* The Mystery of the Plunge in Consumer Confidence: Article in MarketWatch, and My Partial Disagreement with Krugman*s *Pundit Delusion*
As the following article from MarketWatch indicates, there’s enough bad economic news to explain some decline in consumer confidence. But it’s a bit of a mystery why it has just now taken SUCH A PRECIPITOUS PLUNGE.
Below the MarketWatch article, I briefly venture a thought. It is, moreover, a thought that suggests that Krugman’s analysis, posted yesterday in the “Pundit Delusion” is not the whole picture.
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Nothing happened, but the news was bad anyway
Commentary: Historic decline in sentiment comes almost without warning
Rex Nutting, Washington bureau chief
MarketWatch, July 16, 2010
WASHINGTON (MarketWatch) — It’s no secret that Americans are depressed. The economy is barely growing, job growth is anemic, raises are rare, house prices are falling, the stock market is down, and oil is spreading across the Gulf.
So, in one sense, it’s no surprise that the University of Michigan’s consumer sentiment index fell in July. See full story on the drop in consumer sentiment.
But the magnitude of the drop — 9.5 points — was astonishing, and suggests that Americans may have hit some kind of breaking point.
The sentiment index doesn’t drop this much unless something really big shocks the economy and the national psyche. The shocking thing about this month’s decline is that nothing really shocking happened between June and July.
In the 32-year history of this survey, it’s fallen by 9.5 points or more on only six other occasions:
•October 2008: The month after Lehman Bros. collapsed;
•October 2005: The month after Hurricane Katrina hit;
•September 2001: The month terrorists attacked America;
•August 1990: The month Kuwait was invaded;
•March 1980: The month the stock market plunged and confirmed that the nation had entered a recession.
Only once did the sentiment index fall so far without being accompanied by an event so big that it’s in the history books: December 1980.
In that month, much like today, Americans were anxious about the future of the economy, which had just emerged from a recession. They had elected a president who promised big changes, but the people weren’t quite sure what that meant, or whether the new policies would work. The market sold off. The economy dipped back into an extremely brutal recession soon thereafter.
History doesn’t repeat, of course. The drop in the sentiment index doesn’t mean a double-dip recession is in the cards, but it does mean consumers are fearful that everything is unraveling. They have no faith in government, or in business, or in the media, for that matter.
We could really use some good news right about now.
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Schmookler on a possible solution to the mystery:
I would hypothesize that it’s no coincidence that this drop occurs at the same time as polls show a major drop in confidence in President Obama. (One should note, however, that this loss in confidence has not apparently been accompanied by a corresponding drop in approval.)
Such a connection could, of course, be interpreted in either direction– and it is certainly true that bad economic conditions are an important part of the problems with Obama’s standing with the public these days. (As Krugman argues is the heart of the matter.)
But that would not solve the mystery raised by the article, and indeed I propose that the solution to that mystery lies in the causal arrow going the other direction: the drop in consumer confidence in the economy, in other words –at least its strangely precipitous drop– may well be caused by a drop in the confidence the American public has in its leader.
Never underestimate the power of leadership. “We have nothing to fear but fear itself,” FDR said, and people were buoyed up under economic circumstances much more dire than those we face today. Meanwhile, today, with the Oil Spill and other things, there seems to have been a depletion of hope in this leadership, like the air coming out of a balloon.
We have seen Obama respond to various situations, and the picture has come into focus: a certain passivity, and impassivity, a lack of passion, a disability, a weakness.
I have felt this deflation of expectations, and I believe the polls show that others have, too. I do not share much of the ideational content of those in the public –independents, etc.– who have drifted away from Obama, many of whom have bought various right-wing lies. But my sense of what we can expect from Obama in the way of leadership has diminished substantially over the past year and a half, and has taken a big hit in recent weeks, when I’ve found myself losing the capacity for believing in the possibility of a revival of what appeared to be such a great potential.
If what I’ve been experiencing is at all representative of what’s happened in the public more broadly, then that would explain an unexpected, and seemingly “unexplained” major plunge in the consumer confidence numbers.
I realize that this runs somewhat counter to the piece, run yesterday, from Krugman about the “Pundit Delusion.” But Krugman’s view, as much as I respect it, does not perceive everything. For example, if the drop in consumer confidence is NOT explicable just in terms of the overall economic numbers, as the MarketWatch article indicates, then accordingly the economic numbers (like unemployment) are not necessarily all that is going on with Obama’s poll numbers, which was Krugman’s main argument in that piece.
July 21st, 2010 at 9:23 am
Obama’s leadership style seems to be in arranging a deal privately, beforehand, so that, he hopes, the waters are smooth when the issue comes to public notice. If there is leadership, it is not evident to the public. His style seems to deliberately hide leadership.
His opposition, in response, does all it can do (which is considerable, even for a party in the minority) to ensure that the waters are NOT smooth at all.
July 21st, 2010 at 10:40 am
There has to be an official clear-cut cause to the problem or else radio and cable tv lose the neat and orderly boundries for their audience. I think Krugman is aiming his message at the general public. It’s already an unwritten rule/consensus with the mainstream media that a bad unemployment percentage over a prolonged amount of time correlates to a major deficiency within leadership. This obviously isn’t the whole picture, but he knows this idea will soon become the msm’s easiest to sell version of what’s the most crucial reason for Obama’s decline in popularity. Again, the msm at the end of the day always decides on one clear factor to direct blame. I think Krugman is getting ahead of the game in “lining up” with the unemployment issue.
July 21st, 2010 at 10:45 am
And when i say Krugman is aiming his message at the general public I would assume he’s also aware of how consumer and market behavior will respond once this correlation indeed becomes the mainstream consensus.
July 21st, 2010 at 11:51 am
It could be that more Americans understand Keynesian economics than I had previously thought. It has just recently become clear that not only the US, but all of Europe as well, have decided to implement “austerity” policies in te face of the worst recession since the great depression. This is, of course, a recipe for economic disaster.
The irony is that the proponents of austerity cite a supposed lack of confidence on the part of the business sector for their not investing in expansion and hiring workers. This is wrong – these businesses simply do not see consumers buying any more than the bare necessities, and so what business would expand in that scenario? Firms and consumers are both on the sidelines, waiting for each other to take the first step — Consumers: “I won’t buy until I have the sense that my job is secure for the future.” Companies: “I won’t hire or expand until I see any evidence of sales rebounding.” And so the Keynesian downward spiral goes. Permanently high unemployment (the latest blurb I read today says another 10 years out…).
