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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The America Speaks Budget Deficit “Townhall” of June 26: Folk Economics In Action Pt. 1

I have already reported here on the current rush to cut public budget deficits in the US as well as elsewhere in the developed world but this effort is not just an economic abstraction or future possibility:  here in the US, the Senate has just voted down extensions of unemployment and other social benefits in part on budget fears.  Three foundations, led by the budget-deficit obsessed Peterson Foundation, hired the non-profit AmericaSpeaks to organize one of its “21st Century Townhalls” on the topic “Our Budget, Our Economy” which was supposed to collect “America’s” views on budget deficits and federal spending.  Besides the Peterson Foundation, the John D. and Catherine T. MacArthur Foundation and the Kellogg Foundation lent their credibility and contributed funds to this event as well.

Having heard about these meetings and concerned that a biased sample or biased views on deficits and deficit spending were being promoted there, I decided to show up to the local meeting for Silicon Valley to be held in the conference room of a large law firm located in East Palo Alto.  My own leanings within folk economics may already be obvious to readers of this and my other blog:  I have already been convinced that deficit spending is a necessary evil not only now during the deepest recession since WWII but also on longer term projects like carbon mitigation and developing oil-independent transport infrastructure, until such time that raising taxes will no longer hurt economic recovery.   However I will attempt here to provide an account that is as descriptive as possible and avoids simply a confirmation of my biases.  Others who have attended and/or analyzed these forums have presented views that reinforce what is largely my own view of budget deficit concern and hysteria (Dean Baker, Digby, Richard Eskow, Dave Dayen at Firedoglake).

Account of the Townhall

Given my prejudices, I went in with the preconception that this was going to be an event where the deck had been stacked in favor of cutting spending and where participants had been culled to attempt to “bias the sample”.  I didn’t pre-register and showed up at the swank offices of this Silicon Valley law firm early on Saturday morning.  I soon learned that “America Speaks” is an operation that attempts to organize massive simultaneous discussion/townhall events connected by a video feed from a central location.  Just from a pure social science point of view these mass events cannot be scientific because they involve a self-selecting subgroup of people, like myself, who are willing to spend 6 hours of their time in a room discussing and opining about an issue.   While I was expecting the “America Speaks” folk to look like Young Republicans they appeared to be a demographically diverse bunch of employees, permanent or temporary of this non-profit that organizes these meetings.

About 150 of us were seated at tables of approximately 10 participants with an American Speaks facilitator at each table, who I am guessing was paid, and a volunteer participant sitting at a laptop who was the table’s secretary.   We were handed a packet of materials which included the budget analysis and the agenda for the day.  A representative of the local sponsor of the event Joint Venture Silicon Valley stood up and told us we looked like a cross section of Silicon Valley which was one of a number of strategic falsehoods uttered at the event.  The crowd was obviously much whiter and older than Silicon Valley by far, with an under representation of Asian and Latino residents.  A large screen with a video projector soon became the focus of the meeting.  In the room, there were also a professional soundman and a professional video crew of two who were capturing the interactions at tables.

This is AmericaSpeaks’ brief summary video of the proceedings at the AmericaSpeaks event.

The focus then turned to a broadcast via the video projector and sound system, apparently over the Internet because the picture and sound were sometimes not well synchronized, from the main location in Philadelphia where the two leaders of the event from America Speaks, founder and CEO, Carolyn Lukensmeyer and a man whose name escapes me, introduced first the funders of the event and the ground rules.  There was then a parade of speakers from both the funders of the event and the government sponsored deficit commissions who in various ways intoned the importance of this event.  There was an interesting and rather jarring comment that Lukensmeyer made that the video crews were recording the event to serve the needs of the events’ funders, which seemed to detract from the ostensible public, quasi-governmental purpose of the event.  We were given radio frequency response pads with which we were to indicate our answers to demographic then opinion questions, the results of which were within seconds registered from the 3500 participants around the country.

