situation). Over time, these virtues (tactics) become morals to be applied in every situation. You should always be brave and face death. Always. Homer created a historically-based myth so that the Greeks would not forget that virtues (tactics) are context-dependent.

Thus, to say that a given virtue (successful tactic) is always a virtue (successful tactic) is to completely misunderstand Virtue Theory. It's an argument that would make Homer (and the philosopher of Virtue Theory, Aristotle) roll over in their graves. 

The Tragedy of Virtues Gaining Moral Force

During WWII, we had to develop a warrior ethic in a hurry. Our strategy included invading Normandy, taking over Japanese islands one by one: It was a strategy that heavily relied on the tactic of attrition and we quickly developed a cultural ethos appropriate to that tactic. The men that invaded Normandy remain national heroes. Now, this was appropriate to the situation. There's nothing wrong with the hammer as tool. At times, the hammer is the tool you need.

However, through the lens of that ethos, we tend to view the Polish Cavalry's stand against the blitzkreig as positive and brave and France's surrender as negative and cowardly. However, from the perspective of military strategy, Poland was a disaster. It's cavalry didn't have a chance in hell and Poland's population was slaughtered by the millions (about half were Jewish).

A very good strategy was developed and implemented by Denmark. Denmark immediately surrendered and was able to negotiate pretty good terms. They were able to stay in power and were only overseen by Nazi officials. They were very nice to the Nazi officials and started working very hard on promoting Danish unity - all Danes are Danes, whether they are Jewish or not. Berlin was pushing to do something about the Danish Jews, but the Danes were able to buy time and the Danish Jews stayed safe. Finally, the Danes could buy no more time. The final word came from Berlin to round up the Danish Jews. A Nazi officer tipped them off that it was happening. All of the Danish officials resigned creating an administrative mess that would take time to resolve. All of the Rabis were called and told to mobilize the Jews to escape Denmark. Groups of citizens went through phone books calling every number with a Jewish name and telling them to tell all of their friends. Other groups mobilized to help with the escape. Almost all of Denmark's Jews escaped to Norway and survived the Holocaust. Now, it's true that Denamrk only had a small number of Jews (especially compared to Poland). But the point remains that Denmark's tactic of immediate surrender (which we have historically looked down on) was a very good tactic.

So, it reflects what appears to be an intuitive understanding of Virtue Theory when Keynesians say that in a liquidity trap, what was virtue is vice and what is vice is virtue. However, the better way to say it is that virtues (tactics) depend on the situation and your goal. The point - the WHOLE point - of Virtue Theory is that virtues (tactics) are not static; they are not appropriate in all circumstances. But the fact that training imbues virtues with moral force makes it a very tough sell. However, there is no excuse for trained economists to engage in these types of arguments; it is a deeply anti-scientific position to take.

The Stakes

Is it true that economics is not a morality play? No, it is not! An economy that enriches the few and increases human suffering is immoral (the Greek term is tyranny); an economy that operates for the good of all the people and minimizes human suffering is moral. When one reads Keynes it is impossible not to feel his deep desire to minimize human suffering. In The Economic Consequences of the Peace, his writing becomes altogether un-academic as he insists that the austerity imposed on Germany is abhorent and detestable (he repeats this and uses an exclamation point for emphasis). He was certainly a great economist, but he was also clearly a great man. Keynes very clearly saw the economy as a profound morality play. This is not an academic debate or a game; these policies will decide whether actual, real-life human beings suffer (by the millions). Deciding whether to pursue austerity or stimulus, according to Keynes, is not your ordinary policy decision: The wrong decision will cause deep suffering and ultimately, lead to violence. As someone trained in history, I can confirm that this is the case. When societies are subject to persistent economic crisis and the problem is not solved, that society is hurtling towards profound tragedy. It is for this reason I hate the saying: "Economics is not a morality play." Sometimes - and austerity policies in depressed conditions is one of those times - economic policies are as moral as decisions to go to war. If Keynes is correct, they are decisions that can cause war. Thus, it might be true that not all economic debates are morality plays, but we must be very clear that this one most definitely is.

It is those arguing for stimulus who have morality on their side in the most profound sense possible. In terms of winning this debate, it is a serious tactical error to give up that moral high ground and claim "economic is not a morality play" over issues like borrowing at basically zero interest or punishing lazy slackers. The moral stakes are much higher than that and winning the moral argument matters.