Austerity will lead to another round of state budget cuts and public employee layoffs (my neice, a top-performing middle school science teacher and basketball coach in a nearby state is certain that she won’t have a job in the Fall due to a collapse of revenues and the expiration of federal support there).
There is likely a “tipping point” phenomenon here (although I’m no huge fan of Malcolm Gladwell’s book by that name) wherein what’s left of the broad middle class has come to the conclusion that Congress has decided to cut them loose and swim the ocean by themselves.
July 21st, 2010 at 12:00 pm
I don’t get it, Jim. Isn’t your comment illustrating a LACK of understanding of Keynesian economics?
July 21st, 2010 at 12:05 pm
No, consumers express lack of confidence because they perceive (correctly) that politicians are not following basic Keynesian policies. Consumers / citizens know that austerity is the wrong course and will not help the economy. Ergo, their low confidence in the future.
July 21st, 2010 at 12:16 pm
Keynes also pointed out that unless consumers have the wherewithal (i.e., income), no amount of flooding the economy with bank liquidity will regenerate an economy. And sure enough, after pouring in cash equal to an entire year’s GDP, and setting interest rates at essentially zero, we are at a monetary “zero bound” where this cash is just sitting there not circulating. People see that unless something forces this money into circulation through spending on infrastructure projects, state support, etc., no incomes will be generated that can support any new spending.
Don’t forget, mortgate defaults continue at record pace, employment and wages are shrinking, people’s net worth are still far below the pre-crash levels, and there is no longer any debt capacity upon which to draw (that led to the bubble in the first place), in fact people are paying down debt – which is the definition of “saving.” And the broad hints that the so-called deficit commission will be recommending cuts to Social Security, cannot possibly be helping peoples’ perception of their future buying power.
July 21st, 2010 at 12:36 pm
I hope you’re right, Jim Z., about consumers wanting more Keynesian policies. BUt I’m not convinced of it. Most people don’t believe the stimulus created more jobs. THey’ve believed the right-wing claptrap about the stimulus not helping, but just running up the deficit. Doesn’t sound like people are seeing things through a Keynesian perspective on that.
When I go onto the radio tomorrow morning, I am not expecting the locals to express any allegiance to, or understanding of, the Keynesian analysis of insufficient aggregate demand and its fiscal remedies.
July 21st, 2010 at 1:11 pm
College students, even those with Master’s Degrees, do NOT, imho, have a decent amount of exposure and awareness about Keynesianism. The highest expectation for the typical master’s in business from a private or Liberal Arts college is that you know Keynes mostly as the champion redistributionist for FDR. And he’s got his place in history but that’s a bygone era and financial markets are way more complex today. But actually teaching that history instead of expecting perfunctory results is exactly what’s missing I guess.
July 21st, 2010 at 1:36 pm
A question for you, Jim Z.
Reading Krugman’s blog for the past couple of years, I’ve gotten the impression that major parts of the economics profession abandoned Keynesian ideas, rejected them. Is that so? Was there some empirical basis for their rejecting what had been so prominent an idea in the economics profession?
I also get the impression that a lot of people who are not just uneducated, not just right-wing, not just Obama-haters who want the economy to go down the tubes for their own economic purposes, but who are serious and in responsible positions not just in America, have a view in which the need for stimulus is rejected and the need to rein in deficits in paramount.
But I’ve not seen any credible argument to support that view over the Keynesian view that Krugman promotes, and that I also promote, having understood such issues in Keynesian terms since my father first taught me about these ideas when I was 13 or 14.
Am I missing something? Is there a credible argument, a serious argument, or even just a plausible argument, for cutting back government spending at this point, out of fear of the deficit?
I came across a guy on MarketWatch making a case for a double-dip in this recession, and throwing in the line, “It makes no sense to “rescue” the economy by having politicians borrow and spend trillions of dollars.” He’s from the business world.
And so I wonder: is there a good body of empirical data that demonstrates clearly that Keynesian stimulus actually works, has worked, etc.?
And if the answers are that yes, there is such evidence, and no there isn’t any credible anti-Keynesian argument for how to deal with the present situation, and no, there wasn’t any compelling reason for Keynesian ideas to go out of fashion in the economics profession… then what the hell is going on– in the economics profession and in the wider realm of thought in poltiical economy?
July 21st, 2010 at 2:29 pm
The “Chicago School” captured a certain portion of the economics profession based on a series of assumptions but not based on empirical studies, but rather political leanings. I have referred to this phenomenon from time to time here, but as it is mostly an inside debate, not that interesting to anyone.
The Chicago faction couldn’t stomach an economic world that implied that any public action could be superior to laissez faire. It felt that way whether we were talking about the macroeconomy, or in microeconomics (i.e., dealing with a particular market). It plied its trade extensively in Latin America, with the result that that continent experienced a couple of economic lost generations until finally a few countries began rejecting it, and unsurprisingly to Keynesians, those countries finally experienced some growth after decades of poverty under the Chicago approach.
Keynes had no problem with monetary tools used correctly, except for when interest rates were already so low that they had nowhere to go (as is the case now). In such a case, Keynes said that it was unlikely that an economy would revive itself on its own any time soon. Both short and long term rates are at historic lows, so they are not producing stimulus, nor are capital markets (for long bonds) alerting to any inflation danger, as the ten-year Treasury is just below 4%.
Our problem right now is that of a demand crisis. No one is motivated to spend because in the case of consumers the middle class is in freefall and doesn’t have either the assets nor the incomes to enable it. In the case of businesses, they are not spending to expand or build inventories, becausae they are not seeing sales rebound. That is the classic Keynesian dilemma. It has been exacerbated now because of the unprecedented consolidation of both wealth and income to fewer and fewer people. It takes income to enable spending, and we have gotten ourselves into a fix where in order to turn things around, we’ve got to put people to work, and provide substitute income until they do obtain jobs (i.e., unemployment).
Plenty of studies show that there is a multipilier effect when there is forced spending in such areas as infrastructure building, food stamps, unemployment compensation etc., that is, a dollar spent results in multiple dollars of total economic activity (because the additional people and companies employed experience additional rounds of income and spending, etc.). Tax cuts have almost no stim. effect as long as people fear for their jobs.