While I was expecting pure budget worry/hysteria to be ladled out by the speakers, there were a few deviations from this “line” that I think were worth noting:  Lukensmeyer and David M. Walker, the CEO of the Peterson Foundation were careful to note that the economy was in a deep recession and that raising taxes and cutting spending now MIGHT not be advisable.   This acknowledgement of some form of Keynesian wisdom at least as regards deep recessions was also reflected in a few questions at the beginning about current economic conditions.   In those questions the assembled participants showed themselves at least to be “crisis Keynesians”  with a plurality of 32% “supportive” and 19% “somewhat supportive” of spending on stimulus even if it raised the deficit (11% were “neutral”, 12% “somewhat unsupportive” and 26% “unsupportive”).   A majority of 61% thought the government should do more to strengthen the economy, 14% “about the same”, and 25% “less”.  Those critical of the enterprise may well view these statements and three brief questions as simply a “fig-leaf” for an enterprise that may help cast the US and the world into a deeper recession and/or increase social inequality and poverty.  Others may see that even these well-financed activists for cutting spending acknowledge the truth of weak aggregate demand in the recession.

Reinforcing the fears of those critical of the enterprise were the utterances of the two sitting Republican Senators who offered welcoming messages on the video feed, Judd Gregg and Pete Domenici.  Gregg implied and Domenici stated that budget deficits had CAUSED our current economic situation.  When Domenici spoke what I consider to be a falsehood, I could not contain myself and said “False” and was reminded by the table moderator that “everybody needs to have their turn”.   Democratic Senator Dorgan and Rep. Shaka Fatah did not offer anything remarkable that changed the framing of the discourse laid down by Lukensmeyer and the representatives of the three sponsoring foundations.

The “Values” Section Reinforces a Problematic “Frame”

In an acknowledgement that values play a role in economic decision making, AmericaSpeaks forced participants to choose between three choices, at least two of which were designed in a manner that reinforced a highly problematic “frame” for the issue.  These choices were introduced to us as a prelude to the “tough choices” that we would be engaging in in the second half of the event.  The first seven point scale asked us to choose between “Taking care of the current generation” (“1”) and between “Taking care of future generations” (“7”).  Contained within this choice is the set of assumptions of the deficit hawks that spending now endangers future generations and therefore engaging with it “forced” the participants to accept the framework that current and future generations were competing with each other over a fixed pot of money.  Most economists would not accept the view of the economy contained within this choice, seeing “flows” in the economy as being as important as “stocks” (stores of value), though some of these would be more or less concerned about the effect of government budget deficits.    Derived from this one would expect the economically informed or intuitive folk economists to select choice “4” to deny either side of this false choice and in fact a plurality of 42% of the participants selected this choice, while 22% selected “5” and 15% “6” biasing the distribution of responses towards the ethically validated “caring for future generations” that also is the argument which many deficit hawks claim is the result of cutting social spending.

The second “Values” forced choice was somewhat less controversial in that it asked whether the burden of reducing the deficit should be shared “equally” (choice “1”) or greater burden for reducing the deficit should be placed on the “those that have more ability or capacity” (choice “7”).  Here most elected to remain with the current system of progressive taxation with choice “5” garnering 20%, “6” 24%, and “7” 20%.   The problematic element here is that the Values section was introduced as “What are the core values that should guide our decisions about our country’s fiscal future”, which might include running budget deficits into the future or increasing them.  The second choice, in an ideological manner narrows the choice to “reducing the budget deficit” from “fiscal future,” a much broader category.

The final of three choices also presented in simplified terms what is a more complicated political, ethical and fiscal reality. The final choice was between “1” “The government’s responsibility to take care of the most vulnerable people and “7” “Individual responsibility to take care of one’s self”.  While this choice pretty much reproduces the American political liberal-conservative divide, it ignores the idea of government delivered services for “everybody”.  Additionally it suggests that the network of social responsibilities by individuals that make up “government” are the opposite of “caring for oneself”.   While the latter interpretation may seem tendentious, the political choice between offering universal benefits (Social Security, Medicare, single-payer healthcare) or need-based benefits (welfare, Medicaid) has very serious ramifications for the efficiency, fiscal impact, and political durability of social service programs.  The response to this question was the most muddled though slightly biased towards government care of the neediest (“1” 13%, “2” 18%, “3” 15% “4” 21%, “5” 12%, “6” 13%, and “7” 8%).

Tough Fiscal Choices Combined with Political Choices

Having “biased the sample” in a manner that might have appeared subtle to those who were not already wary of the agenda of the organizers of the event, the bulk of the time was spent in an exercise where the participants were to deliberate among themselves and make individual decisions about 42 options with regard to either cutting spending or raising taxes to closing the presumed budget deficit in 2025 by $1.2 trillion.

