Oratorical Animal

Republicans, Rhetoric, Reality, and Deficits

As a professional rhetorician (a-hem, hmmm, fiddle with elbow patches on jacket), I hate the rhetoric/reality distinction so often used on cable news and elsewhere. I believe that we only know reality through language and our language, in turns, reflects, deflects and selects the world in which we live. That said, we still need a way to talk about well-intentioned deception. To coin a phrase.

Thus, we come to the Republican party and the federal government's budget deficit. I want to believe the words of the House Speaker, their presidential candidates, their congressional leadership, their op-ed writers and so forth and so on when they say that they care about the federal budget deficit and that they wish to do something about it. I do believe that they believe it. I also believe that this is a classic case of clashing goods.

Republicans wish to reduce the federal deficit. They wish to lower taxes on all Americans, but particularly on the assets held by wealthier Americans--those are the folks that make jobs through investments. They understand their responsibilities to the least among us and they wish to provide a social safety net. As do all political organizations, the Republican Party also wishes to gain and hold power. Republicans are well-aware that Americans love entitlement programs.

These are laudable goals. They are social goods and, in fact, many Democrats would agree with each one of these goals. In theory. But these goals inevitably come into conflict. Higher entitlement spending means higher deficits. Lower taxes means less federal revenue. To be at all meaningful, budget cuts will likely have to include entitlements. Raising taxes or cutting spending puts your political future at risk. You cannot have all of these goods at the same time.

When forced to choose, Republicans will inevitably abandon deficit reduction. This wasn't always true and it took some time for it to become true. President Reagan's initial tax cuts ballooned the deficit, but, with much assistance from Democrats, he passed a series of tax increases that reduced the deficit, a process that culminated under his successor, George H. W. Bush. He cut a tax and spending deal with majority Democratic support--conservatives denounced and abandoned him. The deficit declined, but Bush faced first a primary challenge and then lost his bid for reelection. Clinton, then, bit the bullet and raised taxes with no Republican help. With some help from Republicans early in his second term, he passed more spending cuts. The budget produced a surplus and we began paying down the national debt.

Since the election of George W. Bush, however, the Republican Party has completed its journey and abandoned any commitment to deficit reduction. Two big tax cuts, two wars, a new enetitlement benefit, none of which was paid for. The budget went from a surplus to a deficit in short order.

Once President Obama took office, Rs immediately blamed him for the deficit. Yet they have had numerous opportunities to lower the deficit and have failed to take a single one. Sure, most of those moments would have involved compromises, deals, trades. There are competing goods--they needed to choose between deficit reduction and higher taxes or lower Medicare spending, for instance. But there have been numerous moments over the past two years when they could have cut a deal with Obama. In fact, he would have cut a deal again over the past couple of weeks.

But each time, Republicans dropped deficit reduction. They rejected tax increases. They demanded entitlement cuts, but refused to specify them. Budget plans, like that of Paul Ryan, were passed that included more massive tax increases and no specified spending cuts. Even voucher proposals for entitlements hide the cuts--they can pretend they're just offering the voucher and gradually lower the amount. They can then say, "Well, it's not our fault that the insurance costs more." Each time, they shy away from actual deficit reduction. 

The plain fact of the matter is that liberals care far less about this--most believe that we need big spending now to goose the economy and deficit reduction later, once the economy has rebounded and we can get a sense of what the budget looks like with "normal" tax receipts. In fact, if that advice had been followed on the national, state, and local level, we'd probably be in much better shape now. But when the economy did boom, it was the Democratic Party that balanced the budget.

All I'm saying is this: if you truly care about deficit reduction, you need to understand the Republican Party leadership does not. They choose other priorities every single time, they've done so for a while, and they did so again with the fiscal cliff (that deal will LIFT the budget deficit). So, if you truly care, you need to change the Republican Party leadership or you need another political vehicle. These guys--and I mean guys--will choose tax cuts and entitlements and political power over deficit reduction Every. Single. Time. They'll talk the talk from Janesville to Miami. But they will not walk the walk.