The economy is a circular flow wher a dollar spent by one person is a dollar earned by another, then repeats. If one regards the economy, rather, as some sort of zero-sum game where a dollar spent is forever lost to mankind (that is the thinking behind “finding a pot of gold nder the White House,” for instance), this is a serious misunderstanding of an economy.
Borrowing in the short term in order to force such spending makes sense especially in an era when the interest rates that the government must pay on the borrowed money are ridiculously low as is the case today. In any case, if such spending does not occur and we slip into deflation, which Krugman and now even the Wall Street Journal believe is an imminent possibility, then the economy will collapse and it is much harder to reverse deflation than inflation.
A growing economy is able to pay off debt in later years, whereas an economy that has permanently shrunk never will; debt actually increases when fiscal austerity is attempted.
In the Hoover administration, austerity resulted in a huge increase in total debt as a percentage of GDP, whereas under FDR the debt stabilized and began to fall because the economy responded to his policies, with more private economic activity going on.
Our problem today, as predicted by any number of economists, was that (a) our Feb. 2009 fiscal stimulus was too small (by a factor of as much as 4), and we have more than shot our wad on monetary policy (despite pumping $14 trillion in liquidity, the money supply has actualy barely budged – this is a classic example of pushing on a string, where you can flood the banks with cash but that money doesn’t find its way to any real economic activity, making, selling, buying, etc.).
Not only does deficit spending work, it is now our only tool, now that monetary tools have stalled out.
July 21st, 2010 at 2:38 pm
Is it possible that more and more of us here are acknowledging the myths of the “endless more” and “technology will win the day,” the trappings of which are in-our-faces evident in The Gulf, and more and more apparent with the machinations of the inbred political class? I can’t help but wonder after reading this piece & the letters.
July 21st, 2010 at 5:00 pm
“The “Chicago School” captured a certain portion of the economics profession based on a series of assumptions but not based on empirical studies, but rather political leanings. I have referred to this phenomenon from time to time here, but as it is mostly an inside debate, not that interesting to anyone.
“The Chicago faction couldn’t stomach an economic world that implied that any public action could be superior to laissez faire. It felt that way whether we were talking about the macroeconomy, or in microeconomics (i.e., dealing with a particular market).”
We see the fingerprints of this extreme school of thought almost everywhere within the business community today. I think it’s a very interesting matter how this philosophy has dug into the psyche of our society and managed to downplay Keynes. An important part of our history that’s been denied its due respect.
July 21st, 2010 at 5:11 pm
The very fact that this extreme school of thought is readily considered the best kind of economy for our country compared to the slightly less than total laissez-faire philosophy operating today, says a lot.
July 21st, 2010 at 6:49 pm
Keynesian smugness is a joke. The economy has been pumped with credit for a generation at least. The banks profited until the debt could not be re-payed. Then the debt was shifted onto the government’s ledger. That ‘s privatized Keynesianism – the banks make a killing.
The plunge in confidence is appropriate as the public is catching on to the con. Hope and change is just more BS.
Through hot war, cold war, class war, and terror war, crapitalism just ratchets up the risk and contempt.
Whether “technology” will deliver, it’s clear it has become an addiction and crapitalists are waiting for their next fix. Techno-optimists even have their own rapture – the singularity being the most delusional.
Capital accumulation via the oil bubble is about done. The scam cannot be terminated because it will not be undone.
July 21st, 2010 at 7:32 pm
It’s far from clear from the remarks that follow that statement that you have the faintest idea of what Keynesian economics is about. But, regardless of the topic, you are consistent in finding it an appropriate target for your bitterness and scorn.
July 21st, 2010 at 7:53 pm
On the contrary, you do not understand what I mean by Keynesian smugness.
I am consistent in scorn for Keynesian economics? Hardly. Don’t you mean I am consistent in my contempt for crapitalism? It’s so deserving of it too.
July 21st, 2010 at 8:11 pm
Then enlighten us about what you meant by “Keynesian smugness.”
It seemed reasonable to imagine that the second sentence (“The economy has been pumped with credit for a generation at least”) was intended as a further development of the assertion in the first sentence (“Keynesian smugness is a joke”). And that imagined intention –and the other statements that followed the first two– appeared to be evidence of your not understanding, or misrepresenting, Keynesian thinking.
But if your opening has little to do with the statements that follow, please do explicate the joke.
July 21st, 2010 at 9:05 pm
Deficit spending is what most if not every entreprenuer begins with.
Spending money one doesn’t have (borrowed) properly used to create
the means of production (or service) where there is a potential market is how we begin (often from nothing)
In FDR’s day America had he natural resources, the means of production and the market and, as he said, the debt we are creating we only owe it to ourselves.
The problem with increased deficit spending today, we must import much of our resources, we have farmed out the means of production ( to a great extent) the potential market at home is already debt poor, and we are terribly in debt to foreign interests which already limit the U S as a sovereign power- now dependent on military power to preserve our sovereignty (such as it is).
Run all this by Mr Keynes notions and see what you come up with.
What Washington has been doing is a copy of what millions of citizens have been doing . . who are now bankrupt.
Say it isn’t so.
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At this point Harvey Chase comment may be more on target. The election season is upon us now, and possibly more and more people are having to recognize that NEITHER PARTY HAS THE ANSWER !
(and now must admit the politicians have sold out and are in it mostly for themselves with the same attitude as the citizens themselves.
Surprise . . surprise . . amazing, aren’t it?)
July 21st, 2010 at 10:06 pm
Andy,
I was interested in your use of the words passivity and impassivity. As I was unsure about the meaning of the latter word, I explored further.
It occurred to me that the connotations of these words might illuminate some aspects of the Obama we are contemplating.
First, the dictionary…
im·pas·sive
? ?
–adjective
1.
without emotion; apathetic; unmoved.
2.
calm; serene.
3.
unconscious; insensible.
4.
not subject to suffering.
—Synonyms
1. emotionless, phlegmatic, stoical, indifferent, undisturbed, unperturbed. 2. tranquil, unruffled, composed. 4. unaffected; unflinching.