Controversially, and others have commented on this already, the accounting framework within which the Deficit Commission is operating, lets the Social Security budget, a program that is projected to run without incurring any deficits  until 2037 unless it is used as a slush fund for to make up for revenue shortfalls (tax cuts) in other categories, flow into the general ledger.  This is the preferred schema of the deficit hawks, who seem to want to “smear” Social Security with as much of the “fault” for budget deficits as possible.  The AmericaSpeaks exercise was structured this way as well, with a simple ledger with “spending” on one side and “revenues” on the other.

The booklet that was issued also had a page within which “Approaches to Changing the Health Care System” were outlined among which was “Single Payer”.  There were no action items on this page and Lukensmeyer skimmed over this to go on to the “forced choice” action items that involved either cuts or no change to spending or increases in revenue via taxation.  We were additionally allowed to submit our own options via the computer and notetaker at each table and apparently enough tables reinserted “single payer” as an option for it to be mentioned by Lukensmeyer in her wrap up speech.  According to most assessments of most analysts that healthcare costs are the underlying driver for long-term deficits; the fact that government supervised universal health care systems with cost controls (single-payer and all-payer), which in other countries have yielded equivalent or better health outcomes with 50-65% of US expenditures, were taken off the table undermines the seriousness of both the AmericaSpeaks and the budget deficit commission proceedings.  While the appearance of “pluralism” apparently was vital to AmericaSpeaks its leaders might be concerned about angering its funders, at least one of which is no fan of expanded government services and regulation.

Within then the deficit-hawk-defined framework with pluralistic trappings, the participants still remained surprisingly resistant to slashing social spending in favor of raising taxes on the wealthy.  The results of the forced choice poll of the 3500 participants regarding health care spending in existing programs were a plurality for “no change” 38% with 27% for cutting healthcare spending by 5%, 16% for cutting spending by 10% and 19% for cutting spending by 15%.   There were for Social Security a wide range of choices and here the deficit hawks won at least one talking point where 52% said that the age for full benefits should be raised to 69 but 85% said that more of the income of high earners should be subject to SS taxes by moving eligibility up to 90% of total earnings, while 23% said there should be no change.  A slight plurality in non-defense spending said it should not be changed (32%), while 51% said defense spending should be lowered by 15% with an additional 34% saying it should be lowered by lesser amounts.

In the area of taxation there were three units:  change of existing taxes, reform of the tax code and new taxes.  Participants had to choose between changing existing taxes and a set of pre-defined reforms of the tax code that would supposedly increase its efficiency.  As none of us at our table were tax lawyers or accountants and the 10 reforms of the tax code could have contained hidden agendas, I elected to choose the existing tax option where I could pick and choose.  In the “Raise Existing Taxes” bracket, the group could choose more than one or “no change”.  44% chose “no change” while 68% (some must have cheated) chose a 5% millionaire’s tax, 48% chose a 20% marginal tax increase in the top two tax brackets and 18% chose a 10% marginal incrase in those brackets.  48% chose raising the taxes on capital gains and dividends for those in the highest tax brackets by 5% and 59% chose to raise the top corporate income tax from 35% to 40%.  On the other hand 20% chose to raise everyone’s taxes by 10% of existing tax rates and 8% chose to raise taxes on everyone’s incomes by 20%.

In “Reduce Deductions and Credits”, 51% elected to limit corporate accelerated depreciation for equipment purchases, 45% elected “no change”.   It is not clear from the results how many elected to “Reform the Tax Code” via the 10 measures suggested though the read out I have states that 50% elected “No change”.

Finally, in “Create New Taxes”  a whopping 64% favored a carbon tax while 61% favored a securities transaction tax.  A 5% V.A.T. (national sales tax) polled 27% while 35% elected “No change”.  Finally in additional options, enough tables suggested reducing defense spending by more than 15%, remove the limit on earnings subject to Social Security payroll tax, reforming the tax code to just a flat tax, and the aforementioned single-payer healthcare system to be announced at the end of the event by Lukensmeyer.