 

Campaign Rhetoric and Economic Argument: A Lost Dialogue of Aristotle

The scene: A lovely path outside of Athens. PK, an old master of theoria oikonomica and PR, a young, nubile public official seek the truth of public economic argument.

PK: Let us pause in this fine grove of trees and consider the ways and means of public talk on matters oikonomica.

PR: I would rather dash across the land to Marathon! I may make it in three turns of the dial or less!

PK: Now, young master, what did we determine last week of the philosophy of Rovian Callicles?

PR (sulkily): Rhetoric is useful because the true and just are by nature stronger than their opposites, so that if judgments are not made the right way [the true and the just] are necessarily defeated [by their opposites]. And this is worthy of censure.

PK: And is Rovian Callicles worthy of censure?

PR: Yeeeaahhhh.

PK: And how long will his words live?

PR: Not long. Truth pressed to earth will rise again. How long? Not long, because no lie can live forever. How long? Not long, because you still reap what you sow. How long? Not long. Becaue the arc of the moral universe is long but it bends toward justice [Heavy sigh].

PK: Very good. Now, let us pause and consider what troubles you.

PR: The Obamian claims that the wild disbursement of public monies makes prosperity for all, and yet I know this is not true and I must say that it is not true and yet the people, in whom I claim to have the greatest of trust, are now believing his seductive words and those of his sage, the Explainius Clintonian, and I keep watching and watching Clintonian's speech on parchmenttube.dialogus and it is so true and yet it cannot be true because Maximus Romnius says it is not true, yet he will not explain why and I consult the Oracle Ayndian Rand for signs and portents and nothing is there, so that when I went on Face the Publius, I behaved as the fool. I do not know what to do.

PK: It is indeed a dilemma, young master. Let us begin at the beginning, for that is a very good place to start. Does the Obamian truly claim that throwing money to the winds always works?

PR: YES!

PK: No. He is of the school of Keynes, a most wise and careful oracle, one who believes above all in context and prudence. What was of the world and in the world when the Obamian began his time in office?

PR: The Younger Shrub left something of a mess.

PK: Oy vey I should say so. Colonial wars made without payment; prescription herbs for all without payment; the wealthy ran wild with no restraint; the Athens exchange collapsed; The Theban reinsurance group threatened to bring down the financial system; GDP dropped 9% in the last quarter of 2008. So, when the economy is in a state of collapse, what should the Obamian have done?

PR: Cut the budget!

PK: Truly? For if the businesses will not spend, because there is no demand, and if the people will not spend, for they fear the loss of their livelihoods because the businesses might lay them off, is this not a vicious circle? One making miserable the other who makes yet more miserable the first?

PR: Hmmm.

PK: Hmmm indeed! And if the government then takes more money out of circulation by cutting back, what might happen then?

PR: The fairy of confidence will come and all will be well because the people will know that government taxes in the future will not be high so that they can spend their monies now.

PK: Yes, some have tried that way. Who?

PR [knowingly and sulkily]: The Cameron of the Isle Brittania.

PK: Did it work?

PR: Nooooo.

PK: My young friend, your foolish theory is like that of the man who took his empty wineskin and threw it in a vat of wine, expecting that the wine would flow of its own accord into the skin. Supply-side is a creation of the cave. Instead, we must do as the Obamian did, more than he did in fact. Fill the wineskin, spend the monies now to spur demand. The wine will not flow of its own accord; we must help.

PR: So he does want wild spending!

PK: Oh, young master. What did the Explainius Clintonian do during his term in office?

PR: He raised taxes [scuffs ground with foot] and cut spending during the good times.

PK: Context and prudence, my young friend, context and prudence. Good judgment asks of us to see the means available to us and to use those means in each case. The wise oracle Keynes taught us to save our monies during the good times and use them in the bad. And how do we know this is all true?

