Gold! McKinley, campaigning on a Gold Standard. (Source.)
Amateur political ideology speculating and ranting time. Paul Krugman has been wondering about monetary morality lately, and more generally what is causing conservatives, Republicans and indifferent elites to believe Dark Age things about the economy. Some are Austrian economists who have their models and thoughts. But I think we see three general trends in thought that are going to be captured by three different comments: supply-side myopia, business leaders pleading for more control, and the ‘Natural’ part of money.
Irving Kristol, The Heat Death of Supply-Side Economics
Trying to explain that the new Reagan-era supply-side economics wasn’t voodoo to his fellow neoconservatives, Irving Kristol wrote a 1981 article “Ideology and Supply-Side Economics” in Commentary magazine. A quote:
…Clearly, a great many people are nervous about “supply-side” economics, and seem to have difficulty understanding its rationale….Indeed, the trouble with the thing we call supply-side economics is that it is just too simple, too easy to understand…
It originates in deliberate contrast to the prevailing Keynesian approach, which emphasizes the need for government to manage and manipulate, through fiscal and monetary policies, aggregate demand so as to maintain full employment. Supply-side economists say government cannot really do this, no matter how many clever economists it hires, but that if business enterprise is permitted to function with a minimum of interference, it will invest and innovate, so as to create the requisite demand for the goods it produces.
Here Kristol cleverly flips “full employment” arguments on their head by insisting that the natural result of a free market when government doesn’t step in and regulate, adjust demand, etc. is full employment. If we want to get unemployment down and create jobs, the best thing to do is for government to get out of the way. This ideology has captured the minds of most of our elites.
I realized that there was going to have to be an about-face on the part of economists, elites, opinion-leaders, etc. that the ideology of supply-side economics wasn’t relevant for this crisis. Yet opinion-leaders breath a deep sigh of relief when they learn of some contorted statistics that argues we have a structural problem. Thank God the government doesn’t have to act!
The constant digging for something the government is doing that is causing 15 million people to be unemployed is not just opinion-leaders. In our Survey of 30 Conservative Economists (Part One, Part Two), besides the Gold Bug tendencies, all the policy perscriptions were for tax cuts for the rich, ending unemployment insurance, and stopping “policy uncertainty.” “A tone and atmosphere of hostility from the government towards the general business community” scored high as a major factor in unemployment. Which leads me to…
Michal Kalecki, Our Narcissistic Business Elites
From time to time I get to meet people in what you would call the Professional Class. Lately I’ve noticed there’s a common critique of President Obama. Are you ready for it? It goes something like “He’s alienating business. No wonder employment is suffering if he’s done a terrible job with including the business community.” I wish I could tell you I say something clever in response, or drop a neat factoid or statistics, but normally I am just concentrating on keeping my head from exploding like in that movie Scanners.
Which reminded me I wanted to blog about Michal Kalecki’s indictment of the business community during the Great Depression in his masterful 1943 essay Political Aspects of Full Employment. Why doesn’t the business community step up and demand more investment? Kalecki:
We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.
Like Brad Delong in another context with Kalecki, when I first read that I thought it was iffy. Now I don’t believe so.
It seems that there is an increasing sense among certain types of neoliberal business elite that Obama hasn’t been favorable enough to the business community, and that he needs to reconcile this fast in order to fix the economy. Look at Peter Baker’s article on Obama’s job’s programs, which doesn’t mention housing but does stop by the Chamber of Commerce to note: “But Obama’s periodic forays into populism made it personal. He couldn’t seem to decide whether he was going to take Wall Street to task for its irresponsible behavior or cajole it into freeing up money to get the economy moving. One day he derided “fat-cat bankers” who caused the recession; another day, he soothed them by saying that he and the American people “don’t begrudge” multimillion-dollar bonuses.”
Think about that. Why is Obama once calling members of the financial sector “fat-cat bankers” – while they were rolling the taxpayer, paying huge bonuses out of TARP and the Federal Reserve – important for an article about jobs? Is the idea that business leaders feel sad and offended important for why demand is down and unemployment is high? The government can act, through monetary and fiscal policy, to get jobs going again, but that leaves business elite not in charge of the economy.
Yet here we are, with the confidence of the business sector being the main anxiety of our recovery, reading article after article arguing that Obama needs to appoint more business leaders to key positions to make the business community feel included. We’ll discuss it more in 3 months when unemployment is still high and elites argue that President Obama should immediately replace Biden with a Xerox CEO.
To bring it back to conservatives, if you are the type who worries about (yet secretly hopes for) the time in which the business community leaves our country to create a gulch utopia, Obama saying very polite things about business leaders while letting them write regulatory rules is much more important than whether or not he gets people appointed to the Federal Reserve and draws lines in the sand over government stimulus.
A 19th Century Economist Defending Patriarchy
In 1889, Harvard economist Francis A. Walker wrote a book titled Money in Its Relation to Trade and Industry. Among many other things, he argued:
The social effects of a paper-money inflation are so fresh in the mind, through our recollections of our own Greenback Era, that I need not recall the wanton bravery of apparel and equipage; the creation of a countless host of artificial necessities in the family beyond the power of the husband and father to supply without a resort to questionable devices or reckless speculations, or to drafts on the proper business capital or the once sacred family reserve; the humiliating imitation of foreign habits of living, with but the faintest conception of the modes of thought and feeling and the customs of social intercourse which underlie them abroad; the loss of that fit and natural leadership of taste and fashion which is the best protection society can have against sordid material aims, and manners at once gross and effeminate, against democracy without equality or fraternity, and exclusiveness without nobility or pride of character.
Paper money decreases the power of the husband over his wife and the father over his family, loosens the natural leadership that serves as the best protection against “effeminate” manners, and gives us a democracy without nobility.
Which is to say, if you are a person who tends to use a capital N “Natural” to describe your political ideology (“I believe in a Natural Order with a Natural Hierarchy, which I get from my engagement with Natural Rights as observed through Natural Law….”), as many conservatives do, then you are going to be likely to think that the dollar is a Natural Thing too. Like women wearing pants and voting, any attempt to disrupt the Natural Order is going to be dangerous. That the value of a dollar is a social creation, and that if there is excessive demand for money the government should provide extra supply for money, isn’t going to be a convincing argument.
Michael O’Malley has written (h/t matthewstoller) some excellent stuff about this fight from a century ago (“Gold-standard arguments reflected a more generalized concern about and fascination with the insubstantiality of character, race, and value in labor…”).
So if you are a type who believes the government can only do bad, who believes that prosperity flows from how appreciated the business community feels, and who believes strongly in the Natural Order, then you are not going to be in favor of activist monetary and fiscal policy to fix the economy. You also won’t have any actual coherent view of what is wrong with the economy.