About My Table

Finally, I want to end this account of the Townhall by describing how things worked out at my table.  In general, despite my misgivings about the framework and the attempts to bias the results, I enjoyed interacting with the good people at the table where I would say the median age was probably 55-60.  Most of us were probably left of center, though one of us seemed to be troubled by the willingness of the people at the table to agree to essentially no change in spending with the exception of cutting military spending and to raise taxes mostly on the rich.  Our secretary was wearing a pro-single-payer tee-shirt and she and another member of the table had heard about the event through the liberal-left action group MoveOn.org.  There were no Tea Party members at our table and even that one person who seemed caught up in the discourse of self-sacrifice and benefit cuts, was seemingly a liberal in her interests.  There was one fellow who had his own public-access TV show and was prone to entering into quasi-rants that were slightly off-topic, though he didn’t succeed in derailing the overall discussion, in part due to the intervention of the table leader.  Most decisions at the table about individual measures were made on a 6 out of 10 vote, despite what appeared to be general commonalities of interest and orientation.  If we had worked harder together on individual issues, we might have come to more of a consensus.

The good feeling of working together with civic-minded people may have been part of the point of this whole townhall, a point that may have, as well, its political uses given the structure of the event and its sponsors.  I will continue my analysis of this and other meta-economic issues raised by “Our Budget, Our Economy” in the next post.

The Case for Meta-economics Pt. 3: Relationship between Popular Economics and Professional Economics

While there is a good deal of debate about whether economics or for that matter any of the social sciences, are truly sciences, professional economics both within the academy and outside the academy is different from what might be called “folk theories” of economics.  In philosophy of mind, “folk theories of mind” are how ordinary people experience their own minds and their theories about the minds of other people.  A “folk theory” is distinguished from a scientific theory of the brain or consciousness.  While the notion of a “folk theory” is slightly patronizing, the distinction between folk and scientific theories is critical for the study of the human mind/brain because the experience of having a mind or cultural or personal self-reflection on the experience of having a mind is different than studying the mind/brain as a scientist;  “folk theories” are just as important, if not more important than scientific theories when dealing with human experience.

What I am calling “popular economics” is the broad range of ideas about economics, “folk theories”, that are not part of the sanctioned core of professional economics, as diverse and conflictual as that body of knowledge might be.  As in “folk theories” of the mind, popular economics is for the most part the practical, “business end” of economics, as much as that may dismay professional and academic economists.

In practice, people in the economy are using what they believe to be their own or someone else’s economic wisdom to make decisions and act millions of times a day, around the world.  While the practical disciplines of accounting and the some of the basic tools of corporate and public finance are fairly well systematized/controlled and not necessarily professional economics, there exists a broad range of thinking and acting about the economy inside and outside of businesses and government that is informed by personal theories about how the economy works, without the legally binding controls associated with accountancy and the “boring” part of corporate and public finance.  These personal theories are sometimes in dialogue with but not identical with the body of work recognized as professional or academic economics but there are also some truly “folk” economic theories that arise from people’s experience and which bear only tangential relationship to the professional variety.  For instance, a businessman might act according to the principle “give people a good deal and great service, and they will come back for more”.  This might not accord with what his accountant is telling him or what a professional economist might tell him but this is one of millions of potential popular or folk economic theories.

As with popular vs. scientific theories of mind, popular economics can never be replaced by professional economics for a number of reasons:

  1. Much of what is produced in professional economics is hard to understand without at least an undergraduate if not a graduate education in economics; perhaps this is a sign of weakness in professional economics but it may also be that there are some concepts that require abstract reasoning and mathematical understanding which is not a strength for many people.
  2. People are always going to have slightly different perspectives on certain economic phenomena that are not easily reducible to the rules of, for instance, accounting, which has a system of controls in it to make sure that the rules are followed (when these controls do not fail).  The dynamism of society has a lot to do with the ability of the human mind to take different perspectives on physical and social reality, which itself is also dynamic and changing beyond our ability to completely grasp what is going on.  So popular economics has a dynamism that perhaps is not completely compatible with a rigidly organized body of knowledge.
  3. Thirdly, and this is more of a flaw than a feature of professional economics, economic theories have had both acknowledged and unacknowledged flaws that make them less useful than they might be otherwise.  So popular economics, in addition to accounting and uncontroversial parts of corporate and public finance, have had to step into the breach to make practical rules where the major economic frameworks have nothing to say.