PR [doubtfully]: The oracle Keynes is wise?

PK: Yes. And because we use our own brains. We see the world and we gather the evidence. But we also know that it is true because Maximus Romnius has said so.

PR: NO!!!

PK: Yes. He has said cuts to our forces of defense will cost us jobs. That implies that...?

PR: Defense spending creates jobs?

PK: Yes. And, since even the Aynian Rand says that all dollars are the same, if defense spending creates jobs, then...?

PR [wonderingly]: Spending creates jobs.

PK: If....

PR: Other, um, sources of spending are exhausted and interest rates on loans are already at the, um, zero bound? If we are in, um, hm, a liquidity trap?

PK: Very, very good. If even the Head of the Federalus Reservius cannot throw enough money into the economy to make it hum, then fiscal policy is what we must turn to because it is all that we have left. And we know that is happening because...?

PR: Negative real interest rates.

PK: Indeed. When people are willing to pay the government to hold its bonds, then there is no chance of inflation and no way the wine will flow into the skins of its own accord. So, if the Maximus Romnius agrees with all of this, as his statement on defense spending shows, then why would he say otherwise?

PR [sadly]: He is of the school of Rovian Callicles. He does not believe that the truth shall set you free.

PK: No. No, he does not. And now, my young friend, you may run as you wish.

PR: I shall go to Marathon!

PK [smiling]: And how long will it take?

PR: Four turns of the dial, sir. Four turns.

 

The American Founders and the European Union

Today's NYT was full of articles describing the struggle to maintain the euro and the continuing problems of the European project, broadly speaking. Add to that my desperate and eternal struggle to keep pace with the Economists that show up in my mailbox (Nooooooooo! I just got caught up!!!!!!) and I've been thinking a good deal about this issue of late. An odd analogy struck me.

The Europeans are following the American path not taken. In the late 1780s, the United States operated under the Articles of Confederation, a loose system of government that, in retrospect, seems like Ron Paul's Utopia. The federal government could not tax; it could not "mandate" anything of individual citizens; a unicameral "legislature" with no executive branch "ran" the country; voting in that Congress was by states; to pass, all legislation needed a unanimous vote, which meant that very little passed. States rights, indeed.

Faced with the prospect of 13 squabbling little principalities that disgraced the notion of a republic, Washington, Madison, Hamilton and the rest had two choices when they met in Philadelphia. They could seek to modify the Articles of Confederation and propose such changes to the Congress. Or, they could scrap that mess, write the Constitution, and make a nation.

As we all know, they did the latter. The Europeans have chosen the former course. Regardless of your opinion of the economic policies (like Paul Krugman, I think they're wrong) they have pursued, their political choices reflect the American path not taken. They are modifying their agreements, running those modifications through each nation, watching as the pacts are evaluated by legislatures and judicial bodies, praying for success as each reform makes its torturous way through a gauntlet of competing interests, only to arrive at its destination already too little and too late.

Thus far, this has failed to stem the economic problems, partly due to the piecemeal nature of the process and partly due to the hapless stupidity of their economics. Beyond that, however, they face what one famous European philosopher might term a "legitimation crisis." The European governing bodies possess very little in the way of a democratic foundation; the policies they impose not only fail, but also appear illegitimate to suffering peoples. There does not, in fact, seem to be a We the European people to legitimate the European Union as it struggles with European debts.

Alexander Hamilton, our first Secretary of the Treasury, could count on an American government called into being by We the People during and through the writing, ratification, and implementation of the Constitution as he solved the American debt crisis. It was a near-run thing even under those helpful circumstances. I suspect that he is somewhere shaking his head in rueful amazement at the European predicament.  

Eyes that fail to see; Ears that fail to hear

It is rare when a public debate that so consumes the nation has so little to do with the national welfare. At present, the United States runs the risk of blowing through its debt ceiling because a portion of the House Republicans, representing a minority of the American people, refuses to negotiate in good faith for a solution. In a larger sense, however, this is the wrong debate at the wrong time in the wrong nation.