And then the thesaurus:
Main Entry: impassivity
Part of Speech: noun
Definition: apathy
Synonyms: aloofness, coldness, coolness, detachment, disinterest, dispassion, disregard, dullness, emotionlessness, halfheartedness, heedlessness, incuriosity, incuriousness, indifference, insensibility, insensibleness, insensitivity, insouciance, lassitude, lethargy, listlessness, passiveness, passivity, phlegm, stoicism, stolidity, stolidness, unconcern, uninterest, unresponsiveness
***
Related to “impassivity”…
Main Entry: calm
Part of Speech: noun
Definition: quietness, composure
Synonyms: calmness, dispassion, doldrums, hush, impassivity, imperturbation, lull, patience, peace, peace of mind, peacefulness, placidity, quiet, repose, rest, restraint, serenity, silence, stillness, stoicism, tranquility
Antonyms: agitation, anger, madness, restlessness, storminess, terror, turbulence, violence
***
Main Entry: indifference
Part of Speech: noun
Definition: absence of feeling, interest
Synonyms: alienation, aloofness, apathy, callousness, carelessness, cold shoulder, cold-bloodedness, coldness, coolness, detachment, disdain, disinterest, disinterestedness, dispassion, disregard, equity, heedlessness, immunity, impartiality, impassiveness, impassivity, inattention, inertia, insensitivity, insouciance, isolationism, lack, lethargy, listlessness, negligence, neutrality, nonchalance, noninterference, objectivity, stoicism, torpor, unconcern, unmindfulness
Antonyms: caring, compassion, concern, feeling, interest, involvement, regard, sympathy
July 21st, 2010 at 10:07 pm
It is certainly interesting that he did not strike people as either passive or impassive during the campaign.
July 21st, 2010 at 11:21 pm
As Andy states, there is/was nothing Keynesian about the Bush tax cuts and deregulatory nightmare that led to our fiscal mess beginning in 2001, and the financial breakdown beginning in 2007, the two of which recessions have been by far the worst on record, the longest and the deepest, respectively, since the great depression – see:
http://panzner.typepad.com/.a/6a00d83451591e69e20120a7c506c1970b-800wi
Keynesian policy is probably all we have left to begin corrective action, however.
It has been the abandonment of Keynes by the plutocracy and its political minions that bear responsibilty for such world-wide failure.
If we allow “austerity” to rule as seems to be where we are headed, hang on for a second great depression. Hope I’m wrong.
July 21st, 2010 at 11:25 pm
We ought not ignore the message that Harvey Chess posts above, however. I think that he’s got some valid and difficult points that we must confront. For what it’s worth, Congress tried to do a tiny bit of it by earmarking some of the stim. for alt. energy, but way too little.
July 22nd, 2010 at 2:49 am
Keynesians protesting the stupidity and viciousness of austerity flatter themselves that they are on high ground. They are not.
For one, as I said, privatized Keynsianism has ended up with massive public debt – and yet here we are, in the Greater Depression. The difference between privatized and public Keynesianism is the “market” gets to chose what it wants for the debt, not the government. The funny thing is that no one wants to touch that because they’ve all been brainwashed or at least fear the taboo (to mention that markets are not most beneficial).
The problem is not credit for growth. The problem is credulous “growth”.
July 22nd, 2010 at 3:50 am
“Privatized Keynesianism”?
Your “On the contrary” notwithstanding, I’m back to suspecting I was right in the first place about whether you have any idea of what you’re talking about in your derision of Keynesianism, Keynesians, or Keynesian ideas.
July 22nd, 2010 at 3:50 am
The closest word at that point was that he seemed “unflappable.”
July 22nd, 2010 at 3:55 am
In the public realm, a crucial distinction –as my father taught me many years ago– is between spending that’s INVESTMENT (like the Interstate Highway system) and spending that’s mere EXPENDITURE (like the things we just consume as a nation, like armaments).
There are times, like now, when expenditure is valuable for stimulating the economy. But most of the time, it’s important to regard differently the spending that leads to subsequent increased economic returns (as the entrepreneurs are attempting to do) and simply a “buy now, pay later” approach to getting our goodies.
July 22nd, 2010 at 6:37 am
In Buddhism, “the world” means society as well, as distinct from the monastery. It refers to the material world, and to worldly gain such as wealth, reputation, jobs, and war. The spiritual world would be the path to enlightenment, and changes would be sought in what we could call the psychological realm.
We have a worldly politician in Mr. Obama. As Pres. of the U.S., as with all agreed upon worldly high ranking American statesman, he becomes otherworldly. Thus, why we see perhaps 40% of the nation who will ALWAYS blame him for something whether it’s age, education, or just being a black president. If only half of the remaining 60% (those without tattered souls and/or addle-brains) come together and organize around this great American visionary it’ll be a sweet, sweet thing.
July 22nd, 2010 at 9:45 am
The reference is not the venal Bushit administration, Jim Z. The past two generations “growth” have been financed by private credit. When the whole kaboodle crashed, the debt was foisted on the public ledger.
That’s privatized Keynesianism.
The reason the plutocracy abandoned Keynes is that they privatized it and then that failed. As I explained above, their blind love of the market means they won’t trust the government to do it right.
We aren’t going through this foolish repetition just because they’ve forgotten their Depression lessons. Theirs may be a stupid ideology, but your TINA argument does not move them. Zizek joke comes to mind: Offered a wish that the neighbor will receive double, the plutocrat will have one eye taken out.
BTW, ABS, there seems to be some confusion. Isn’t an expenditure which stimulates the economy an investment? The reason “producers” abandon “consumers” is not some confusion about differentiating investment and expenditure. The reason is they don’t see any way to continue the transfer from expenders to investors.
July 22nd, 2010 at 11:41 am
Credentialed confirmation: “Privatised Keynesianism: An Unacknowledged Policy Regime”.
Apology accepted.
July 22nd, 2010 at 1:09 pm
The term “privatized Keynesianism” is new to me, and now I see that it is not something just born on this thread.
Whether the name —with its implication of an organic and meaningful connection with Keynesian economic ideas– is apt, or a misnomer, is not clear to me.
