The Manufactured "Debt Crisis" and the American Ideology of Debt.

[Preliminary note: for the few people who read this blog, the economic analysis will be self-evident. But it still really has to be said. Again and again and again.]

Contrary to what the elite class says, there is no debt crisis. It's a manufactured issue. Its sole purpose is to provide ideological cover for an assault on the New Deal and the Great Society. And, thanks in no small part to Mr. Obama, it appears to be working.

Evidence that there is no debt crisis includes the following: interest rates on bonds are still astonishingly low. In fact, for five year bonds, the real interest rate (adjusted for inflation) is negative. That means that (at least for now -- unless the US actually defaults) the financial markets still regard the US treasury as the safest place to put their money.

To make the matter clearer (for those not familiar with economics): were the bond markets (those who lend money to the government) worried about the level of US debt, they would be demanding a higher interest rate, to compensate them for the risk. But, as noted above, interest rates are exceptionally low.

Are we clear about this? Look, let's think this through. Everyone seems to have some vague notion that "debt is bad," but no one can say exactly why. All they know is that if there own household was in debt, that would be bad. (Although it would only be "bad" in some circumstances. In many cases, it's a good thing. If all debt were bad, no family would, say, take out a mortgage for a home, and no business would ever invest. So, even if the analogy to a household or a business were valid, which it isn't, the notion that debt is necessarily a bad thing would still be specious.)

So, under what circumstances would debt become "bad" for the US government (or any government)? Answer: if the financial markets decided to stop buying debt. If that were to happen, then, yes, we'd be in trouble. But there's simply no evidence of that happening. Again, the most powerful evidence would be high interest rates. But they aren't. By a long shot.

So if the very players (the bond markets) who should be concerned about the level of debt aren't concerned, why is all of Washington acting as if there is a crisis? Why does America seem to be so certain that we shouldn't raise the "debt ceiling"? (The very existence of which, as a legal device, is absurd -- Congress already appropriated funds; having to pass another law saying that the US will then go ahead to spend those funds is idiotic.)

My sense is that the issue of debt is far less an "economic" issue in this country, as it is a quasi-religious, moral issue. It seems a function, partly, of our puritanical heritage. A person who is a spendthrift, takes on debt, and lives beyond his means, is often regarded as having a certain defect of character. Spending is regarded as vice. Saving, on the other hand, is regarded as virtuous. (The religious nature of our reaction to spending was captured brilliantly by an episode of South Park, which I discussed in a post last year)

There is a massive cultural contradiction in our national psyche here. Capitalism will not function without spending. It just won't. The entire system is predicated on the profit motive. And businesses cannot make a profit if they don't sell. And if they're not profitable, they have no reason to hire. So, without spending, you can say good-by to any hopes of lowering the unemployment rate. Everyone knows this. Everyone. Regardless of party or ideology. The most dramatic example I know of this is: after 9/11, President Bush told us all that it was part of our duty as Americans to keep shopping. (I remember when that happened. Part of me thought "why are we talking about shopping at a time when thousands of people were killed? Isn't that, um, unseemly?" But I also knew the answer. A collapse in spending could mean business failures and increases in unemployment)

So while, on one level, we all know how critical spending is for the functioning of capitalism, we also, sometimes in the same breath, express a kind of moral revulsion at anyone's failure to save.

I wrote on this at great length on this cultural contradiction in another post (the first blog post on here that I wrote, last summer.) So I won't delve into the matter much further here. I will make one point of clarification though, which is that I am not claiming that these sorts of quasi-religious and moral objections to the debt are the driving factors behind the political economy of debt reduction. That, it seems to me, is largely a function of class war. That is, in the final analysis, the driving force behind "debt reduction" is the attempt to eviscerate the successes of the New Deal and the Great Society. However, even if the quasi-religious American anti-debt fervor doesn't account for why elites are so obsessed with the debt ceiling, I do think it accounts for why the issue of the debt ceiling plays so well for the American public. So, for example, much of the real motivation behind the attempt to cut spending is that elites want, for example, to loot Social Security and Medicare. But the reason they can get away with it, or at least have a chance of selling it to the public is because of (what I am calling) the American ideology of debt.

