By William K. Black
(Cross posted at Benzinga.com)
The New York Times Incompetence in Macroeconomic Reporting (IMR) Award
I have written repeatedly about the New York Times’ needs to create a prize in incompetence in macroeconomic reporting (IMR) and suggested that the paper award the IMR prize to its reporters. I suggested that the prize consist of a two hour lunch with Paul Krugman in which he will provide them with a remedial lecture on why austerity is an economically illiterate response to a recession.
NYT columns discussing austerity, particularly in the eurozone, demonstrate that its reporters religiously avoid reading Krugman’s scores of columns on austerity. As always on this subject, I want to make express that I don’t insist that the reporters agree with economics. It is fine for reporters to state that economics has known for 75 years that austerity is a self-destructive response to a recession but that some economists disagree. It is fine for the reporter to explain why he agrees with the austerian economists. It is not acceptable journalism to ignore the dominant economic view, 75 years of supporting events, and the empirical studies by austerians (the IMF) finding that fiscal changes have more powerful effects on the economy consistent with the dominant theory. It is not acceptable journalism to ignore unemployment and inequality and the role of austerity in increasing both. I end by expanding on Krugman’s column about a tragic financial media meme by discussing three related memes that are causing great harm.
This column discusses three articles that ran in the NYT on February 20, 2014. The columns are by David Brooks, Michael Shear, and Paul Krugman.
David Brooks’ column: NYT’s Reporters are to the Right of Brooks and AEI on Austerity
How bad have NYT reporters and editorial board become on the subject of austerity? They are to the right of David Brooks and the hard right American Enterprise Institute. My new plea, therefore, is that if the NYT is determined to ignore Krugman and economics on the subject of austerity, would they be willing to listen to David Brooks? In a February 20, 2014 column entitled “Capitalism for the Masses” Brooks wrote about his namesake (not a relative) who runs the American Enterprise Institute (AEI). AEI is a hard right group that is particularly culpable for its unholy war against effective financial regulation that was a major contributor to the criminogenic environment that produced the accounting control fraud epidemics that drove the crisis and the Great Recession.
“[Arthur Brooks] pointed out that conservatives love to talk about private charity, but, if you took the entire $40 billion that Americans donate to human service organizations annually, it would be enough money to give each person who receives federal food assistance only $847 per year.
Instead, Republicans need to declare a truce on the social safety net. They need to assure the country that the net will always be there for the truly needy.”
Michael Shear’s ode to austerity
Contrast this call by the AEI head for an end to the right’s “war” against “the social safety net” with the Michael Shear’s news story that ran the same day in the NYT and was entitled “Obama’s Budget Omits Trims to Social Security.”
Shear’s nostalgia for the “grand betrayal”
Shear’s first paragraph demonstrates that he buys into austerity so completely that it isn’t even an issue.
“President Obama’s forthcoming budget plan will not include a proposal to trim cost-of-living increases in Social Security checks, the gesture of bipartisanship he made to Republicans last year in a failed strategy to reach a “grand compromise” on reducing projected federal debt.”
The article treats the “grand bargain” as an obviously grand thing because it is “grand” and it is (purportedly) a “compromise.” Bad journalists have a Pavlovian-response to the word “compromise” – it must be good. Compromise can be very good. It can also be terrible.
The “grand bargain” is actually a grand betrayal. It isn’t a “compromise” on austerity; it’s an agreement to inflict multiple forms of austerity contemporaneously. The grand betrayal is equivalent to bleeding the patient three times. It would have sharply cut spending on social programs and the safety net (through “chained” cost-of-living payments to Social Security recipients) while increasing taxes. It would harm the economic recovery, reduce services to those that needed them at the time they most needed those services, and it would increase inequality. It would also have been an act of war against the safety net under Arthur Brook’s martial metaphor imploring the right to offer a “truce” ending its war against the safety net. I’ve explained why, had President Obama been able to reach the grand betrayal in the summer of 2011, the resultant austerity would have thrown the economy into a gratuitous second recession, doomed Obama’s reelection campaign in 2012, and given the Republicans control of the Senate. Obama abandoned stimulus and moved toward austerity under the increasing influence of Treasury Secretary Timothy Geithner and Bill Daley – Wall Street’s leading apologists within the administration.
Don’t fall for news accounts that tell you that Geithner wasn’t from Wall Street – the NY Fed is the true center (it has no “heart”) of Wall Street. Geithner represented Wall Street, not the U.S. public, when he was its president. That’s why he was promoted to run Treasury after finishing in a dead tie with Greenspan and Bernanke as the most destructive anti-regulators in U.S. history. If any of those three individuals, now thankfully removed from any pretense that they serve the American people, had been even a minimally effective financial regulator and had acted against the accounting control fraud epidemics driving the crisis there would have been no crisis and no Great Recession.
Shear’s column doesn’t mention six terms that any article about the grand betrayal or his preferred euphemism (“grand compromise”) would logically have to contain: “austerity,” “stimulus,” “recession,” “unemployment,” “demand,” or “safety net.” Here’s an example of how to use these terms if one were actually discussing the issues Shear purports to be discussing.