July 22nd, 2010 at 1:28 pm
This is a very interesting take, I thought, on Obama’s platform or “bully pulpit” in the NYTimes “Week in Review” section, Nov. 2008, right after the election.
http://www.nytimes.com/2008/11/23/weekinreview/23stolberg.html?pagewanted=1&_r=1
I’ve highlighted the last few paragraphs:
*****************************************
“Inside the transition White House, meanwhile, Mr. Obama’s aides are weighing just how interactive the new president can be. Will he host Internet news conferences on WhiteHouse.gov, allowing the public to e-mail questions or propose topics for his State of the Union speech? The first rule of White House communications strategy is that the president must keep control of his message, but the first rule of the Internet is freedom to dissent. Advocates like Ellen Miller of the Sunlight Foundation, which promotes government openness, are talking about wikis, online collaborative chats and comment boards moderated by the White House.
“He showed his sophisticated use of technology in the context of the campaign,” Ms. Miller said. “Nothing less than that is expected in engaging citizens in collaborative government.”
Already, there are hints of conflict. Candidate Obama was open enough to allow his supporters to wage an online revolt — on his own MyBarackObama.com Web site — over his vote in favor of legislation granting legal immunity to telecommunications firms that participated in the Bush administration’s domestic wiretapping program. But President-elect Obama did not provide a forum for comments on his YouTube radio address, prompting grumbling among some in the netroots crowd, Ms. Miller among them, that YouTube without comments was no different from radio.
For Mr. Obama, the challenge in rewiring the bully pulpit is to keep the netroots crowd with him as he employs both his natural communication gifts and his technological savvy in service to his legislative agenda. How it turns out will determine whether the Internet candidate really does become the Internet president.”
****************************************************
What happened with this excellent ‘ace in the hole’ of his?
July 22nd, 2010 at 8:50 pm
Duane, while there are those who feel free to glue Keynes’ name to any number of completely non-Keynesian ideas, practices or policies (hey, the guy’s been dead for 64 years, so he can’t defend himself), I think I’ll stick to Keynes’ actual writings when I invoke his name.
July 22nd, 2010 at 10:00 pm
Well, … I don’t pretend to know what caused the unusually large dip in the confidence, but I think it has to do with a lot more than leadership, just as there was more behind FDR than mere leadership. He actually did things (eg WPA) to ameliorate the misery by providing jobs and building/repairing tangible public resources everyone could see and use. Now, after a ridiculously long “debate” the unemployment benefits have been extended for the second or third time, so at least people won’t starve too much while they wait to be rescued by the mythical Invisible Hand. But in the meantime the WPA is dead as the dodo and the only government agency still hiring in significant numbers is the Army. This is sinking in.
The recent graduates, high school & college, are meeting fierce difficulties trying to make a toe hold in the labor market with their first job because there just aren’t any. Their parents aren’t blind to what they see happening to their kids floundering instead of fledging. They’re reminded daily is that this new generation is the first in living memory that expects to do worse than their parents’ generation and are seeing their diminishing expectations realized. This too is sinking in.
The mess in the Gulf is sinking in too. Not just the environmental calamity, but they hear news stories about how hard its getting to find fresh oysters, and they can’t understand why that’s a big news story when they see a friend, or a family member, or maybe even themselves, living in a car under a bridge now. Its sinking in that The Media is divorced from reality and they’re being divorced from society.
As if that weren’t enough, a “popular” solution to the social security problem these days is to extend the retirement age to 70. So the labour market that can’t sustain the numbers it has now will be asked to absorb tens of millions more. THey may not know Keynes, but they’re coming to understand that their leaders are ready, willing, able, and, in some cases, eager to feed them to the wolves. This too is sinking in.
Plan A isn’t working so well and there is no plan B. People are noticing that too. [this is no small thing. for all intents and purposes the progressive movement is shut out of all serious public discourse and all anyone hears are more or less similar variations of one strategy and one purpose toward one end. the total lack of imagination, variety and creativity dedicated to solving our current problems is appallingly obvious to the most casual observer. the dull unrelenting sameness of all of the "different" plans even gives me the jimjams.]
I’m not an economist, but these realisations should depress everyone’s confidence. My question is, why did it only go down 9.5 points? Why are they so optomistic?
I think confidence is falling simply because people are finally understanding at a deep emotional level that there is nothing out there to be confident in. Its like we’re living through Kübler-Ross’ 5 stages of grief for the moribund Republic. 2000-2002 was the Denial phase. 2003-7 was the age of Anger. 2008 – 2010 is the season for Faustian bargaining. Now we’re down to the Depression thing.
The solstice is past, days are shortening and winter is coming. When the wind is still you can fancy you hear a distant howling. Better button up, Acceptance is just around the corner.
July 23rd, 2010 at 8:27 am
That’s pretty feeble, Jim Z.
July 23rd, 2010 at 9:18 pm
M M, That’s a real round-up of the scene.
It’s really scary to realize that the current course leads to worse than nowhere for many people.
I think the consumer confidence index (if the poll is at all accurate) tells me that the people who still feel secure are still spending more freely than you would expect partly to deny (or insulate their thinking against) the harsh reality overtakling their fellow Americans.
And some probally feel pretty good that they have made the right decisions (so far) and not like those other folks.
July 24th, 2010 at 9:52 pm
First, I think Masked Marauder’s right-on with the explanation. I think we are having an intuitive feeling that poisoning the Gulf doesn’t end with the Gulf. And our kids are home for summer with no summer jobs. Etc.
Also:
Jim Z. Says:
July 21st, 2010 at 2:29 pm
The “Chicago School” captured a certain portion of the economics profession based on a series of assumptions but not based on empirical studies, but rather political leanings. I have referred to this phenomenon from time to time here, but as it is mostly an inside debate, not that interesting to anyone.
I disagree that it’s of no interest to anyone outside of econ academia. this is very important, as the Chicago Boys have taken over the world and are trying out their economic theories over and over again, and each time they fail, instead of learning that the theory is wrong, they “learn” that you have to apply the shock and awe harder and meaner. They are literally destroying civilization in a name of an unproved and unprovable ideology.
Keynesian economics works, Chicago School works in only one way: it funnels money to the rich and ruthless.
Andy, please please read Naomi Klein’s The Shock Doctrine!!! The rest of you too.
One of the tenets of the Chicago School is they want no regulations: think about that. Who would want no regulations? People who, if there are regulations, would be outlaws! These guys are pirates! They want us to be slaves, but “modern” slaves, so they don’t have to feed or house their slaves.