Per this ideology, debt is a simply "bad" (all economic analysis aside) in a moral or quasi-religious sense -- or, more specifically, a person in debt has no self-control, or self-discipline. Therefore, anyone in debt needs to be taught a lesson. They need to take their medicine, or "eat their peas" as Mr. Obama said. (The message there is obvious -- we may not like these spending cuts, but they are good for us. But he's wrong. They are not.)

This remarkably punitive -- almost sadistic attitude (in the sense that I think we, in our national psyche, sometimes get pleasure, or at least a kind of gratification, in seeing this particular kind of punishment) -- in my opinion, is remarkably good at facilitating the class war launched by the elites upon the rest of us.

And the rest of us, for psychological reasons entailing a kind of perverse gratification in believing that this kind of deprivation is necessary way of building our moral character, will be all-too-willing to allow the elites to continue to screw us over.

This is the tragedy of the particular intersection of moralistic American culture and cynical economic policy. And it is why (at least at the moment) I am not terribly optimistic about the prospects of the American public resisting this assault.

But I'm still hopeful that that will change. (Call it, if you like, the audacity of hope.)

Addendum: As usual, I've found myself anticipating possible objections to the above. So perhaps I should clarify. I'm not saying there isn't anything virtuous about saving. More specifically, I think that the notion of saving as a virtue performs a real and valuable function, insofar as it is difficult for human beings to delay gratification. So it makes sense that we would have developed a moral or religious code that rewards saving. This kind of moral code functions as a kind of survival strategy, as it were, for the species. The problem is the irrational or even counter-productive uses to which we put this otherwise useful moral code. There are, in my opinion, many of these, including, as I noted above, when the desire for discipline morphs into a sort of brutality (which is something I think has happened in America). But, from the standpoint of understanding capitalism, the most of notable of distortions of this moral code is the failure to understand the paradox of thrift in capitalist economies -- i.e., that too much savings can create a commodity glut, which in turns creates unemployment and low capacity utilization (or, in Marxian language, surplus population and surplus capital.) Indeed, I would go so far as to say the fact that, for capitalism, savings can be a problem or a threat is just one of the many reasons the system is an irrational one. (I discussed similar reasons in posts from last year, including this one.)

The Moral Culture of Fiscal Austerity (Or, Capitalism's Double Bind)

The Obama administration has signaled that it will push economic policy in the direction of fiscal austerity, rather than increased Keynesian stimulus. Its reasoning: that's where the political wind is blowing

“Today, a new band of Mayberry Machiavellis has gained control, counseling President Obama to ignore the advice of his economic team and press forward with deficit reduction ahead of job creation.” And the reason for this shift in priorities is, evidently, due to the “public mood.” http://www.huffingtonpost.com/2010/07/06/mayberry-machiavellis-oba_n_636770.html (“Mayberry Machiavellis: Obama Political Team Handcuffing Recovery” by Ryan Grimm.)

And, indeed, there does seem to be a great deal of fury in America over government spending. It seems to send many Americans into a tizzy. The Tea Party is the most obvious example, but it is hardly limited to that quarter.

The question I want to address here is not whether the Obama administration has made the correct political calculation. Nor is it the question of what policy position is correct. (Although I will state parenthetically that – within the confines of a capitalist system – a position of fiscal austerity during a deep recession is simply absurd. At the same time, the qualification I add here – i.e., “the confines of a capitalist system” – is itself of enormous significance. But that subject, too, must be bracketed, at least for the time being.)