- The financial crisis triggered such a sharp fall in demand that the United States suffered a “Great Recession” in which unemployment surged. The U.S. responded with a limited stimulus program that provided sufficient demand that the sharp fall in the U.S. economy was soon brought to an end and a modest recovery in unemployment began. From 2011 on, however, U.S. policy has swung increasingly toward austerity, slowing the rate of the U.S. economic recovery and rendering it more fragile to potential external shocks. The safety net has proven critical both in reducing harm to Americans from the Great Recession and in acting as an “automatic stabilizer” that aids recovery. The targeted U.S. budget deficit is currently too small.
It would be very bad economics and inhumane to reduce Social Security payments. What I have written is standard macroeconomics. Surveys indicate overwhelming support among academic economists for stimulus in response to the Great Recession. “Revealed preferences” demonstrate that when Republicans control the U.S. government and confront a recession in the modern era they use stimulus. It is only when Democrats inherit recessions that began under Republican administrations that Republicans oppose stimulus as a response.
To reiterate, I have no problem with Shear, after acknowledging these facts, adopting and defending a different view. It is intellectually dishonest and a disservice to the readers, however, to frame the issue in a way that the issue disappears. It is not acceptable to have the Great Recession or unemployment disappear from consideration under Shear’s framing. This is how Shear presents the issue of whether Obama will begin to unravel the safety net by cutting future Social Security payments that would have normally risen to cover lost purchasing power due to inflation.
“‘This reaffirms what has become all too apparent: The president has no interest in doing anything, even modest, to address our looming debt crisis,’ said Brendan Buck, a spokesman for the House speaker, John A. Boehner of Ohio.”
Notice that Shear treats the “looming debt crisis” and desirability of deficit reduction as facts so obviously true that they require no analysis. There is no “looming debt crisis” for the U.S. government and the deficit has been reduced too quickly. Notice that Shear implicitly treats federal budget deficits as harmful. There are circumstances where that could be true due to inflation and very high capacity utilization. We are not remotely in those circumstances.
Shear quotes the even more revealing, and financially illiterate, series of statements by the administration and its critics.
“The budget plan, which will be out in early March, a month late, will abide by the overall spending guidelines agreed to by Republicans and Democrats late last year. But included in those spending limits will be a $56 billion proposal to increase spending on some of Mr. Obama’s key initiatives, officials said.
Mr. Earnest [Obama’s wondrously named deputy press flack] said that would include spending on manufacturing ‘hubs’ that the president has promoted over the last year; additional government programs aimed at helping people develop new skills; and funding for early childhood education programs like preschool.
Mr. Earnest said this new spending would be offset by revenue increases, and cuts in other parts of the budget.
‘This initiative that the president will propose will be fully paid for,’ Mr. Earnest said. White House officials declined to describe the revenue increases, but said they would include closing corporate loopholes, a move the president has supported in the past.
Mr. Buck [Boehner’s wondrously named aide] criticized the $56 billion proposal as another effort by the president to spend more taxpayer money than the government can afford.”
Notice that the administration and its critics both treat austerity as sound and say things that demonstrate that they are financially illiterate. Obama wants to add skills training. Fine, but the reason that we have such massive loss of employment (remember that the unemployment rate is being held down by the staggering number of Americans who have become so discouraged that they have given up trying to find a job) is that demand is so inadequate that there are near record levels of unemployed relative to job openings. Inadequate demand is the critical problem we face – and the administration, its critics, and the NYT all the frame the issue to ignore the Great Recession, the unemployment, and the lack of demand while implicitly assuming that greater austerity must be the answer to these problems. We do not need to “pay for” job training initiatives through tax increases or program cuts in the sense that the administration spokesman uses. The deficit the administration is aiming for is already too small.
Buck’s comments (“spend more taxpayer money than the government can afford”) are simply more extreme versions of the administration fallacy as set forth by Earnest. One can hardly fault Earnest for parroting his boss’ infamous absurdity about “running” “out of money” in his May 23, 2009 C-SPAN interview with Steve Scully.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades.
The U.S. has a sovereign currency. We cannot run out of U.S. dollars. Deficits cannot make us run out of U.S. dollars.
The Obama administration is still hooked on austerity and the grand betrayal
The Obama administration is still enamored of austerity, it simply wants it “balanced” which is code for about one-third austerity through increased taxes and two-thirds of austerity through cutting social programs and the safety net. Again, cutting social programs and the safety net and raising taxes at this time are all means of adding to harmful austerity. It is like bleeding the patients three times and claiming that “balanced” bleeding is good for patients. That is economically illiterate. But one would never even learn a hint of that even from the closest reading of Shear’s column. The real takeaway is that it is an odd combination of Tea Party intransigence and progressive grit that forced Obama to back down (so far) on his long-term desire to inflict greater austerity and begin to unravel the safety net.
“White House officials said the president remained open to the idea of slowing the growth of the Social Security payments if Republicans change their minds. But senior officials said Thursday that they have no reason to believe that will happen before midterm elections this fall.”