The United States still suffers from the most severe economic downturn since the Great Depression. Better than 9% of those still looking for work are unemployed and the real unemployment rate is well over that. The Great Recession has hurt the prospects of all Americans, but, as the NYT reported the other day, it has hit Latinos and African Americans particularly hard. 

Unlike previous postwar recessions, this is a financial collapse. Most households accumulated high levels of debt in the past twenty years--to compensate for the lack of any real rise in median income over the past 30 years--and do not feel free to spend until they work debt down to manageable proportions. The president, to give him some credit, understood the problem and sought to fill the demand gap with the economic stimulus. Unfortunately, it was too small and too weighted toward tax cuts. So, it didn't possess the potential to generate the demand needed and what demand it could create was lowered by the fact that people too often bank tax cuts rather than spending the funds. Plus, heavy cuts at the state and local level counteracted federal spending. The president also, to his credit, pursued other policies, particularly help for the auto industry, that paid major dividends for the economy, meaning that it is in significantly better shape than it would have been otherwise. But it's still not good.

Equally important, although most news organizations fail to cover foreign economic news, the rest of the world is currently facing serious problems. Even as Republicans needlessly risk the nation's credit rating, the Euro Zone stares into a serious financial abyss. Unwilling to restructure any debt, it seems, the policies of the European Central Bank--and Germany/France in addition--threaten to create financial catastrophe. Nations such as Greece, Ireland, Portugal, Spain, and Italy find themselves struggling to stay in the euro, looking at decades of austerity because they cannot devalue their currency in order to become more competitive on the world market and grow out of recession, as, for instance, Britain did in the early 90s. No "rescue" package for these nations or the euro has done the job. The interest rate spread between Italian and German bonds is, this morning, as bad as it was before the most recent effort. By the by, it is delusional to think that the peoples of these nations will not eventually look to more political, more radical solutions to their problems, given that they have had almost no say in current policy. And, of course, three of the four BRIC nations (Brazil, India, China)--who have driven what world recovery there is--are now seeking to slow economic growth in the face of mounting inflation. In short, the world economy is in serious trouble.

Any rational set of American policymakers, as even that center right bastion of economic advice,  The Economist argues, would nurse the present recovery through short term stimulus (aid to states is my favorite--it gets spent on important stuff and prevents state cuts from balancing federal spending) and develop medium and long term plans to bring the debt down gradually as good times take hold. Instead, Washington obsesses over cuts to the budget at a time of weakness. This is ridiculous. Again, The Economist (its Economics focus columnist): "In a recent study of 173 fiscal-policy changes in rich countries from 1978 to 2009, economists from the IMF found that cutting a country's budget deficit by 1% of GDP typically reduces real output by about two-thirds of a percentage point and raises the unemployment rate by 1/3 of a percentage point." Small percentages, but bad numbers in terms of real money and people, at a time when we're alreadyy suffering. Surprisingly, it seems, contractionary fiscal policy contracts the economy.

Nothing better illustrates the complete disconnect between the capital of a nation and its people than this present debate. Those in Congress, commenting in the media, working in the bureaucracy, issuing reports from think tanks--they have good jobs, with health benefits. They've convinced themselves that only debt matters. More important, it seems, they all know only each other and cannot seem quite able to imagine the distress in the rest of the country. They talk to each other, listen to each other, dine with each other, golf with each other, and gossip about each other, including our ostensibly Democratic president. It is a perfect example of groupthink; it's liable to work as well as it always does. And, as in Europe, if the leaders of presumed "democracies" fail to address the problems suffered by their peoples, then they are likely to turn to more potent alternatives.

Classical Obama

President Obama's speech yesterday makes me wonder yet again whether he spends his spare time with Sharon Crowley and Debbie Hawhee. Four factors interested me about this speech.

