Former Clinton Treasury economist, and now a Professor teaching at University of California, Berkeley, J. Bradford DeLong, authors a blog that I regularly read. Like Krugman, DeLong has an insightful mind and the ability to pen articles that are understandable. Like Krugman, he often laces his articles with humour.
What follows is a brief lecture by DeLong. After that I quote a comment which I found almost as interesting as DeLong’s lecture. Both deal with our current recession and the reactions from various groups to the effects of the recession. Among them the Tea Party folks. (I’ve also added a sadly funny cartoon)
“John Maynard Keynes once famously observed, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” During the crisis years of 2007, 2008, and 2009, it was the great British economist himself, along with three other dead men, who dictated the world’s response from beyond the grave: Hyman Minsky, Walter Bagehot, and Milton Friedman.
Minsky, an economist at Washington University in St. Louis, for warning that times of financial calm and economic growth led banks to step further and further out onto the ice of leverage — until finally they would step too far and fall through. Bagehot, the 19th-century Economist editor, for advising that when the bankers fell into the ice-cold lake it was essential that the government spare no expense to make sure that the network of banking survived, but needed to do so in a way that took the bankers’ fortunes away. Friedman, the consummate monetarist, for seconding Bagehot’s call for bank rescues in depressions — and calling for central banks to keep the money flowing. And Keynes, for his gloomy fears that central banks would not prove powerful enough to do the job — coupled with his overoptimistic hope that clever technocrats could then boost government spending to take up the slack.
But we are now into the “recovery,” and 2010 has been a very different year. Its horsemen are of a different breed entirely. Where Keynes and his ilk were optimistic believers in the power of technocratic governments to do good, this year’s horsemen are practitioners of more dismal sciences: believers that the market metes out judgments that we must suffer — and that it is our own flawed nature that makes us believe so. In short, it has been a year for Austrian economists Friedrich von Hayek and Joseph Schumpeter, for plutocrat and Great Depression-era Treasury Secretary Andrew Mellon — and, above all, for Friedrich Nietzsche.
There was silence in the seminar room. Richard Kahn broke it. “Do you mean to say,” he asked, “that if I were to go out tomorrow and buy a new overcoat, that it would increase unemployment?”
“Yes,” said the man in the front of the room, Friedrich von Hayek, “but it would take a long and complicated mathematical argument to explain why.”
That is how historian Robert Skidelsky describes Hayek’s visit to the proto-Keynesian economists of Cambridge University. It was the 1930s, and Hayek had met them in London to convince them that depressions were not to be avoided or cured, but rather endured. In his thinking, they were righteous karmic payback for past sins against the gods of monetary orthodoxy. Any attempts to cut them short or make them shallower would produce only temporary palliation, at the cost of a fiercer, deeper, and nastier further depression in the future.
Hayek’s fellow countryman, Joseph Schumpeter, went further: “Gentlemen!” he announced to his students at Harvard University (there were no ladies). “A depression is healthy! Like a good ice-cold douche!” If depressions did not exist, Schumpeter thought, we would have to invent them. They were “the respiration of the economic mechanism.”
Agreeing with Schumpeter was Herbert Hoover’s Treasury secretary, Andrew Mellon. In his memoirs Hoover was bitter toward many, but bitterest of all toward Mellon, whom he called the head of the “leave it alone liquidationists.” Hoover quotes Mellon: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.” Hoover opposed Mellon’s policies, he said, and worked to undermine them. But what could he do? He was, after all, only the president. And Mellon was Treasury secretary.
Think Mellon is just an anachronism? Then consider current British chancellor of the Exchequer, George Osborne, and his claim that today’s record-low interest rates in Britain are a sign of financial strength and not of anticipated prolonged depression: “The emergency budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near-record lows.” That is pure Mellon. It is definitely not Keynes. It is definitely not even Milton Friedman.
Friedman himself condemned Hayek, Schumpeter, and Mellon as devotees of an “atrophied and rigid caricature” of his own doctrines. “[T]his dismal picture,” said Friedman, led “young, vigorous, and generous mind[s]” to recoil. And both Keynes’s and Friedman’s flavors of postwar American macroeconomics, with its focus on government action to maintain stable growth, were the happy result.
