The America Speaks Town Hall Pt. 2: Implications for Folk Economics and the Politics of the Deficit Commission

In the first part of this post, I described what I thought were the most important aspects, events and results that emerged from the 7 hour June 26th AmericaSpeaks Townhall which I attended at the Silicon Valley site.  In my account, I attempted to include aspects of the experience that contradicted some of my preconceptions as well as those that confirmed them.  I obviously am a partisan observer, with a clear interest in not allowing budget fears or fear-mongering to reduce the already minimal welfare state that we have in the US as well as with the future-looking projects related to oil independence and climate change which would depend in part on deficit spending.  However, I don’t want to simply reinforce my biases in this account because I learned from the experience without fundamentally reversing my overall view of the intensified campaign against budget deficits at this time.

Two Folk Economic “Layers” at AmericaSpeaks/Deficit Commission

The AmericaSpeaks event is an example of folk economics on two levels, one of them more problematic than the other.  On the one most obvious level, the event itself was organized as a event where ordinary citizens were supposed to apply their values and understanding to the macroeconomic question of reducing the federal budget deficit.  So this was an invitation to engage in folk economics.  As almost everybody is affected by economic decision making, it makes sense to get people involved to try to educate them and get their opinions about these issues.  Also, as I have claimed here, professional economics can never replace folk economics, so formalizing the relationship between folk (or popular) economics and professional economics makes sense.

On the second level, which may be more controversial, AmericaSpeaks was communicating a vision of how the government spends money that corresponds largely to one political/folk economic view of government spending rather than one that is fully in tune with all of the tools of professional economics.  While James K. Galbraith is an economist who is decidedly left of center, he provides in an article in Huffington Post a rather detailed vision of how the deficit commission is overlooking key aspects of how governments that control their own currencies actually spend money and manage deficits; these details are entirely absent from the AmericaSpeaks materials.  Also Paul Krugman, again left of center, points out that the economic framework within which those who prioritize cutting budget deficits work, rests on worries about future events and fears of disapproval in the bond market about the solidity of US government debt for which there are no current signs and attention to which doesn’t seem to help countries like budget-slashing Ireland reduce their interest rates.  Furthermore, the notion that deficit reduction is a primary concern at this time, ignores what many of the leading American macroeconomists are focused on a still anemic American economy with massive private indebtedness.  Trade deficits are also left out of the picture.  Within the world of AmericaSpeaks then, a folk economic vision that ignores much of what concerns professional macroeconomists is presented as the primary economic task of the American people (“Our Budget, Our Economy”).

The most ardent supporters of the AmericaSpeaks townhall or the work of the budget deficit commissions might object that these economists are of a different or outside-the-mainstream political persuasion.  While some of these economists are left of center, the premise of any science and the meta-economics project is that we are looking for the best explanations that account for the broadest and most relevant data-set available no matter their political provenance.  If some economists on the left have a better theory of one phenomenon or another, an economic science should take complete account of their theories rather than cast economic analyses and differences of interpretation as purely a political contest by other means.

The Political-Economic “Frame” and Timing of the Townhall (and the Anti-Deficit Campaign)

Many of the critics of the anti-budget deficit campaigns point out that the organizers of these events and the politicians who are most enthusiastic about cutting deficits are paying attention now to budget deficits rather than when their closest political allies (Republicans like George Bush) were in office.  The American “deficit hawks” seem most worried when someone from the centrist to left leaning Democrat Party has decision-making power , a group which they may feel they have less political influence over, therefore requiring the manufacture of or intensification of  pre-existing fears about deficits to rein in a less secure political ally.  Spending on military adventures and hardware, as well as bailouts demanded by their powerful economic allies are apparently not so troubling to these budget hawks, even if, in particular, those same bailouts are now ideological targets for Republicans after the fact.

The issue of timing of the budget deficit scare is not only political but economic.  Most explanations of the 2008-9 economic crisis emphasize the role of private debt both consumer and commercial which helped inflate the asset bubble that punctured in 2008.  Some Wall Street firms were leveraged 30 to 1 (had 30 times more debt than assets) while consumers and homeowners have never been so indebted in the US and in some other countries.  A similar phenomenon occurred before the Great Depression, when a similar debt-fueled asset bubble burst.  If those in the private sector who were co-responsible for the downfall or at least benefited greatly during the asset bubble and during its bailout, might have a vested interest in distracting from the bad debts and mishandling of debt in the private sector by focusing on public debt as the prime evil in our economy.

The counter-argument that is mustered against this line of thought common mostly on the political Right and in the now-opposition Republican Party is that quasi-public agencies like Fannie Mae and Freddie Mac, as well as pro-homeownership policies by the Bush and other Administrations distorted the operation of free markets which would never have allowed so much bad debt to accumulate.  While there is some plausibility to the idea that the presence of a government that was willing to bailout firms increased risk-taking, to “blame” government guarantees alone overlooks the active and aggressive means that private businesses leveraged themselves up and encouraged government to look the other way.  Furthermore, these objections to government guarantees were, for the most part, not forthcoming from Republicans when powerful corporate donors were reaping profits from favorable policies.  Military spending, wars and tax cuts for the rich were also not part of the concerns of these political deficit hawks in general, all of which have increased the federal budget deficit.

