New Rule: Screw "Continuity"

I was listening to the December 5^th Majority Report podcast earlier today, and Sam Seder had Ari Berman on as a guest.  Berman had recently returned from the UK, and he reported that Prime Minister Cameron and the other UK leaders had recently given a series of speeches in which they basically said they were doubling down on the “austerity plan” that has been so contractionary and has actually made economic matters worse in the UK and throughout Europe.

Of course, Paul Krugman has been railing about the austerity kick that so many have been on lately, both in Europe and here in the United States, and repeatedly has wondered why political leaders remain so cocksure that eventually, someday, maybe even someday soon . . . everything will start working out as planned and things will actually start getting better.  They keep doubling down on this program, Krugman complains, despite the fact it flies in the face of all accepted macroeconomic theory and despite the fact it keeps repeatedly not working.

And then I remembered this piece by Matthew Yglesias, about Confessions of the “Old Wizard”: the Autobiography of Hjalmar Horace Greeley Schacht.  Schacht was Currency Commissioner and President of the Reichsbank during the Weimar Republic, went on to also become the Minister of Economics under Hitler before being forced out of the government, and then took part in the German resistance to Hitler.  He was acquitted at Nuremberg.

Schacht successfully ended the Weimar Republic's period of hyperinflation by simply refusing to print more money.  But the real point of Yglesias’s column is that only Schacht or somebody else brought in to replace the former President of the Reichsbank, Rudolf Havenstein, could have made the decision to stop printing marks and thus end hyperinflation.  The reason for that is because Havenstein already had committed himself to printing marks in order to meet Germany’s WWI reparation payments, and were he to stop printing marks after the resulting hyperinflation had wrecked the economy then that would have been an implicit admission that his previous policy had been monstrously wrongheaded.

What Yglesias is getting at is that institutions that have grossly mismanaged public policy have a difficult time changing course because the people responsible for managing those institutions do not wish to admit they have made egregious mistakes.  For example,

[i]f the Federal Reserve Open Market Committee were to take strong action at its next meeting and put the United States on a path to rapid catch-up growth, all that would do is serve to vindicate the position of the Fed's critics that it's been screwing up for years now. Rather than looking like geniuses for solving the problem, they would look like idiots for having let it fester so long. By contrast, if you were to appoint an entirely new team then their reputational incentives would point in the direction of fixing the problem as soon as possible.

One of the things Obama’s critics like to carp about is that for a guy running on a bad economy bequeathed to us by the Republican party, a guy who campaigned on hope and change . . . Obama kept basically the same economic team in place after he took over for the sake of “continuity.”  (Tim Geithner?  Ben Bernanke?)  After all, how can we change our game plan if we keep the same strategists?

But as Yglesias points out, the situation may be far worse than mere sclerotic institutionalism.  For example, why does Bernanke keep signaling that the Fed is unwilling to allow inflation to grow, even though doing so will boost the economy and help get more people back to work?  Well, it could be that he really believes his policies eventually will be vindicated, and it could be that he just doesn’t care about the United States’ high, high unemployment rate and really thinks that keeping a tight rein on our non-existent inflation is more important.

But it could also simply be that Bernanke is incapable of changing policy even if he wanted to, because the cost to him personally – to admit that his past actions were mistaken – would be too severe.

New Rule:  When things have gotten screwed up, it is alway, always better to fire the people who did the screwing up and to bring in a new team than it is to keep those same screw-ups around to provide a comforting sense of “continuity.”   

It’s Beginning to Look a Lot Like Christmas . . .

. . . .  Ev’rywhere you go;

Take a look in the five and ten, glistening once again

With candy canes and silver lanes aglow.

It’s beginning to look a lot like Christmas

Toys in ev’ry store

But the prettiest sight to see is the holly that will be

On your own front door.

It’s beginning to look a lot like Christmas

Ev’rywhere you go;

There’s a tree in the Grand Hotel, one in the park as well,

The sturdy kind that doesn’t mind the snow.

It’s beginning to look a lot like Christmas;

Soon the bells will start,

And the thing that will make them ring, is the carol that you sing

Right within your heart.