First, the president again reveals his love of order--the speech is classically organized. He opens with his exordium, emphasizing that he'll discuss the "kind of future we want...and the kind of country we believe in." These are powerful incentives to listen. He then turns to his narratio, a brief survey of American history and, more particularly, US history since 1980 (more on this later). That's followed by a statement of significance which leads into his refutatio, or his dismissal of the Republican plan. The confirmatio, or statement of his case and plan follows, and he closes with his peroratio. It might seem unusual to engage in refutation before confirmation, but, given the publicity accorded to Representative Paul Ryan's budget plan, Obama's choice to undermine it before proposing his own course makes sense. He needed to clear room on the public agenda. All in all, the classical lines of the oration make sense of the formless, buzzing debate that preceded his appearance and, given the power embodied by the president's role as the nation's chief storyteller (as Mary Stuckey put it), he sets the ground on which the subsequent argument will proceed.

Second, Obama also again reveals his love of history. The narratio begins with "our first days as a nation" and tells the tale of a nation whose citizens are "rugged individualists," but who also believe "that we are all connected; and that there are some things we can only do together as a nation." From there, Obama offers a strong defense of liberal government--a conviction that while individuals act in their own interests, the nation, through its elected representatives, makes investments in the commons--a strong military, schools, universities, roads, bridges--that benefit all. Simultaneously, American also beleieve that "each one of us deserves some basic measure of security." Accidents, illness, simple bad luck can short circuit our efforts and so we make those commitments to each other--a social compact.

Two strategies of note here. Initially, Obama assumes the role of narrator, a trick he undoubtedly picked up from President Reagan. As the narrator of American history, the president rises above politics and merely tells the story of our growth as a nation. Then, he weaves this social compact into our history, legitmating it through that tale and through the authority of Lincoln (cited here).

From there, the narratio turns to the contemporary era and gains a sharper edge. Democrats and Republicans brought the deficit under control, he argues, and the country was "in great shape by the year 2000." But "we lost our way in the decade that followed." Obama graciously claims Democrats and Republicans messed up, but the implicit argument is clear--the very same Republicans who wish to shred the social compact now created the problem during the Bush Administration. Much like Lincoln's Second Inaugural, in which the culpability for the civil war clearly rests with the south in the first part of the speech, despite protestations to the contrary, so Obama's speech makes clear where the blame lies.

Third, then, that leads naturally into the refutatio, a stronger than expected condemnation of the Ryan plan as a radical departure from the American way. Again, two helpful strategies. The initial grounding of Obama's position in a seemingly nonpartisan account of American hsitory, one generally acceptable to most Americans, authorizes him to condemn Ryan's plan as "deeply pessimistic," as "not right," as "not a vision of the America I know." Next, a large amount of evidence--statistics, authority evidence, reluctant testimony ("As Ronald Reagan's own budget director said, there's nothing 'serious' or 'courageous' about this plan.") ground the argument and justify Obama's rejection of Ryan.

Equally important, perhaps, Obama's direct assault on the language used to (wrongly) describe Ryan and his plan--the serious, courageous stuff--clearly provoked the representative, there at the president's invitation. As a result, Ryan threw a hissy fit after the speech, relying on no evidence, argument, or history to condemn shrilly Obama's effort. In other words, his response nicely verified Obama's characterization of him as a radical.

Finally, I've become increasingly interested in Obama's allusions to Bill Clinton. In 1996, for instance, Clinton famously said in his State of the Union (my imperfect memory): "The era of big government is over. But we cannot go back to a past when Americans were left to fend for themselves." Obama puts front and center those Americans who will be damaged by the Republican plan and concludes, "These are the Americans we'd be telling to fend for themselves." Like Clinton at the 2004 DNC, Obama uses himself as an example of the wealthy 2% who do not need more tax cuts. Near the end, in the peroratio he positions himself between those who say "we shouldn't even consider raising taxes" and those who "say that we shouldn't even talk about cutting spending until the economy is fully recovered" in a manner akin to Clinton. I'm not quite sure where I want to go with this observation, but it's clear where Obama is getting at least some of his plays.

