Doubt versus Ideological Certainty on the Economy

One reason I’ve avoided most discussion in the blogosphere regarding the stimulus package and response to the current economic crisis is that most people are simply applying their preexisting biases towards proposed solutions. Those who always believed that government intervention in the economy is bad now argue that government stimulus won’t work. While perhaps they are right, their logic is too faulty to take them seriously. The argument against all government action is ideological and is not supported by any objective evidence. Those who believe this tend to only look at facts which support their view.

On the other hand, we cannot know with certainty what effects any government action will have on the economy. Those who are certain the stimulus package will work are also basing this more on ideology than on anything which can be proven. There are also potential downsides which are of concern.

Personally I tend towards less government action in any aspect of our lives, including economic activity. However, contrary to many who share my libertarian-leanings, I realize that this is a philosophical viewpoint and there is no guarantee that what we prefer ideologically is really the best pragmatic answer. Laissez-faire capitalism is an appealing goal philosophically, but it is not necessarily the best solution to our current problems. These are not ordinary times and we cannot afford to wait and see if the economy can recover on its own.

I also have little respect for Republicans who oppose the stimulus based upon an opposition to increasing the deficit when they backed Republican deficits for years. Besides, I’d far rather see government spending on credit be used to improve the infrastructure than to pay for the Iraq war. While most of our economic progress does come from private business, this still does require that our basic infrastructure be intact. Much of the infrastructure for our economic development in the second half of the twentieth century was built with involvement by government. Government spending might also be necessary to modernize our infrastructure for  the United States to be competitive in the modern world.

Not having any control over what the government does, I see this more as an experiment to actually see how government stimulus of this degree affects the economy. Hopefully some will evaluate the effects objectively so that we can actually learn from this experience.  Elections do matter, and it is inevitable that the economic views of the winning party will prevail. Now we can see how this works out. Besides, those who argue against the stimulus have not presented any meaningful alternatives.

As usual when making a blanket statement about conservatives I am referring to the general consensus in the conservative movement with full realization that there are conservatives and libertarians with other viewpoints. Megan McArdle presents a rant with a similar view over the disputes over the stimulus:

I post about these things as, hopefully, something close to a matter of science.  It is an empirical question whether the multiplier for government spending is greater or less than one. It is an empirical question whether the multiplier for the spending we just did is greater or less than one.  It is an empirical question whether the sorts of crises we are now in produce liquidity traps such that fiscal shock therapy can result in a permanently higher level of growth.

I do not say that we will know the answer to these empirical questions; I daresay we won’t, at least not to a certainty.  But there *is* an answer out there in the ether, yet most of the public debate about these questions is not much tied to empirics.  They are being debated as emotionally as if the topic were the relative virtues of the debaters’ spouses.

Once again, I am driven to quote the immortal Charles Murtaugh:  the universe is not here to please you.  Fiscal stimulus will make the economy grow faster, or it will not make the economy grow faster, without regard to whether taxation is theft or universal healthcare is an immediate moral imperative.  I doubt I’m the only one who is wearied by the way so many of the participants in the debate seem to already know the answer they want, and are merely looking for a set of questions that will get them there most expeditiously.  Was there ever a time when people didn’t think that tricky economic conundrums could, or should, be used to “prove” that their personal values about the level of taxation and spending are a scientific fact?  Probably not. Still, given how important this question is, I wish more people would treat this as a problem to be solved, a question to be answered, rather than a battle to be won.

Andrew Sullivan adds:

Like Megan, I don’t know either. I’ve supported the stimulus package because the downdraft right now seems so steep and dangerous that a little cushioning from the feds does not seem to me to be a cardinal sin, and because Obama and the Democrats won the election and deserve to be given an opportunity to respond to the current crisis – and be held accountable for the results of their decisions.

But like many, I remain nervous about heavy government intervention in the economy in anything but  a short-term sense. The Republicans have zero, yes zero, credibility on fiscal matters and their inability to formulate a pragmatic critique of the stimulus, rather than have an ideological hissy-fit, is a symptom of their profound intellectual decline. But there is something lingering around this immediate crisis, and Obama’s straddling of the leftward-moving center, that worries me for the long-term.

I fear the depression that we are in will lead to more and more decisions that, while pragmatic and defensible by themselves, can add up to a huge shift in government’s role in ways that will not help and we may not recognize till it is too late; I worry that throwing a lifeline to some in a tail-spin might unwittingly lead to a deeper sense that deadbeats and gamblers will always be rewarded by government while thrifty and ethical people get the shaft; I worry that Keynesianism is not a panacea and may prevent a necessary long-term reckoning with debt and deadwood; I worry that the consequence-free, debt-fueled capitalism we let grow this past decade requires a nastier payback than we think we deserve.

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5 Comments

  1. 1
    Jeff says:

    I think there are valid doubts about whether the stimulus package will help. Of course, you can argue what will happen if there is no stimulus. But with this stimulus the federal deficit is likely to go even higher. I saw an interesting article, I think, on

    http://www.recessioninfocenter.com

  2. 2
    Fritz says:

    I certainly agree with you in having utter contempt for the Republicans who have only rediscovered fiscal discipline now that they are out of power.

    But you may want to ponder whether abandoning philosophy in the face of serious problems is correct.  If you truly believe that your philosophy is counter-productive in difficult circumstances, then perhaps you need a different philosophy.
    Personally, I think the actions currently being implemented will take a serious crisis and turn it into a generation-long disaster.  And before this runs its course, the Medicare and pension crises will kick in.

  3. 3
    Ron Chusid says:

    Fritz,

    There is no reason to believe that there the economic philosophy one prefers on ideological grounds is necessarily the right answer to the current situation. As Megan points out, the universe is not here to please us. We can still have our philosophical preferences towards less government, while being pragmatic in analyzing what actually does work the best.

  4. 4
    Fritz says:

    Ron,

    If you believe in small government but only in times of non-crisis, then you clearly have more faith in the efficacy of government action than I do.   And that set of priorities is not likely to incline you to getting smaller government — since the government can pretty much ensure that there are always crises.

    But even on pragmatic grounds, I believe strongly that the bailouts and stimuli of both the Bush and Obama administrations are a trainwreck in progress.  If the government was not running a debt, then I might be in favor of borrowing to smooth an economic bump — because there would be a lot of time before we had to pay the piper.  But with the government already deeply in debt and also running record deficits before last September. we will have to pay the piper before this crisis is over — and the next two crises are already in the pipe and heading our way.

    This will not end well. 

  5. 5
    Ron Chusid says:

    “that set of priorities is not likely to incline you to getting smaller government — since the government can pretty much ensure that there are always crises.”

    True–there is considerable danger here and we must be cautious whenever government states there is a crisis. However in this case there is a true economic crisis and I remain skeptical of those both on the left and the right who are convinced that their preexisting beliefs about the economy necessarily provide the right answer for the present.

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