Rather, the issue I want to explore here is, What drives the American public to turn with such hostility to spending, and to embrace austerity with such zeal? I find it extremely difficult to imagine that it is due to a careful examination of what can sometimes appear to be esoteric economic debates – e.g., should we now be more concerned about deflation or inflation? What is the multiplier effect of extending unemployment insurance versus that of tax cuts? What were the causes of the Great Depression? It seems to me exceptionally unlikely that most Americans have studied these issues in great detail, if at all.

No, the objection to government spending is not on economic grounds. Instead, it strikes me as being on moral grounds. Specifically, America's puritanical heritage leads people to regard spending “beyond ones means” as itself a moral defect, or a defect of character. Indeed, the massive amount of consumer debt that has been racked up is commonly given as an account or explanation of the current economic crisis. (Never mind – at least for the moment – that consumer debt was the only thing that permitted American capitalism to function for the for the last three decades.) Spending “beyond ones means” seems to be equated with a lack of ability for self-control. It is regarded as a kind of licentiousness & permissiveness – perhaps even a form of promiscuity.

This is just my own cultural observation. I will not, at least in this space, try to prove it.

However, recently, while reflecting on this question, a gmail advertisement popped up on my computer. It led to a piece titled “In the Long Run, We are (Not) All Dead: The Anti-Christian Economics of John Maynard Keynes,” hosted by the web site of “The King's Community Church.” The piece is here: http://www.tkc.com/resources/resources-pages/keynes.html

I think it's worth reading.

A Post-Modern View of Epistemology within Economics -- from a Church?

First off, one of its opening claims is an epistemological position that by no means commands universal agreement. “Contrary to the popular saying,” argues author Ken Ewart, “'the facts' never speak for themselves, but are always interpreted through an individual's personal religious grid - their individual system of thinking and evaluating things.” Replace the phrase “religious grid” with something like “discourse,” “ideology” or “paradigm” and you have an epistemological claim that sounds an awful lot like (what many would call) post-modernism. Imagine, a post-modern epistemological position espoused by a church – and one that unequivocally holds certain religious beliefs (e.g., that Jesus was the Son of God) to be themselves objectively and unassailably true!

The author goes on to say that this epistemic stance “...seems especially true when it comes to economics, in that, as the joke goes, when you have four economists looking at "the facts," you're likely to end up with four different interpretations, and maybe six! Four different economists can interpret the facts differently because they each think through different grids. Each person's grid is ultimately a result of their [religious] faith.” Again, strike the second sentence and you'd be excused for believing you were reading the likes of (in the Anglo-American tradition), say, Kuhn or Rorty, or, (in the Continental tradition), Foucault.

Now, this view of epistemology (call it “post-modern,” “perspectivism,” “epistemic pragmatism” or what have you) is one that I happen to find persuasive. That is yet another issue that must be left aside here. For the moment, I only note this curious parallel between the epistemic position of an evangelical church and certain political economists and philosophers. (See, for example, the position taken by Marxian economists Richard Wolff and Steven Resnick in, among other works, their text “Knowledge and Class.”)

The Alleged Religious/Moral Worldview of Keynes

Having established that economists reach their positions due to pre-existing religious beliefs, and explicitly claiming that “Keynesian economics, like every other kind of economics or academic theory, is fundamentally religious [and] is built on a worldview,” Ewart goes on to examine the religious beliefs of Keynes.

Evidently, Keynes' views on religion were not subtle. He viewed Christianity in particular with outright scorn, calling it “hocus-pocus.” But the author goes further than that. He wants to show that Keynes hostility to Christianity led him to eschew morality itself. As evidence, he cites Keynes participation in the Bloomsburg group. Keynes describes his involvement in the Bloomsburg group as follows:

We entirely repudiated a personal liability on us to obey general rules. We claimed the right to judge every individual case on its merits.... We repudiated entirely customary morals, conventions and traditional wisdom. We were, that is to say, in the strict sense of the term, immoralists.