July 25th, 2010 at 12:45 pm
This post is very disappointing.
Recently Rachel maddow did a segment on the Obama paradox – why after accomplishing so much in a short time, he doesn’t get much credit for it.
Then she “solves” the paradox by blaming Obama for it.
I’ve been arguing for 2 years that a primary cause for this are progressives who criticize him bitterly and only support him tepidly. Rachel takes no responsibility for depressing her viewer base. I can detail the exact same thing with Jon Stewart, Bill Maher, Ed Schulz, Paul Krugman, Adrianna Huffington, and blogs like yours, Dr. Shmookler.
You all seem to want Obama to do all the heavy lifting, and then in stead of helping, you all add to the weight with criticism that’s depressing and praise that’s tepid to medium?
Who is rallying the dems today?
Should the president be partisan-in-chief? Where are his tireless defenders? George Bush had an army of skilled (albeit deceptive) enthusiasts on TV, and the GOP still does. Partly this is caused by the media’s selection of who they choose for hosts and guests.
But evil flourishes when good men do nothing, and the progressives I see are doing worse than nothing.
I have long been expecting this to change as the election gets near. And I want to push as hard as I can for that!
July 25th, 2010 at 3:28 pm
Partisan wailing is, at one and the same time, the expression of real suffering and a protest against real suffering. Partisanship is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.
July 25th, 2010 at 3:33 pm
kim, There Is No Alternative to the Chicago School. Keynesianism is dead.
July 25th, 2010 at 4:16 pm
Whatever that means, when the most recent winner of the Nobel Prize in Economics, who also commands some of the choicest real estate in journalism, is an avowed and fervent Keynesian.
July 25th, 2010 at 5:22 pm
Duane, your comment can be posted when you’ve resubmitted it with a full attribution –who said it and where it was said– for that long quotation that makes up most of the body of your submission.
July 25th, 2010 at 5:43 pm
I suppose you are referring to “the Mick Jagger of political/economic punditry,” who is not the most recent winner. In any case, he is a professor of Keynesianism, not an implementer. Like I’ve said before, Krugman’s credibility is suspect.
The following commentary by “IndianJones” on Krugman’s “Addicted to Bush” column gives a little insight into his support of Keynsianism and why Keynsianism is dead (see second comment).
By the way, the work of one of the most recent Nobel winners is much more attractive. Elinor Ostrom showed that the tragedy of the commons is an exaggeration. That’s some much more fundamental debunking that we are in desperate need of.
Thanks for posting this.
July 26th, 2010 at 7:10 am
Keynesianism is the way out of this? Krugman should have known this was coming, in fact he was told this was coming and yet the answer he has is Keynsianism. Ha-ha. That choice piece of real estate is what is preventing him from giving credible answers.
July 26th, 2010 at 7:48 am
I continue to have a strong impression, Duane, that you simply don’t know what you’re talking about on the subject of Keynesianism.
If you actually do have some point of genuine criticism, here’s a challenge for you:
1) Write a paragraph in which you articulate the essential thesis of Keynesianism, specificially as it pertains to the ideas being discussed here, and also by Krugman, having to do with the use of fiscal policy to help correct against the amplitude of the swings of the business cycle. (If you don’t think that this is what “Keynesianism” actually is, then write a paragraph that puts forward in a coherent way the Keynesian idea as you understand it, and if it is much different from that it would behoove you to provide some supporting material that shows that what you are saying actually is meaningfully connected to what Keynes himself had to say.)
2) Then write a second paragraph that provides a clear argument for why you think that Keynesianism, thus understood, is not worthy of respect and deserves the scorn that you have been exerting yourself here to pour over it.
As I said, I have not been able to discern in your various supposedly anti-Keynesian arguments any good evidence that you understand what Keynes had to say, or what Krugman has been arguing on Keynesian grounds about these issues of insufficient aggregate demand, fiscal stimulus, the dangers of a deflationary spiral, the current high unemployment rate, etc.
July 26th, 2010 at 11:10 am
kim, There Is No Alternative to the Chicago School. Keynesianism is dead.
Duane — If you are right about this, the whole world is dead. the rich people will live a bit longer than the poor people, but not long.
July 26th, 2010 at 12:43 pm
kim: “If you are right about this, the whole world is dead.”
No. Many may die and suffer drastically reduced standards of living. This is the hope of the elite. The whole world could die, but theirs is the negotiation between mortal chaos and extinction. For that, they expect you should be grateful.
And even if I am wrong that Keynesianism is dead, still the whole human world could be dead in relatively short order. There are many other hurdles and they should receive priority over economic illusions.
Of course, the elite were always ready to kill before they were ready to save. These decisions should be taken out of their hands.
July 26th, 2010 at 1:17 pm
Again, Duane, long quotations without identifying the source are not accceptable.
July 26th, 2010 at 2:16 pm
An example of the way the Chicago mentality continues to dominate political narrative even today is that most people think, from hearing and reading it said a thousand times, that business is wary of investing and hiring because of “uncertainty” about policies emanating from Washington. Code language for “Obama and a Democratic Congress may allow Bush’s tax cuts for the wealthy to lapse” thus affecting their portfolios. Some are even going so far as to claim that the rich will experience the income effect with the result that they’ll cut back on their spending on consumer goods.
What is laughable about this is that we have seen, in just three years, the decimation of the middle class through the loss of asset value (their houses and their retirement money) and the doubling of the unemployment rate. Funny how the income effect seems only to apply to the wealthy and no one else.
But these “rational behavioral, intelligent market adherents,” defender of the wealthy, have been nowhere to be found as to what caused the bubble and its collapse. I’ve often mentioned before such as economist Robin Hahnel, who laid out the likely prospect of a financial meltdown in two of his books (1999 and 2003) and the deafening silence that followed his message to the new world of unregulated financial capitalism. Readers here still never heard of him? Maybe that’s why. Not Chicago enough.
Why are businesses not investing and hiring? Because the former middle class no longer has any money to spend on anything. That’s called sales, for anyone who bothers to learn about the macroeconomy’s circular flow of goods, factors of production, sales and income. Jobs are produced by the damand for goods and services, which tell business that there is any reason to hire and produce. And demand is driven by incomes (as Keynes wrote).