This was a good speech, but it's likely to be more important down the road. Obama has exerted the power of the presieency to define the debate in these terms; this is why it's tough to get into this sort of fight with a president. He'll keep hammering at these definitions until Paul Ryan's handsome young mug morphs seamlessly and gracefully into the scowling, bloated face of Newt. Of course, Newt's likely to help that process along!

Alexander Hamilton loved him some big guvmint

Former Majority Leader, current lobbyist, and de facto head of the Tea Party Movement, Texan Dick Armey, came to Washington a few days ago. He extolled the Founders at the National Press Club, wondering why liberals had abandoned the wisdom of the Federalist Papers. That's when the fun started:

A member of the audience passed a question to the moderator, who read it to Armey: How can the Federalist Papers be an inspiration for the tea party, when their principal author, Alexander Hamilton, “was widely regarded then and now as an advocate of a strong central government”?

Historian Armey was flummoxed by this new information. “Widely regarded by whom?” he challenged, suspiciously. “Today’s modern ill-informed political science professors? . . . I just doubt that was the case in fact about Hamilton.”

Oh my. There's not much that can be said here except: 1) The new Texas school board standards have evidently already come into effect; and 2) One suspects that Alex would have treated Tea Partiers with the same loving respect he offered to the Whiskey Rebellion. Look it up, Dick. 

Nobeling Goldman, Sachs

As I've mentioned here before, I have a peculiar interest in economics, despite my complete lack of any numerical competence. They awarded the Nobel Prize in economics this week. For the first time in its history, a woman, Dr. Elinor Ostrom, of Indiana University won the prize. She shared the honor with Dr. Oliver E. Williamson of California, Berkeley. Hooray! to both.

A couple of things struck me about this award. First, neither winner is technically an economist. Williamson teaches in a school of business while Ostrom is a political scientist. The NYT article that I linked to above, in fact, introduced them as "two American social scientists" and Robert Shiller of Yale had a nice comment: "This award is part of the merging of the social sciences. Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking." Indeed--in his interview, Williamson takes a nice little shot at Alan Greenspan, always a good thing.

Second, both winners studied institutional economics, the effect that, duh, institutions and social structures have on economic activity. Here at the Dept. of Comm Illinois, we had a reading group last year (in addition to our rhetorical studies group; we're a beehive of intellectual activity) on institutional research and the ways in which the NYT and other sources explain Ostrom's work, in particular, sounds a bit familiar.

She studies what I would call the normative and regulative rules that govern institution formation when people confront a "commons"--a shared resource that a number of people have an interest in preserving. In other words, what values and behaviors evolve to maintain a resource that provides a living for the people concerned? Her work seems to skip from one side of the political aisle to another. Internal norms, she argues, work better than external rules in such situations. Let parties come up with their solutions rather than impose government regulations. But the old market theory example of the "tragedy of the commons" (that greedy individuals will destroy a shared resource and it should be sold to self-interested private owners) is also wrong. Cooperative behavior evolves to preserve the resource, she argues. An institution, shared sets of rules for common beliefs and actions, emerges and the resource is preserved.

Which is quite cool. Except for the column that appears on the same page, detailing the ways in which Goldman, Sachs intends to cock a snook at American taxpayers. The semi-private economic giant, which appears to run the Treasury Department, New Jersey, and the Democratic Party on the side, is setting aside more than $23 billion for its annual bonus pool--the largest in its history and more than twice the size of its 2008 pool.