Economists and social scientists have also been interested to understand how the formal study of economics effects both views of the economy and views of society and human nature, i.e. how popular economics and the study of professional economics interact.  There have been studies that correlate the undergraduate study of economics with more stereotypically self-interested behavior in the game called the prisoner’s dilemma.  A recent study by the New York Federal Reserve of graduate and undergraduate economics students, (referenced by James Kwak on Baseline Scenario also with interesting comments by readers there) shows that undergraduate study of economics in the US  correlates with subscribing to a schematic endorsement of stereotypically neoclassical economic views on economics that are now associated with the political Right.  The same study found that graduate study is correlated with more nuanced and less Right-leaning views of some but not all of these issues.     Formally, the views of the latter must be considered part of professional economics.

Politics, Policymakers, and Popular Economics

One massively important subsection of popular economics is the relationship of politics and economics.  Like it or not, how governments act effects the economy enormously but these actors are not transmitting and instituting the exact dictates of a scientific consensus in the admittedly fractious discipline of economics.  The original name for economics in the 18th and 19th Centuries was political economy and some professional economists and academic institutions continue to use this name as a reminder of the importance of the relationship between politics in governments and economics.  There are three main types of popular economics as it relates to politics:  the personal theories and preferences of political leaders as regards economics, the theory of the economy embedded in standing laws and in policy proposals, and voters’/citizens’ views of economics as it relates to politics.   Professional economists can be employed by governments, political pressure groups, and political parties but these will often be selected to mesh with the general concerns of that group.   In this way, the popular economic “tail” can wag the professional economic “dog”.

In the United States as well as a number of other developed nations, popular economics as it relates to politics can be divided into two basic tendencies:  those who believe that the government should intervene in the economy in favor of interests of the less powerful and the non-human environment and those who believe the government should not intervene much at all in a redistributive or protective way in the functioning of the domestic economy.  Generally the probability of one individual or another holding one or the other of these popular economic theories are based on that individuals’ perceptions of their life experiences and/or their perceptions of how they, their families and their friends might best gain from different economic policy regimes.

While these two main political tendencies are related to how policymakers might make actual policy, their views are still a more complex blend of professed loyalty and their own actual personal/popular economics in practice.  A policymaker can profess to subscribe to one or the other of general popular economic theories in order to win votes and get elected while, in office, proposing and voting on legislation that in some ways contradicts those professed views.  For instance a policymaker can claim to believe that government is for protecting the less fortunate and the environment but in actual fact tend to support bills and executive orders that for the most part serve the interests of the already rich and powerful.  Currently disappointed left of center critics of the Obama Administration believe that this last characterizes many of his initiatives to date.   Or another policymaker can profess to believe that government should not intervene in the private sector and should become smaller as an institution but end up in practice intervening in the private economy (perhaps in favor of established business interests) and expand government in other ways.  Professed libertarians and those on the conservative Right who would like to disown the policies and politics of the 2001-2009 Bush Administration hold the latter view of that Administration.

Crises and unforeseen events can further complicate how economic policy is made.  A government executive or ruling party has a particular set of economic preferences which will interact with the news from a crisis in distinct ways.  Selected professional economists will help interpret that crisis which may help justify the already mentioned “disappointments” of expectation of that might occur within the term of an office holder.  The policymaker may point to the professional economists as “bad cops” which are forcing his or her hand to disappoint the political base of the party.  The selection of these professional economists or pundits will itself help pre-condition this turn of events.

Popular Economics and Policy:  The Case of Former Senator and Deficit Commission Chair Alan Simpson

In the last few days, the video below of former Senator Alan Simpson (Republican) of Wyoming has been posted with commentary on a number of sites.  President Obama appointed Simpson as one of two chairs of the National Commission on Fiscal Responsibility and Reform (a.k.a. “Deficit Commission”).  While Simpson is not formally a policymaker anymore, he has arrived at a position of probably even greater power and less accountability in being named to the Deficit Commission by Obama than he had as a sitting Senator.