Scapegoating Gullible Politicians, Government and Public Budget Deficits

While Republicans are favoring a focus on public debt, the role of private debt either within the financial system, corporate America or of the American people as a whole, falls almost entirely out of the framework set in motion by the focus on public debt and fiscal deficits.   The formulation of the AmericaSpeaks townhall “Our Budget, Our Economy” suggests that contrary to the economic wisdom of the last thirty years, suddenly government budgeting forms the economy, conveniently when that economy is deeply troubled;  in the dominant market fundamentalist ideology beloved by supporters of budget cuts, the government is usually pictured as the impediment to “The Economy”.  Nowhere in the AmericaSpeaks proceedings was the role of private debt even mentioned and furthermore, and perhaps gleefully, the two Republican Senators (Domenici and Gregg) were attempting to re-write history by suggesting that our current economic situation is due to public deficits when only the most ideologically motivated economists could find a link between public budget deficits and the economic downturn of 2008-9.

Furthermore and most damagingly these efforts are made in a society with a very poor public information system/news media, a short memory, and a public discourse that is biased towards stories that emphasize the positive and tend to shy away from the negative aspects of life.  There is consequently a tendency to “ball together” all negatives in one location, be it demonic forces or, more recently the government.  These efforts to conflate all “evils” (debt, profligacy, and government together) are part of a political move that the rather credulous Obama Administration has allowed itself to be maneuvered into.   The public’s grasp of economics, let alone politicians’ grasp, cannot in the context be expected to be able to make distinctions between public and private debt or their dynamic roles in the economy.  The government can be used as a whipping boy or a sacrificial lamb, for these ills especially in the wake of neoliberalism, the ideology that maintains that markets represent economic virtue and government, economic vice.

It would seem that government and the party that believes to some degree in governing in the US, the Democrats, have been placed in the position of being made responsible for the  negatives in the American economy by the push to blame public debt and deficits for most of societies’ ills.  Why they would allow themselves to be put in this position is an interesting question, which I would partly attribute to a lack of understanding of both the deeper cultural and even psychological dynamics that animate American politics as well as a lack of a deep understanding of the economic dynamics of the Great Crash of 2008.   Republicans have been only too willing, including Sens. Gregg and Domenici, to entrap these compliant Democrats with falsehoods or implied false connections between budget deficits and our current economic distress.

Meta-economics, Folk Economics and Ethics

Unfortunately I have not yet had the time to make a formal introduction of one of the key rationales for building a meta-economics: exploring in a systematic way the interaction of certain aspects of philosophical and practical ethics with economics.  The timeliness of the budget issue and the material from the AmericaSpeaks townhall should not bias this discussion in this context:  I will write a more inclusive introduction of the topic shortly.

Nevertheless one of the entry points for ethical concerns in economics has been folk or popular economics, where people attempt to blend their own personal ethical concerns or viewpoint with their view of how the economy does or should work.  As an example of organized folk economics, the AmericaSpeaks “Our Budget, Our Economy” meetings attempted to link ethical concerns to its mission to mobilize people to become involved in the budget deficit cutting discussion.

While I am supportive of developing an economics that is responsive to ethical concerns, within “Our Budget, Our Economy” as I highlighted in part one, these concerns were introduced in a way that activated moral conflicts in a manipulative way, violating some precepts of what might be called a scientific economics, especially as regards public spending.  Most troubling was the first “Values” polarity on one of the worksheets where caring for the current generation was played off against caring for future generations.  There are areas of the economy (climate change and fossil fuel use) where there is quite a stark conflict between the interests of the current generation and future generations but in the area of budget deficits at the current conjuncture this polarity is not a guide to meaningful action (for instance the proposal favored by many deficit hawks to raise the age of eligibility for Social Security due to budget concerns would mean that older workers would compete longer for jobs with younger workers).

The implication in this polarity is that concern for future generations is equated with cutting deficits and therefore denying oneself services, while presumably, supplying similar levels of social services is considered to be anti-thetical to this highest ethical goal.  An elaborate, potentially fraudulent, misappropriation of people’s more noble ethical concerns were thus mobilized for those who did not have either sufficient economic instinct or economic scientific background to note this false choice.   Put another way, if the current generations are immiserated future generations aren’t put at advantage or may not come into being in the first place.

Furthermore, there is a similar and quite sinister political sleight of hand that recalls the obscuring of public and private debt in the deficit discussion as a whole.  Individuals went into private debt in the last two decades to either supplement meager earnings (or earnings that were assessed as too meager) or sometimes to indulge in various luxuries.  Financial firms went deeply into debt in pursuit of very high profit margins.  By contrast most of what seniors and poor people use social insurance for (SS, Medicare, Medicaid) are for the absolute bare necessities and the payments are often insufficient for that.   The period of the 90’s and 00’s could be viewed by some luckier people as a time of foolish excess in their lives for which they feel the need to repent in some way.  The current form of expiation for these sins is viewed as concern about budget deficits, which is a political and psychological “displacement” from looking at excessive debt in the financial sector and in people’s personal budgets.