[Note: Ewart does not provide citations, so I cannot verify any of the quotations in his piece. I accept them as accurate only for purposes of this essay.] Further still, Keynes rejection of God and Christ did not only lead to the rejection of “customary morals” it led to “sexuality perversion” – by which Ewart means Keynes' homosexuality. Of course, per this logic, that is the final stop for someone who goes down the road of abandoning the church. Ewart explains:

In the first chapter of the book of Romans, the Apostle Paul describes the path a man travels if he is consistent in his rejection of God. Professing to be wise apart from God leads to "futile" thinking and "darkened hearts" and ultimately culminates in "a depraved mind" and "unnatural" sexual relations. There is an integral connection between a man's thinking and his sexual life. Keynes, along with many other members of the Bloomsbury group, was a homosexual. Virginia Woolf affectionately called the group "The society of buggers." Keynes' biographer, Robert Skidelsky, described the situation as a "sexual merry-go-round" as members commonly floated from one sexual partner to another.

The author has thus painted a rather stark picture: Keynes, having rejected Christian teachings, believed himself to be able to judge morality without God's injunction, which led down to the road to the ultimate sins of homosexuality and sexual promiscuity. And all of these, of course, are tied by the author to licentiousness and self-indulgence.

What does all this have to do with Keynes' economics? Everything, according the author. Keynes was, says Ewart, “obsessed” with savings. As economists are well-aware, the problem with savings for Keynes was that it can create, or worsen, a general glut in commodities – i.e., a recession, or depression. But Ewart believes he has found the real motivation behind Keynes' attack on savings – his proclivity (as Ewart sees the matter) towards instant gratification, and his failure to recognize the moral value of self-denial for future reward. He quotes another critic of Keynes as noting that The General Theory is a "...transvaluation of all values. The great virtue is Consumption, extravagance, improvidence. The great vice is Saving, thrift, "financial prudence."'

This failure to recognize the value in sacrificing the present for the future, according to Ewart, is directly traceable to Keynes' rejection of God – i.e., to his belief that we need no external moral authority.

Now, again, I can hardly expect to prove that the current pro-austerity sentiment in America is a moral one (rather than an economic one) based on one obscure article published by an evangelical church (and one based in England at that). But it is awfully telling. Indeed, according to Ewart, Keynes himself observed that predominate norms favor thrift over spending. He quotes Keynes as saying: "The morals, the politics, the literature, and the religion of the age [are] joined in a grand conspiracy for the promotion of saving."

Should we spend or save? Capitalism's Double-Bind

And yet, if indeed we feel compelled to chastise government deficit-spending on moral grounds, we simultaneously find ourselves encouraged to spend in our private capacities on economic grounds. Indeed, all economists, whether Keynesian or otherwise, realize that continued spending is necessary for the continual functioning of capitalism. (In Marxian terms, it constitutes a break in the circuit of capital.) The debate (between Keynesians and, say, Monetarists or New Classical economists) is merely whether government spending can take up the slack when private sector spending decreases. No one disputes that if private sector spending dried up, capitalism itself would collapse. Hence, when in recessionary or near-recessionary times, politicians of every stripe encourage us to spend. For example, after 9/11, one of the first things President Bush told us to do was to keep shopping (an awfully curious thing to announce after the murder of nearly 4000 people – unless, of course, one understands the imperatives of capitalism.) His father, George H.W. Bush in 1991, went on a sock-shopping spree (a public relations debacle), to encourage all Americans to do the same.

Spending is thus our patriotic duty. And yet, at the same time, it is a moral failing. How are we to navigate that kind of cognitive dissonance? No wonder the political discourse surrounding the state of the economy is so abysmal.

One way out might be to change the economic structures themselves. For an economic system that requires continued, perpetual, near-frenzied consumption for its very survival is surely, at its core, a diseased system. Perhaps then our real task should be to change that system.

How to implement that task? I don't know. I'll leave that, as well, to a future post. (Or perhaps someone would care to offer their thoughts?)