Please recall three pertinent facts. First, the government bailed out Goldman to the tune of $10 billion last year. GS paid that money back and claimed it was unnecessary, but somehow liked the very public govt. endorsement received at the time. Second, the government allowed GS to reorganize as a bank holding company which, in turn, offers it cheap financing. Finally, given those two events, GS is now implicitly backed by the full faith and credit of the United States of America. So, when it takes the chances it takes, it knows it's not going to be allowed to fail. Heads, GS wins. Tails, taxpayers lose. All the thrill of rooting for the house in Vegas or the Yankees in the playoffs. But highly profitable. For GS employees.

I understand that Dr. Ostrom researches "relatively small forests in undeveloped countries." But I'd sure like to turn her loose on Goldman, Sachs and come up with some way to preserve our commons and give those people a conscience. Sadly, that may require a Nobel in genetic engineering.

Smart presidents are useful

There's been a bit of a kerfluffle lately about President Obama. He wants information. He seems to understand that information. Paul Krugman, for instance, put up this lovely item in which a reporter not only criticized the president for being too smart, but also got the economics wrong. In fact, as Krugman points out, Obama was asking for important information, not trivia. These sorts of stories cause me to have two responses.

First, despite the distinguished journalists and journalism teachers in my beloved's family, I still wonder if aspiring journalists should simply take a broad liberal arts curriculum. The above doof might then have recognized and understood what the president wanted and why it was useful.

Second, when journalists are intimidated by a president's brains, this is the narrative arc. They cannot say, "Smart is good" because then "everyone" will call them elitist. Smart is not good in the United States. So, the president is "overly concerned" with detail. He gets "bogged down" with minutia. Since Nixon went bad, the three smartest presidents have been Carter, Clinton, and Obama (All Democrats. Coincidence? Hmmmm.). All three faced this storyline--too much detail, no big picture, too consumed with trivia, too worried about those pesky "facts."

Bigfoot journalists HATE it when they know a president is smarter than them and when that president knows he is smarter than them. This story began last year with some mutterings about eggheads and Adlai Stevenson. It is accelerating now because, I think, the president has taught himself and been taught to understand the intricacies of the economy and health care even as many journalists have claimed that both issues are simply too complicated for "people" to understand. When the president's every public appearance demonstrates that these issues aren't too hard, the journalists look like fools.

It might be better for all of us if some of these people did less talking and more learning.   

The Dismal Humanity

My favorite course during my freshman year at Bradley was the mass lecture macroeconomics class taught by Kal Goldberg. He was a wonderful teacher. In retrospect, I deeply admire his evident goal: He wanted to create informed citizens, not professional economists. Unfortunately, I thought it was so cool that I became temporarily deranged and took other econ classes, all of which I loathed (except for American Economic History) and some of which I dropped. At any rate, I've remained oddly intrigued by the economy and by macroeconomic theory, with books like this, for instance, on my shelves.

I also subscribe to The Economist, in spite of its occasionally, um, idiosyncratic take on American politics. But it's generally been very good on the economic crisis and a recent report on macroeconomic theory and scholarship was particularly intriguing to a geek like me.

It's all worth reading, but one argument about argument caught my eye. The essay notes that my favorite contemporary pundit/economist Paul Krugman has, during the current downturn, argued from history. The paper tellingly notes, "In the humanities this would count as routine scholarship. But to many high-tech economists it is a bit undignified. Real scientists, after all, do not leaf through Newton’s “Principia Mathematica” to solve contemporary problems in physics."

Yep, that's pretty much it exactly. It's not only that Krugman (and Brad DeLong) are liberals. It's that they argue in ways that make sense to me and in the public sphere--they refer to past experience and note that we have, in effect, lost the wisdom of the ancients. This is a humanistic, prudential mode of argument--even conservative, in some ways. We learn from the past and apply its wisdom--carefully and flexibly, of course--to changed but similar circumstances.

Yet it tends to be the political conservatives who now argue from technocratic or mathematical premises, asserting that their computer models prove that people make rational choices or that government can't affect markets or, technically speaking, of course, create a job. The real world must mkatch their theories. 