By contrast resolving our current PRIVATE indebtedness via growing employment in productive industries and solid investment strategies is difficult, complex and requires a large-scale re-birth and restructuring of the American economy.  This will probably involve confrontations with powerful interest groups, a difficult passage from to investment in paper assets to investment in productive assets, as well as genuine self-searching about one’s own values as they apply in the private economy.

Potential Political Uses of the “Our Budget, Our Economy” Townhall

As Catherine Lukensmeyer, the CEO of AmericaSpeaks reminded participants, the funders have specific interests in sponsoring this townhall that seem to go beyond a mere opinion poll of the American people.  For one, she mentioned that they had a particular interest in the high quality video of tables working together on the budget deficit problem.

  1. The Townhall as an Opinion Poll – Deficit obsessives would not have gotten too much validation from the results of the opinion poll.  The assembled group was in general favorable towards more stimulus even if that raised the deficit.   A majority favored more progressive tax policies rather than flat, across-the-board taxes.   There was however some support for increasing the age of eligibility for Social Security.  The enthusiasm for a carbon tax and a financial transactions tax were strong.  However, motivated interpreters of the event could distort these messages or selectively attend to only those portions that fit the deficit cutting mantra that targets social spending rather than tax cuts for the wealthy.  Alarmingly, Alice Rivlin who sits on both the “Debt Reduction Task Force” and the “National Commission on Fiscal Responsibility” (the latter being Obama’s bi-partisan deficit commission), commented on the AmericaSpeaks broadcast disapprovingly that participants had shown most enthusiasm for taxing the rich.   More alarming than Rivlin’s views is the sense of entitlement she seemed to have felt to second-guess and stand in judgement of what were a set of multiple choice questions offered by AmericaSpeaks.  The potential for Rivlin’s preferred “folk economics” to override the poll results within the cloistered commissions is then made more vivid.
  2. The Townhall as Colorful Backdrop – The video footage from the event could be used as a backdrop against which the Commission could continue on its deliberation without reference to the poll results or critical comments like mine and those of others about the content and course of deficit cutting efforts.
  3. The Townhall as Grassroots “Civic” Rubberstamp – Similar to being used as a backdrop, interpreters of the event, like Lukensmeyer, could pour the data and results from the event into a form which adds “vox populi” to the conclusions and gives a populist flair to the decidedly elite Deficit Commission.  Below in testimony to the Commission last week, Lukensmeyer constructs an interesting rhetorical chain that condemns partisanship and Washington business-as-usual while, in the end, reinforcing the sanctity of the task of cutting budget deficits as a prime directive and implying that “the people are ready to cut deficits”.
  4. The Townhall as Sanctification of Deficit Cutting – Re-interpreting the same testimony of Lukensmeyer as in “3” above, in a slightly loonier version, the “people’s” concern about budget deficits could be made a sacred cow which could become a (misinterpreted) touchstone of the Commission.
  5. The Townhall as Sanctifying Bipartisanship — Lukensmeyer in the video below portrays like so many political actors in the last few years the importance of bipartisanship; claiming that the Townhall shows that both sides can work together unlike in Washington.  If however one Party is simply trying to damage the other Party and a majority of Americans, what is the moral basis of bipartisanship?

http://www.youtube.com/user/whitehouse#p/u/7/9Gr_QUx2PNw

A posting on Youtube by the White House of public hearings by the President’s Deficit Commission. Lukensmeyer’s testimony starts approximately at 35 minutes in.  An interesting effect of the controversy surrounding the deficit commission, including perhaps the firestorm ignited by Co-chair Simpson’s remarks on film has been the posting of approximately 7 hours of testimony on Youtube.  The activities of the Deficit Commission are potential political dynamite.

The Misuse of Civic and Individual Virtue

In the end, my take on the “Our Budget, Our Economy” Townhall and by extension the work of the budget deficit commissions as evidenced so far is that civic and individual virtue is being called upon to solve the wrong problem at the wrong time.  Some people, rightly, would like to live a more virtuous life and not to rely on debt as much in their own businesses and lives.  However, at this time, to repay debts, we must have an economy that generates income and jobs.

Additionally, Americans and those in other developed nations might plausibly and beneficially sacrifice some of their more fleeting pleasures for forward-looking causes like a more sustainable economy and energy-use system.  The Townhall and anti-deficit campaigners are looking to opportunistically collect these sentiments and impulses and yoke them to a cause that does the economy and the long-run deficit little or no good and risks doing the economy some serious long-term damage.   I hope to establish here at Meta-economics that virtue that is ignorant of science or our best organized knowledge is, in the privileged and powerful, no virtue at all.

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About Michael Hoexter
I'm a clean energy marketing and policy strategist and consultant based in the San Francisco Bay Area.

One Response to The America Speaks Town Hall Pt. 2: Implications for Folk Economics and the Politics of the Deficit Commission

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