            --Lyrics by Meredith Willson

Photo of woman on sidewalk during Black Friday’s holiday shopping extravaganza by Michael Nagle/Getty Images.  (h/t Matt Yglesias)

Bargaining Imbalances and the Supercommittee

Matt Yglesias has a post up today titled Ozone and the Fundamental Asymmetry of American Politics.  In it, he looks at the Obama Administration’s decision a few months ago to overrule the EPA and not implement tighter regulations on smog and ozone emissions. 

Yglesias explains that for all the effort to muddy what happened, the bottom line is simply that the business lobby didn’t want to see these stricter rules imposed and the business lobby won that argument.  Yglesias goes on to point out that

You simply cannot imagine the reverse scenario playing out in a Republican White House.  It’s inconceivable that environmental groups would win an internal debate in a Republican administration. . . .

. . . .  American democracy is characterized by “interest group pluralism.”  But business has a “privileged position” in the pluralist dynamic.  It’s perfectly conceivable for corporate managers and business lobbyists to dream of a world in which there are no labor unions or environmental pressure groups.  But neither the AFL-CIO nor the Sierra Club nor anyone else to the right of Lenin is actually prepared to wage a root-and-branch war against the existence of large and powerful business enterprises in the United States.   In fact, progressives are counting on the existence of such enterprises every bit as much as conservatives are.  The upshot is to create an imbalance in the interest group bargaining process.  (emphasis in the original)

I think that assessment is spot on the money, but I’d like to point out that this type of imbalance does not apply just to the business community but extends throughout our policy debates.

* * *

Take the so-called Supercommittee, which right now is failing to reach agreement on a deficit-reduction plan (good!).  If it fails to reach an agreement, then budget cut “triggers” get invoked which automatically result in $600 billion in cuts to domestic programs – which supposedly Democrats would really hate – and $600 billion in cuts to defense spending – which supposedly Republicans would really hate.  The idea behind this plan was that pulling these triggers would be so unthinkable that the Democratic and Republican negotiators on the Supercommittee would be forced to come to an agreement to avoid these terrible cuts.

But, again, there is a fundamental imbalance here.  While it is true that the Republican Party is more invested in dealing government largesse to its military contractor big money donors, most Congressional Democrats don’t want to see big cuts to the military either.  On the other hand, the Blue Dogs and a number of other conservative-leaning Democrats don’t particularly care about preserving entitlements and domestic spending and seem to think that by slashing such programs they’ll be hailed as “fiscal policy tough” by the voters back home.

So we are now seeing precisely what one would expect to see.  The Supercommittee is not going to reach an agreement, and then both parties will work together to rejigger the “triggers” so that military spending does not get cut.  I will genuinely be surprised, however, if the domestic spending trigger gets modified.  I fully expect domestic spending to be cut after the Supercommittee fails to come up with a plan but for military spending to be just fine.  And call me cynical, but I kind of suspect that this was the plan all along, from the very moment this bogus “Supercomittee Plan” was first announced.

Disappointingly, I Think I Got it Right

Matt Yglesias argues today that being booted from Zuccotti park by the NYPD button men ultimately may have been a good thing for the Occupy Wall Street movement.

Essentially, Yglesias argues that the protest could have ended in only one of two ways:  either the cops would come in and throw everybody out, or the protests would simply fizzle as people lost interest.  Yglesias suggests that having the protests simply fizzle would have been “demoralizing to everyone who’s come to look at the various Occupations as a key signal of popular discontent with rampant inequality.”

I said something similar only a few weeks ago, when I wrote that if Bloomberg were smart he’d just send the word out to the NYPD that they were to leave OWS alone unless the protesters engaged in illegal acts that substantially interfered with others’ rights.  “Without conflict, I doubt the media would continue covering the story,” I suggested, and the greatest danger to OWS was “probably not co-option but incorporation.  By its continuous presence it may simply become integrated into everyday life, assimilated as background noise, and ultimately disregarded as ‘just something those people do.’”

Of course, I also predicted that L’il Mikey and the rest of the 1% were unlikely to let the movement wither away by simply ignoring it; their own evident terror at possibly being called to account for their sociopathy and their narcissistic inability to see that middle-America would quickly lose interest in both the protesters and them if thing settled down would – I predicted – preclude any such outcome.

And, today, it looks like I was correct about that.

So now the Occupy movement transitions into Phase II . . . whatever that is.  Yglesias argues that “by ordering the protesters to be removed the Bloomberg administration has ensured continued relevance for the issue.”  I certainly hope that is the case.

I guess we’ll see.