The money supply, by the way, despite all the monetary stimulus, has actually shrunk; we are pushing on the proverbial string. Exactly what Keynes said would happen when there was an external financial shock, interest rates fell to zero (the Fed Funds rate is now at 0.25%) and demand continued to stagnate.
No mystery here – why in the world would business take the first step when demand is dead in the water? How can austerity possibly turn around an economy that features deflation, falling asset prices, rising unemployment, a zero-bound interest rate, Europe on the verge of contraction (15.5% of all US trade is with just six EU nations), and a Congress that has given up on the economy?
Regarding taxes, they are at their lowest point as a % of GDP since we’ve been keeping records. Yet the supply siders, the Chicago school and the tea party say that the remedy is to lower taxes still. Problem is, in our history and that of other nations, lowering taxes leads to budget deficits, not an expanded economy. Both the Reagan and Bush-II years demonstrated that clearly. Austerity will increase deficits, not reduce them.
The economy is on a downward ratchet that the austerity bunch is intent on tightening until – what? how high an unemployment rate, how many vacant houses on banks’ balance sheets, how small the size of our middle class, how many extended families under one roof – will satisfy them until they finally admit to the bankruptcy of their 35-year policy stranglehold on US policy? Chicago all we have left? That could have come from the lips of Margaret Thatcher, only a few decades late. Chicago is all we’ve been trying, and it”s failed catastrophically.
July 26th, 2010 at 3:02 pm
Keynsianism in A Nutshell
From Wikipedia:
Deflation is the short-sighted preference of micro-economists (businessmen) and unless there are new centers of accumulation, a macroeconomic deflationary spiral will set in.
To prevent that, Keynes’ “government policies” should incur the accumulation of public or government insured-debt such that repayment occurs once sufficient centers of accumulation get established.
Krugman has argued that Keynesian policies have been neglected since the ’70?s on various accounts and must be revived since we are again under threat of deflationary spiral.
The Reasons Krugman’s Neo-Keynsianism Should Be Scorned
Keynsianism developed a situation where the new centers of accumulation were insufficient to provide robust wages and masked (to wage-earners) their deflation. I.e. the macro-economists incorporated a preference for “producers” over “consumers” so that wages appeared to rise in order to keep “consumer confidence” up. Jiggering the CPI, promoting home ownership as an “investment”, pushing the stock market, etc. where psychological means of jamming the public understanding that they would work harder for the their rewards. Propaganda concentrating on “jobs” rather than real income jammed the public understanding that offshoring was destroying domestic purchasing power.
Understanding of the decline in consumptivity (the consumables obtained per labor unit) growth was also jammed in the extension of credit. The preference for debt acquisition is controlled by the manipulation of expectations and more easily than real employment. The arbitraging of these expectations became an industry in itself and again, focused on short-term gain. When this “virtual” industry’s centers of accumulation crumbled, a huge debt was transferred to the government to stabilize it.
Contrary to Krugman’s portrayal of lapsed Keynesianism, it’s techniques were applied, even privatized, to perpetuate a reduction of consumptivity rather than grow production. The other difference being that the public acquired the huge debt at the conclusion. In actuality privatized Keynesianism was a profit center for capital and it has now failed.
The Keynesian bridge to the next accumulation regime has been used up. Krugman hawks his religion but the skeptics in the know aren’t buying. Krugman would have to renovate Keynesianism, not resuscitate it, and that he is conspicuously failing to do.
Postcript
More than you asked for and maybe not as clear and firm as you’d like, but there’s plenty to discuss, should you so chose.
July 26th, 2010 at 3:18 pm
OK, Duane. You’ve supplied the source for the part that explicates Keynesian theory.
But then the long passage that in the first go-round was clearly a quotation from somewhere is in this second go-round presented as if it is your writing, which I’m pretty sure it is not.
So how about a third go-round, where you provide us with the who and the where –including the link– for this critique?
July 26th, 2010 at 3:40 pm
Jim Z.,
The “failures” of the “Chicago School” are not proof of the viability of Keynesianism. Neither are it’s immorality or inequality objectionable to capital.
Capitalists will pursue negative accumulation as long as they can lose less than others. Thus the mass will do the most losing while the few, the least.
Once you own real assets, the government is the primary threat and taxes the primary expense. If you can offload those expenses and even better, infantilize the government, you’ve hardened yourself to depreciation.
The fundamental problem stems from lack of opportunities for accumulation; Keynesianism can only delay collapse until a new accumulation regime arises. If that hope is exhausted, however, Capital will oppose the “convalescent aid”. It will rather smother capitalism and wait for it’s resurrection another day.
July 26th, 2010 at 3:44 pm
Sorry Andy, you’re always misunderestimating me. That is the real deal. And if I took some more time, maybe you be nominating me for a Nobel prize (ha-ha.)
July 26th, 2010 at 3:54 pm
By “misunderestimating,” are you saying that the passage that is presented as a quotation in the first go-round is actually composed by you?
July 26th, 2010 at 4:00 pm
The Wikipedia quote is a Wikipedia quote. The rest is de moi.
July 26th, 2010 at 4:10 pm
Duane, as I have mentioned in the past, your posts, including the ones immediately aboove, are completely devoid of economics.
July 26th, 2010 at 4:57 pm
Once you own assets, your primary threat is a collapse of demand for the goods and services that assets make possible and produce. The Chicago fairy tale that taxes are the enemy of economies is at the heart of their failure. Capitalists (or anyone else) behaving in a contractionary way, and/or pursuing public policies that are contractionary, may, in their narrow view, believe that their actions will rescue an economy or even make themselves personally better off. However, this is incorrect in an economy with the symptoms that we have today. Austerity behavior shrinks economies and destroys wealth. It’s an example of something that (in Econ. 101 you would have learned) called the fallacy of composition, in which seemingly rational behavior at the micro level results in loss at the macro level, AND results in the failure of the individual pursuing such actions to achieve his/her intended objectives.
While some are concerned about the size of the debt that is incurred while enacting Keynesian measures, history has shown that the resulting growth in the economy is more than sufficient to repay the debt during the growth phase to follow. The US economy would be more than sufficiently robust to cover such debt, but more importantly, if we do not enact such policies, we are guaranteed to sink both further into debt, and for our economy to shrink continuously with no hope of ever covering the debt that will rise as a result of austerity.