As with the 2012 elections, the truly bizarre result is that the Tea Party is again preventing Obama from committing electoral suicide in November 2014 by refusing to accept even modest tax increases for wealthy Americans as part of Obama’s grand betrayal of the public and the Democratic Party. If the Tea Party keeps opposing Obama for the wrong reasons and progressives continue to oppose him for the right reasons we may actually avoid the grand betrayal.
Krugman’s February 20, 2014 column was entitled “The Stimulus Tragedy.” It said pretty much what I just wrote above. Like Krugman, we expressed our views contemporaneously that the stimulus package was far too small. Because we don’t have the same column length restrictions that Krugman must meet the readers of New Economic Perspectives have been able to read much more detailed explanations of how successful stimulus was in turning around the horrors of the Great Recession. The readers of Krugman or New Economic Perspectives would find equally familiar our overall analysis of stimulus and austerity because economists have known for 75 years, and policy has proved recurrently, that robust automatic stabilizers (which are fiscal) and specialized fiscal stimulus programs work effectively to reduce the length and severity of recessions.
I do understand that Krugman doesn’t work out of an office at the NYT, but if I can read his columns in Minnesota in frigid February, I am confident that Shear can read those same columns and could interview Krugman if he had any questions about Krugman’s columns. I disagree with many dominant ideas in economics, so I’m happy to read Shear’s explanation of why he is an austerian despite economic theory and, as Krugman emphasizes in his column, the disastrous real world experiment with austerity in the eurozone that forced several nations of the periphery into gratuitous Great Depressions.
I would be delighted to have Shear interview the Obama administration and report why it believes that “balanced” austerity is desirable and why it still favors the grand betrayal. It would be a fabulous journalistic enterprise to ask every member of Congress whether and why they thought stimulus succeeded or failed and whether they believe that the U.S. has run out of money.
The four tragic memes of austerity and stimulus
Krugman’s column explains one aspect of the tragedy – the Republican’s explicit, false meme that U.S. stimulus was a failure is now widely accepted even though it is utterly false. The data show a sharp break in the economic collapse during the Great Recession that makes perfect sense given expected lags as being the result of the stimulus program. As knowingly inadequate as the stimulus program was and as poorly designed as it was in terms of emphasis on far less effective (in increasing demand) tax cuts for the wealthy, it was still a substantial success.
The second tragic meme is the claim that austerity has worked in the eurozone – when it forced the overall Eurozone into a second, gratuitous recession and one-third of the eurozone’s total population into Great Depressions. The U.S. avoided these harms and experienced not only a sharp break in the collapse and a steady, albeit modest, recovery while one of our leading trading partners (the EU) went into the another recession, with much of it still suffering unemployment rates in excess of Great Depression levels. But the presentation I have given actually understates the case against austerity for the eurozone’s initial response to the Great Recession was dominated by its automatic stabilizers – automatic fiscal stimulus. EU public expenditures rose due to the Great Recession costing millions of lost jobs while tax revenues fell. The EU initially rode that fiscal stimulus out of recession. The Eurozone, however, was plunged back into recession, and Italy, Spain, and Greece (collectively, one-third of the area’s population) were forced into Great Depression levels of unemployment. They remain in Great Depression levels of unemployment roughly six years after the crisis face began. Worse, the EU’s leading apologist for austerity, Ollie Rehn, recently predicted that under austerity it will take Spain ten years to emerge from the crisis phase (full employment would then still be years away). It takes astonishing chutzpah, but the troika (the EU Commission, the ECB, and the IMF) has most elites and media believing that causing a gratuitous eurozone-wide recession and a Great Depression to a vast swath of the region’s population represents a “success” while the U.S. stimulus program that avoided a second recession (much less Great Depression) and returned the U.S. economy to growth years before the eurozone constitutes an epic failure. To the extent the eurozone’s core may finally be crawling its way out of recession it is critical to recall that nearly all of the core nations continue to run budget deficits that help provide the minimal growth we are seeing in many of the core nations.
Third, unemployment, poverty, large scale emigration of new university graduates, and record inequality all tend to disappear from consideration under the austerity meme. What is substituted is “there is no alternative” (TINA), which seeks to preempt debate and even thought. The plight of one-third the eurozone’s population trapped in Great Depression levels of unemployment becomes a non-issue. There is no alternative: gut it out and stop whining. The curves of economic illiteracy and callousness are intersecting at their respective maxima under the troika’s infliction of austerity.
Fourth, the meme of Social Darwinism on steroids inevitably accompanies TINA, mass unemployment, and record inequality. The unemployed are the problem; mass unemployment is merely a symptom of their deficiencies. The unemployed lack proper skills, they are protected by labor laws, and they are paid too much. Their unions need to be crushed and wages reduced dramatically to make them more “competitive.” The troika is not only generating a race to the bottom of wages – it is proud that it has created the perverse incentives that generate the “Road to Bangladesh” for workers’ wages in the European periphery.