Nothing has changed in the past few years to make Hayek’s, Schumpeter’s, and Mellon’s arguments stronger intellectually against the critiques of Keynes and Friedman than they were 60 years ago. On substance, their current victory is inexplicable. But their triumph, epitomized by the Tea Party movement and its hostility to government action, can be explained by our fourth horseman: Friedrich Nietzsche in his role as psychologist of human ressentiment.
Nietzsche talked about the losers — or rather, about those who thought they were the losers. He looked at those who saw themselves as weak and poor — rather than strong and rich — and saw trouble. “[N]othing on earth consumes a man more quickly than the passion of resentment,” he wrote. It drives us to madness.
Think of that when you consider this: The U.S. unemployment rate is stubbornly high, yet aid from a federal government that can borrow at unbelievably good terms could allow states to maintain their levels of public employment, and those public workers would then spend their incomes and so boost the number of private-sector jobs as well. But the voters are against that. No, they say. We have lost our jobs. It is only fair that those who work for the government lose their jobs as well — never mind that each public-sector job lost triggers the destruction of yet another private-sector job. It’s the underlying logic that has led to a wave of austerity across Europe that is now headed for America’s shores. And it’s the same logic that says, “It is only fair that homeowners lose their money” — never mind that everyone’s home prices will suffer. What does not kill me makes me stronger.
Because some are unemployed, unemployment is good — we need more of it. Because some have lost their wealth, wealth destruction is good — we need more of it. That is a psychology that Friedrich Nietzsche would have understood all too well. For, as he put it, “If you gaze long into an abyss, the abyss will also gaze into you.”
Beezer here. As you might expect, the lecture drew a string of thoughtful comments, some critical about DeLong’s use of quotes. But one commentator, mg, weighed in with some observations that I found plausible and corresponded with my own experiences.
“ Delong’s description of what drives them IS perfectly rational. They derive a great deal of psychic income from being roadblocks, from frustrating other people through their passive-aggressive refusal to allow action. There are more reasons than just this, but I think it’s a large animus for the movement.
There are ignorant people who are motivated by simple slogans, like “You can’t use debt to solve problems caused by too much debt.”
There are tribalists who are, a priori, against anything proposed by “liberals.”
There are plutocrats (and their hirelings) who are doing very well under current circumstances, thank you very much, and absolutely don’t want the government, which is in disrepute, to gain any credibility by solving problems created by plutocrats. If that happens, government might actually gain the ability to take action, like regulation that will stop them from looting the system.
And there is a large cohort of people, 50+ years old, generally doing OK economically, who are being discarded by the system, whatever dreams they had unrealized, and who are seething with anger at resentment about it, and see nothing wrong with taking that anger out on other people, even if they don’t consciously realize that’s what they’re doing.
I know the first and last cohort quite well, because I interact with them on a daily basis. And I can, after one minute of conversation with one of them, figure out which camp they belong in. Both groups of people are perfectly nice and pleasant, until they start talking about the economic situation. The angry people can’t discuss it without angrily and bitterly denouncing others. They usually have a scapegoat, like the government, and I’ve heard Arabs used several times (75 years ago it would have been the Jews). And they are totally uninterested in rational discussion: the government caused this, the government can’t fix it, end of story. I used to think it was because they’d spent most of their adult lives listening to Rush Limbaugh, and had been brainwashed into believing the government can’t do anything right, but it never explained the anger to my satisfaction. Delong’s explanation does (it also, at least somewhat, explains why people would spend the majority of their adult lives listening to Rush Limbaugh et al, but that’s another topic).
I agree that it’s oversimplifying to a degree, but I think he nails an important motivator for what is seemingly irrational behavior. The one thing I’m not sure Delong realizes is that most of these people are actually OK economically. Sure, they’ve lost, or are in danger of losing, their jobs, but they’ve been pretty prudent, and socked away a fair chunk of change, plus they’ve usually paid off their houses, and are either getting SS + Medicare, or are in striking range of it. They can afford to indulge in this sort of behavior, even if they’d rather not have to.”
Beezer. These explanations for the reactions of various groups are interesting. But as with any such observations, it’s all opinion. Tea Party supporters no doubt contain members that don’t fit well into any of the categories addressed here. We are not uniform, after all. And even within groups that are easy to identify in the main, under the surface are many important differences.