The Wall Street Journal and Paul Krugman are both now raising concerns that we are now creating a permanently higher level of unemployment (structural unemployment) that will, very long term, reduce US prosperity.
Duane, you also conntinue to attach Keynes’ name to all sorts of stuff that has nothing whatsoever to do with Keynes or his writings or policy advice. Again, while you are welcome to call anything whatever you want, but it’s becoming comical.
July 26th, 2010 at 5:03 pm
Funny, Jim Z. The one at 3:02 includes a Wikipedia quote. Are you saying that is devoid of economics too?
And even if you aren’t, I’d say you’ve got a problem here because the authorities have clearly lost most of their credibility. Are you so ready to throw yours in with theirs?
July 26th, 2010 at 5:08 pm
Oh, and please forgive the imposition my theories may be to everyone. They haven’t cost you more than the time it takes to read them (unless you are intrigued enough to address them.) The theories that the majority of people will never read are costing them big time.
So have a second think, Jim Z., and give it your best shot.
July 26th, 2010 at 6:12 pm
Jim Z. has expressed his critique of Duane’s rejection of Keynesianism in one set of terms. Here’s how I would put it: when I look at the brief explication of Keynesianism (from Wikipedia, or from what I said) and then look at what Duane has submitted as “The Reasons Krugman’s Neo-Keynsianism Should Be Scorned,” I can’t see how the second functions as a critique of the first.
If there really IS a relationship between the two, it is not visible to me.
July 26th, 2010 at 7:38 pm
As I read Duane’s post of 3:02 (the one with the Wikipedia quote), it says a bunch of stuff about K’s economics showing that it works, and then he concludes that it doesn’t work. There’s a disconnect there for me.
July 26th, 2010 at 9:58 pm
In reverse order, Jim Z.
I will not be deterred by the mirth from nor misunderstanding of my Keynesian attributions, thank you very much.
The WSJ and PK are right in their concerns.
I will grant you that history has shown this. But for one, I am arguing that in this past phase history does not show this. The past “growth” and consumer stimulus has produced today’s whopping debt. Thus, capitalists are at a loss to believe that more debt and consumer stimulus, especially in the government’s hands, will produce growth to reduce the debt. I agree that if we chose austerity, “we are guaranteed to sink both further into debt.” However, I do not agree that we get the same conclusion if we do not chose Keynsianism. Some un-discussed alternatives would eliminate the debt and free the government to pursue or force the pursuit of a healthier, though lower-productivity economy.
A clarification. I misstated that taxes are the primary expense for real assets. I meant that for real property, property takes are a major expense. For capital assets you are correct that the primary threat to them is collapse in demand for the products they enable.
Assets extracted by brokers and hedge fund managers, for example, are not all plowed back into production. They are diversely invested and some horded for later consumption or for progeny. If they feel they can hold on to more assets in the face of deflation, that they have more strategically hedged against inflation than “competitors” (as some capitol assets are more resistant to deflation, e.g. health care), then they are not motivated to counter deflation because their position is advantageous compared to competitors. Even if they were to think far ahead, they imagine that their holdings will be more than sufficient to maintain their status (and maybe even increase their relative power as those below lose more.)
Shifting the tax burden can be relatively beneficial if the consequent reduction in purchases reduces your income less than the tax reduction, whether the economy is growing or not.
Likewise, austerity behavior, though it shrinks economies and destroys “wealth”, can be differentially beneficial today. If macroeconomists hold little hope for the reasons explained above, then the capitalist market preference is austerity. This is not a fallacy of composition because they have taken into account the macroeconomic considerations and do not foresee a discrepancy between objective and outcome.
July 26th, 2010 at 10:24 pm
kim, simply:
Keynesianism takes public debt to buoy the economy until growth can repay it.
Privatised Keynesianism took private debt to stimulate the economy until growth failed, then made the debt public.
The latter’s failure to stimulate enough to repay, reflects underlying limits to the economy. The macroeconomic options have been exhaustively explored and there is little hope that more debt will produce any other outcome.
July 26th, 2010 at 10:56 pm
Andy, the synopsis of the points:
a) I reject Krugman’s argument that Keynesian policies have been neglected since the ’70′s, because they have been effectively applied via private credit.
b) These have not stimulated the economy enough to repay the extended credit. There is very little confidence that the government would have been able to improve on this performance and Capital doubts more public debt will. Thus Capital strongly believes Keynesianism won’t work (and neither do I.)
If it fails, the public debt will grow and will only eat into Capital’s assets to feed the disadvantaged. Instead, Capital prefers a starvation diet but will accept a bare maintenance one.
July 27th, 2010 at 7:37 am
The notion that this thing you’re calling “privatized Keynesianism” –using private debt to stimulate the economy, then making the public pay when the debts go bad– provides a basis for critiquing what Keynes actually recommended is just nonsense, Duane. Sorry, but it is.
I believe that it is accurate to say that the economy was artificially inflated –e.g. with the policies of the Fed during W’s presidency– but goosing up the economy during times of growth is NOT using the Keynesian approach. Keynes would never have said that the way to run an economy is to keep it on steroids in good times and bad.
It seems that you have some reasonably sound criticisms of some of the ways our economy has been operated. And this morning’s comments from you are a good deal more lucid than previous ones– so I salute you for that. Government policy has been a part of what’s created this mess, most especially the policy of allowing these big financial instutitions to operate recklessly because of the deregulation and poor regulation of the financial sector. Remember, it is the HOUSING BUBBLE that brought us to the brink of depression.
But your critique of some of the recent goings-on in the economy is really a non-sequitur for the topic to which you’ve been applying it. We have over $2 trillion in un-utilized productive capacity in the economy. That is dangerous for all aspects of the economy, including the federal debt. Public spending to fill the gap makes sense.
Yes, it would have been better if the Bushites had not been so fiscally irresponsible, doubling the debt even while the economy was moving along at a reasonable clip. As I wrote in that Fat Years and Lean, the Keynesian idea is to build up surpluses in the fat years so one is in good shape to draw down Pharoah’s graineries during the famine years. But even so, during these famine years, it makes sense to stimulate the economy– and then institute to other side of Keynesian policy and move toward building up reserves as the economy becomes strong.
That’s what Keynes says. That’s what Krugman says. And nothing you’ve said is a critique of THAT IDEA.
Nuff said. You’ve made your case. Let’s move on.