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January 30, 2012
Austerity and the "Common Sense" Fallacy
One of the more aggravating conditions of public discourse is the emotional appeal—and hence, political appeal—of “common sense,” however foolish or misguided that common sense turns out to be. This is especially evident in debates over economic policy where the “common sense” approach always seems to argue for deficit reduction and austerity. In a famous debate moment from the ’92 election, for instance, a young African American woman asked what turned out to be the campaign’s defining question: “how has the national debt affected you personally?” While HW Bush stammered something about interest rates and glanced impatiently at his watch, Clinton hit the ball out of the park, assuring the woman that he felt her pain. Clinton understood what Bush didn’t: the question was really about the recession, job loss, and economic uncertainty. Debt and deficit were only the language she used to articulate those fears.
For average citizens, treating government debt as a synonym for economic turbulence makes perfect sense. After all, when individual families get into financial trouble it is often because they have piled up too much credit card debt. And when somebody loses their job, the last thing they ought to do is whip out their credit card and go on a spending spree. Even if taking on more debt winds up being the necessary evil that allows them to avoid starvation for a few more days, it is rarely thought of as a “solution.” So when a society goes into an economic tailspin, common sense argues that we extrapolate from personal experience. Hence it “seems” only obvious that the solution is government belt-tightening.
But whole societies and their governments are not individual families. Analogies that equate them are often stupid and sometimes dangerous. Still, some economists and politicians persist in doing it. Consequently, we get the conservative fetish for deficit reduction in The United States, and the even more tragic mania for “austerity” that is now driving Europe over the abyss (while threatening our own fragile recovery). Case in point: Great Briton's suicidal efforts at reform through austerity.
Laying out the case in his column today, Paul Krugman writes:
Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.
Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.
His conclusion is especialy troubling:
The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.
But half a century ago, things were different. Politicians who wished to pander to the misguided “common sense” fears of average voters could not so easily depend on theoretical support from a coterie of professional economists who take Austrian theory as an article of faith (evidence be damned); neither were they so liberally funded by a corporate class for whom the power to exploit was no longer a sin to be rationalized, but a sacred liberty to protect. And when sincere ignorance, self-interest, and piety collude, can any virtue be safe?
Posted by stevemack at January 30, 2012 09:00 AM
