As July 4, 2010 approaches wrong-headedness seems to have seized legislators and policy makers around the world.
Paul Krugman highlights this in his recent NY Times piece, The Third Depression:
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy.
He's talking about the international obsession with controlling inflation (curbing deficit spending, raising taxes and interest rates), where, in the view of Krugman and others, "the real threat is deflation," and inadequate spending.
... [T]he revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence.
In Krugman's view, the price for this "triumph of orthodoxy" will be "tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again."
Times reporter David Leonhardt chronicles what Krugman is describing in Governments Move to Cut Spending, in 1930s Echo.
"The world’s rich countries are now conducting a dangerous experiment." Leonhardt writes. "They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome."
In the late 30s the Roosevelt administration thought the Great Depression was over, and the ensuing decreases in spending and increases in taxes eventually amounted to 5 percent of gross domestic product. At that time, though, European governments were increasing spending in the advent of World War II, offsetting the belt-tightening in the US. "This time," Leonhardt writes, "almost the entire world will be withdrawing its stimulus at once."
The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood.
... And just as households and businesses are becoming skittish, governments are getting ready to let stimulus programs expire, the equivalent of cutting spending and raising taxes. The Senate has so far refused to pass a bill that would extend unemployment insurance or send aid to ailing state governments. Goldman Sachs economists this week described the Senate’s inaction as "an increasingly important risk to growth."
The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.
... Our economy remains in rough shape, by any measure. So it’s easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go — laissez-faire economists, Congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data.
Among the loudest shouters domestically are the so-call tea partiers. In his fascinating analysis, The Very Angry Tea Party, philosopher J.M. Bernstein examines the tea partiers' completely contradictory policy proposals, including
... balance the budget, but don’t raise taxes; let individuals take care of themselves, but leave Social Security alone; and, of course, the paradoxical demand not to support Wall Street, to let the hard-working producers of wealth get on with it without regulation and government stimulus, but also to make sure the banks can lend to small businesses and responsible homeowners in a stable but growing economy.
Bernstein's hypothesis is that the events that brought the tea party movement into existence -- in the context of the present discussion, possibly most importantly the federal intervention to prevent the collapse of the banking system in the aftermath of the subprime mortgage debacle -- destroyed "the deeply held fiction of individual autonomy and self-sufficiency that are intrinsic parts of Americans’ collective self-understanding."
Tea Party anger is, at bottom, metaphysical, not political: what has been undone by the economic crisis is the belief that each individual is metaphysically self-sufficient, that one’s very standing and being as a rational agent owes nothing to other individuals or institutions. The opposing metaphysical claim, the one I take to be true, is that the very idea of the autonomous subject is an institution, an artifact created by the practices of modern life: the intimate family, the market economy, the liberal state. Each of these social arrangements articulate and express the value and the authority of the individual; they give to the individual a standing she would not have without them.
... And just as in love, the one-sided reminder of dependence is experienced as an injury.
The tea partiers want nothing, Bernstein writes. They are nihilists.
To date, the Tea Party has committed only the minor, almost atmospheric violences of propagating falsehoods, calumny and the disruption of the occasions for political speech — the last already to great and distorting effect. But if their nihilistic rage is deprived of interrupting political meetings as an outlet, where might it now go? With such rage driving the Tea Party, might we anticipate this atmospheric violence becoming actual violence, becoming what Hegel called, referring to the original Jacobins’ fantasy of total freedom, “a fury of destruction”? There is indeed something not just disturbing, but frightening, in the anger of the Tea Party.