Friday, July 27, 2012

The 1.5 Percent Solution

Oh dear.  So today's GDP report shows that "the United States economy slowed in the second quarter" with slow consumer spending, government cuts, and higher imports.  So now what, in a world of 1.5% GDP growth?

So how about we ditch the whole Keynesian paradigm for something new?

Look, here's how the world looks from here.  For over a century, the educated elite, the governing class of our age, has operated on the following cultural assumption.  Liberals could ladle out social gains to the working class--and latterly minorities and women--without worrying much about what all those benefits and regulations and subsidies might do to the overall economy.

And if things did go wrong and the economy tipped into a recession there was always Keynesian stimulus, i.e., additional government spending on favored voting constituencies, and in the last resort, inflation.

That was the assumption the Obama administration brought with it into Washington DC in 2009.  Its agenda called for a quick trillion dollar stimulus, a couple rounds of quantitative easing, and back to the important work of finally implementing universal health insurance and replacing fossil fuels with green energy.  Why not? That was what the culture of the liberal governing elite said to do.

The conservative counterargument goes something like this.  All government interventions in the market are almost always designed to impose some favored political outcome on the interactions of economic actors, whether by taxes used in government spending or in regulations or subsidies.  Each intervention, therefore, adds up to an additional weight on the economy that slows it down, just as additional weight on a jockey slows down the horse.

Now each of these arguments is actually more than an argument.  It is a culture, a lifeworld.  In Liberal World we are engaged upon a quest to eliminate injustice and inequality using the power of government.  In Conservative World we are engaged upon a quest to unleash the power of individuals and teams to build wealth and prosperity by getting government out of the way.  In the system of Juergen Habermas, this lifeworld is a taken-for-granted culture about how the world works, how we perceive the world, and how people act in it.

Obviously when the conservative taken-for-granted lifeworld is different from the liberal taken-for-granted lifeworld then something eventually has got to give.

That "eventually" might be right now, as the economy rather obviously is failing to bounce back from the Crash of 2008.  Liberals believe that what is needed is additional "stimulus" and, if necessary more quantitative easing "QE3".  Conservatives believe that tax rate cuts and government spending cuts are in order.

So you can see that neither side learns anything from events.  We just keep proposing the same nostrums.  Here's an example.  The Obama administration is restoring the minority-friendly policies that conservatives believe got us into the Crash of 2008.  The new Consumer Finance Protection Bureau that was part of Dodd-Frank has dusted off the 1994 regulation that ordered banks to giver preferential treatment to "protected classes" in loan origination.

That's not surprising, of course.  As conservative William Tucker writes in utter fury:
Do you remember that thing about how the banks wouldn't lend to blacks and Hispanics because they were racists? And do you remember how they passed the Community Reinvestment Act so that banks were forced to reduce down payments practically to zero and lend to a lot of people they knew were bad credit risks? And do you remember how Wall Street bundled all these risky subprime mortgage and sold them to investors around the world so that when it became clear that those people weren't going to be able to pay their mortgages banks everywhere were left holding the bag and all five of the Wall Street investment houses either went under or had to be bailed out by the federal government?

And do you remember how, when it was all over, liberals said it was actually the banks' fault for "deceiving" all those people into thinking they could afford to buy homes and that the banks should be punished for it and some of those people be allowed to keep their homes anyway? And do you remember how all this cost the government close to a trillion dollars and put the whole economy in a hole that we really haven't begun to dig ourselves out of yet?
The point is that the New York Times and the Democrats have been busily pushing "the banks did it" meme for the last four years, and liberals believe it.  Because if liberals admitted that it was their credit subsidies and pro-minority discrimination that brought the whole financial house crashing down in 2008, why then they would have to abandon the taken-for-granted assumptions of their culture, their lifeworld.  And people just don't do that.

The American people don't believe either the conservative line or the liberal line.  They believe a mish-mash in between.  Yes the greedy bankers did it.  Yes the stupid borrowers who bought way more house than they could afford did it.  So there!

But the 1.5% economy is putting up storm signals.  It is saying that the liberal line isn't working.  And all the campaign flaps about "You didn't do that" and Romney's outsourcing are all grist to the mill that will grind out a decision in November.

Do we want to continue with the liberal world view, the assumptions of the liberal lifeworld, or do we switch more to the assumptions of the conservative lifeworld?

It's up to the voters.

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