In viewing this video, you will note that there is real difference of economic opinion between Simpson and the interviewer, Alex Lawson of the Social Security advocacy organization Social Security Works.   Neither Lawson nor Simpson are professional economists and they both show signs of having very different popular economic views of at least the state of Social Security if not some other issues related to the expenditure of government money.  Simpson, in a position of a great deal of influence, seems to have some interesting ideas about how revenue collection for the Social Security system works and, beyond his generally irascible self-presentation, makes statements that are under dispute by a number of commentators:

  1. He claims that Social Security planners had not already anticipated the baby boom retirees (they had but the funds collected had been misappropriated)
  2. He claims that they had not already anticipated our current life expectancies (they had)
  3. He wishes to look away from the three main reasons why the Social Security fund will reach a point in 2037 in which might require cuts without new revenue (tax cuts mostly benefiting the wealthy, unit costs of health care in the US vs. other industrialized nations, and war spending)
  4. He claims that he wants to maintain solvency of Social Security and the government without referring to new or restored revenue sources
  5. The solution he seems to favor involves cutting Social Security and Medicare benefits (he doesn’t mention any others)

Some of these claims are poorly substantiated, partial to solution favoring the wealthy over the “lesser people” (Simpson quote), and assume an unbelievable incompetence among government demographers and economists for at least four decades.  But whatever their basis in facts or the type of opinions he favors, Simpson is definitely not held to any scientific or academic standards of source verification (which are not guarantees either) or consistency: his assertions are definitely a form of popular economics.   He might be able to find some professional economists to support his view but that doesn’t, for the purposes of establishing the importance of popular economic views in politics, negate the fact that his is a popular economics.

His interviewer in the video, as well as the critics of Simpson’s views have different conceptions of what is right for the economy and do not see cutting Social Security as an inevitability as Simpson seems to feel.  One could say that Lawson’s implied solutions in his questioning are another set of popular economic views with perhaps more or less grounding in data but also with no doubt a different perspective on the distribution of economic benefits and costs in society.  Some of these critics are professional economists like Paul Krugman and Dean Baker, who would no doubt be joined by others.

While selecting Simpson’s views so openly displayed in such an unvarnished form may undermine the point I am making, politicians and political pundits will more often than not be operating with their own personal/popular economic theories for which they may or may not mobilize professional economists to either rubber-stamp their views or work with independent economic advisors with differing views from their own to whom they may or may not listen.   Already the Peterson Institute that is heavily in favor of cutting social spending as a means of deficit reduction, has attempted to distance itself from Simpson, in an effort the preserve the appearance that its focus on cutting social spending is justified by professional, “scientific” economics.

Popular Economics and the Science Question

What I have been calling here “professional economics” has the ambition to be a science based on objective findings about the state of the economy and likely future trajectories of that economy.  These claims to science are not loudly trumpeted given the diversity of opinion within professional economics.  While professional economics operates under greater constraint than popular economics and represents a narrower band of opinion, those who hold popular economic views of various sorts can find professional economists who back up their views to a greater or lesser extent.

While there are a number of established definitions of the scientific method, many assume that in science there can be universal agreement between reasonable observers about at least the facts if not the interpretation of those facts (though heterodox and post-modern theorists of science have questioned this).  In the case of Simpson and Lawson, though neither are professional economists, they do agree that revenues from Social Security have been used for other purposes though they don’t agree on what those purposes were and on what would be the responses to that borrowing.  Perhaps some facts can be agreed upon by all observers in this case but others will be disputed.

I will be returning on this blog numerous times to the question of and desirability of having an economic science.  Certainly there are areas of economics where there can be agreement about the facts but how large is this area?   Does it make sense to call the areas in which there is not agreement about facts, also parts of a science?  Should those contested areas be sectioned off?   Isn’t the process of examining those disagreements as important as looking at areas of agreement?

If economics is not just a science but an arena within which shared and conflicting self-interests are fought over and re-negotiated, then validating a role of more or less importance for something like popular economics is also crucial.  Also economics might also be an arena in which new designs for as yet non-existent economic processes are presented and argued over.  Without the ability to “speak” on issues that effect one’s self-interest or potential future designs for the economy or economic policy cannot be discussed, this leaves people and potential improvement out of the discussion.  On the other hand, if these personal economic views, especially those of policymakers, are largely divorced from something like an objective or at least highly likely reality, this can create a great deal of economic pain and suffering.

I am suggesting that meta-economics or a similar concept can function as an inclusive framework to include both scientific and popular economics as well as examine where agreement is possible and where and how disagreement about economic processes emerges.  As we have seen that economics and popular economic theories by those in government can have extraordinary consequential effects in the real world, such a framework is not simply of speculative interest.