I'm not sure that mathematical models offer a competitive mode of argument--they never quite worked for liberals in the past--but I know about my personal response. I am a humanist--and there's evidently a reason beyond ideology for my acceptance of Paul Krugman's arguments. Of course, he can do the math. As the Nobel committee realized. 

Back to the Future with TR and Woody

An article on the front page of the Times today reminds me again that the past is not dead--it's not even past. The article notes that private equity firms ("Low life grave dancers" as one of them calls himself) are circling slowly and happily over the struggling, dying bodies of many banks in the country. Yet the Federal Reserve Board forbids such firms from taking control of banks. Yes, the firms have a lot of private capital they could inject into struggling banks. But these not-so-tiny dancers are among the riskiest players in the financial world. The Fed doesn't want to set the stage for the next financial meltdown in the name of solving this one. It's also easy to imagine one of the firms becoming "too big to fail": a private equity firm that becomes a bank that becomes a key player that becomes a lynchpin of the system...Well, one can guess where this goes. Into my pocket.

It ties in a bit with the arguments I've read concerning compensation limits. If we don't allow, say, Goldman Sachs to pay big salaries with taxpayer money, then the "talent" that drove it into the ground will look elsewhere--one article I can't find now, but recall, argues that smaller boutique firms are stealing away this talent. My initial reaction? Good. Because those firms won't be too big to fail. Lots of little firms will be better for us than too few big firms that we'll have to save from their own "expertise." But, I wonder to myself, can little firms be competitive in a globalized world? Should we just regulate the hell out of the big ones, make banking boring again, as Paul Krugman argues?

My argument with myself rehearses, as many liberals are beginning to rehearse (often without knowing it) a debate that dates back at least to the Progressive movement. We've been here before.

On the one hand, TR and others claimed that, in a modern world, companies and banks needed to grow, become large enough to move effectively in a mass society. Yet that very size posed a threat to the social and political order. So, the New Nationalism argued, government, the one entity potentially big enough and tough enough to master the Leviathan corporation, should become active. No more laissez faire. The government, most often in the form of an extremely active president, should step into the fray, encouraging corporate growth when it benefited the public and shooting corporate big game when it abused its privileges. Some wondered whether TR possessed the wisdom to make that distinction. He did not so wonder.

On the other hand, Woodrow Wilson and others said that big was inherently bad. Power corrupts and absolute power corrupts absolutely. If a corporation or a bank got big enough to suit the purposes of John D. Rockfeller or J.P. Morgan, then it was bad. So, the New Freedom argued, bust them up. Attack big corporations and make sure that they could never threaten the body politic. Make them transparent as well. At a certain size, they inherently corrupted political life. They could not be allowed to obtain such influence.

In practice, TR busted trusts and Wilson regulated, but their respective emphases were clear. FDR tried both approaches. The first New Deal allowed monopolies (encouraged them, in fact) in an effort to put floors under prices in the face of deflation. Cartels were useful, they thought. The Supreme Court disagreed. Louis Brandeis, the Wilsonian justice, reportedly told Tommy the Cork Corcoran that all of you clever young men should leave Washington and go back to the states, fight the good fight there. Big was bad.

The second New Deal attacked big business. FDR ran for reelection in 1936 with some of the most vitriolic language seen in American politics: "And we know now that Government by organized money is just as dangerous as government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me--and I welcome their hatred." Stomp them and break up their businesses. Make them negotiate with labor. Make sure they knew who truly ran the country.

World War II simmered things down and ushered in the era of the Grand Bargain--Big Labor, Big Government and Big Business negotiated things out. "Countervailing powers," as John Kenneth Galbraith put it, checked and balanced each other in the economic arena just as Fed #10 said they should in the political arena. The Reagan era ended that.

And, so the debate recurs again in liberal circles. As we seek to set out a new financial structure, what is the choice? Is big inherently bad? Can government power check corporate power or will it always be corrupted or captured by that power? Obama faces those same arguments.