The White House and the Economy

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Mike Konczal writes today about both our short-term deficit and our long-term deficit:

Why do we have to worry about the second, long-term deficit in the “two deficits” scenario? My understanding of the neoliberal landscape was that it was to convince the bond market that further stimulus would be temporary, thus allowing a larger short-term stimulus to drive down unemployment without freaking out the bond market….You can doubt that a second stimulus would panic the bond market (I do), but the logic makes sense.

But now, he says, news reports suggest that the Obama administration views long-term deficit reduction simply as a good in itself because it will spur “confidence” in the economy:

This new idea is that making the bond market happy in-and-of-itself will produce prosperity and full employment through increasing confidence. The major drag on the economy isn’t low aggregate demand but confidence. Now the assumption isn’t that we have to keep the bond markets as happy as they were but instead make them much happier, which will then increase investments and spending through this increase in confidence. Hence long-term spending cuts, lots of gimmies to incumbents in supply-side investments and other things powerful interests love but don’t necessarily make demand-based economic sense.

I simply don’t see any evidence of why, or even how, this would work. What are the arguments that confidence is the major check on the economy? I understood the “two deficit” argument, but this new approach is just substituting in the interests of bondholders for the entire economy. If a very-polite version of expansion austerity is guiding the administration’s thought this is even more of a disaster than these stories convey.

At a guess, there are two things going on here. The first is the one Mike talks about: there are a lot of people — Wall Street is full of them — who fundamentally believe in a kind of folk economics in which austerity and discipline are rewarded and profligacy is punished. So if you demonstrate some discipline, businesses will start hiring again because they have confidence in the future.

The second thing is simpler: the political landscape for serious stimulus spending is so grim that no one has the energy to effectively argue against the folk theories. What’s the point, after all, when even the most brilliant argument will immediately founder on the reality that Congress just flatly isn’t going to pass a stimulus bill? And if that’s the case, then why not make the best of a bad situation and argue in public that long-term deficit reduction is good in and of itself? It’s better than nothing, after all, and who knows? Maybe it’ll work. What’s more, politically it’s a lot better to cut a deficit deal that makes you look like a leader than it is to barnstorm the country talking up a stimulus and getting nothing for your efforts. That just makes you look like a loser.

I have no idea which of these two dynamics is dominating the decisionmaking at the White House. But I’ll bet they both have a strong influence.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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