Deficit Hawks Stampede Lawmakers and the Public Using “Smart for One, Dumb for All” Morality

Posted on May 31, 2011

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As I have argued here in earlier posts, the debate about budget deficits is a monumental one, determining in its outcome the shape of society and the type of economy that will prevail in the US and other developed nations.  The debate is fundamentally about for whose benefit and in what way government will operate and spend money, and what are the ultimate purposes of government and by extension society as a whole.  This debate is complex but is not beyond comprehension.  In this post, I will attempt to explain how this debate in the public sphere has been conducted in a way that misleads and bars the way to a more prosperous, sustainable, and just future.

One Native American hunting technique was stampeding buffalo over a cliff. Using somewhat more sophisticated techniques, the campaign of exaggerated fears about budget deficits is steering the public and lawmakers in the wrong direction with potentially disastrous consequences.

Most important to understand is that the clash between fiscal “austerians” or deficit hawks and their opponents is a clash of moral systems that underlie the most important decisions we make as a society as well as individuals.  These moral systems co-determine both what we think is economically valuable as well as what we think is socially valuable.  They even influence how we think in general, a.k.a. our cognition.  These moral/“meta-ethical” frameworks operate most of the time outside the frame of our conscious awareness, but at this critical time, we must focus on these frameworks themselves.

Before outlining how our thinking and our moral systems interact around these issues, I want to make a quick sketch of the public debt debates as they have proceeded in the United States and in other developed countries.  In doing so, I would like to bring as much as possible to awareness the nuances of the arguments being made before offering an explanation for them.

The Public Deficit Debate Summarized

Advocates of fiscal austerity (“deficit hawks”) generally argue:

  1. Government budget deficits and public debt (i.e. net result of yearly budget deficits as opposed to surpluses) in the developed world are rising in an out-of-control manner.
  2. Public debt and government budget deficits are in themselves signs and causes of economic weakness, as grave, or graver than, high unemployment or weak aggregate demand (i.e. overall wishes to buy and financial means to buy goods and services).
  3. A large portion of public debt and government budget deficits are due to out-of-control “entitlement” spending, i.e. social welfare payments
  4. As deficit spending requires governments to issue securities to pay for the spending, bond market investors will either refuse to lend to or charge exorbitant interest on government securities issued by governments that spend on deficit, especially (for some reason) if this spending is on social welfare
  5. While some advocates of fiscal austerity, claim consistency in their argument by suggesting that they would also cut non-social welfare spending such as on national defense or bank bailouts or suggesting that taxes should be raised to cover expenditures, the general trend has been to push for and the enactment of real actions to cut social welfare programs.

The opponents of the austerity campaign, armed with a fair amount of economic data from neutral sources, have outlined how the current deficit debate and in particular its designation as a urgent, top priority, is based on false premises:

  1.  Bond markets are currently not raising lending rates on most developed countries with large pre-existing public debts and substantial budget deficits.  Nor does it appear as though the trend is upward despite rising public debt; there appears to be a weak relationship between the amount of public debt and the willingness to lend to a government.
  2. The private economy remains weak and core inflation (outside of oil and other commodities) remains low independent of the effects of public spending and deficits.  Private consumers are unable to contribute substantially to economic growth because their buying power is diminished due to stagnant or lowering incomes and substantial private debt, all unrelated to public spending and deficits.
  3. Future deficits will balloon more if economic growth is not restored via, among other things, deficit spending by governments that stimulates the economy.  Deficit spending first for public recovery programs (the New Deal) and then for war expenditures was the prime means by which the US pulled out of the Great Depression.
  4. Against the fears of deficit hawks, moderate inflation will ease current debt burdens in both the private and public sectors.
  5. Prospectively all economies are facing major energy and climate challenges which cannot be addressed without decisive government action, financed by either tax revenue or deficit spending.
  6. In a country such as the United States, actions to cut social spending as envisioned by deficit hawks would bar the way to the most efficient means to pay for healthcare in the first place, via taxes or tax-like premiums for basic mandatory coverage, which would run through public accounts via a single entity like Medicare or alternatively highly regulated non-profit insurers.   Single-payer or all-payer systems have much lower administrative costs on both the provider and the insurer sides.  Deficit hawks openly express or imply a preference for “market-based” solutions even where these solutions have been shown to increase costs, administrative burdens, and thereby combined public and private medical debt.
  7. Deficit hysteria and government budget-cutting under false premises inhibits governments’ abilities to design programs that contain healthcare costs long term without diminishing health outcomes.  Government action via comparative effectiveness research, and supervision of basic health insurance has been in cross-national comparisons one of the few means by which health care expenditures have been kept low with maintenance of a high level of care.  As above, health market actors, patients and providers have either no incentive or insufficient information to effectively rein in costs.  No one has yet a complete solution to rising future healthcare costs but the deficit hawks are putting faith in tools that go in exactly the opposite direction to what data indicates.
  8. Deficit hawks tend to ignore or downplay the role of the private sector in the 2007-2008 financial crash, an event which is the proximate cause for governments presently to spend more to help distressed economic actors, thereby temporarily increasing budget deficits.  By implication, ignoring the role of these private sector actors excuses them of any culpability in those events.

Deficit hawks’ replies to these charges tend to be reassertions of beliefs in principles or ideas that they claim to hold dear without providing documentary evidence supporting their positions.  Alternatively their responses to specific criticisms of fiscal austerity are often quite evasive and tend to distract from the issue at hand.  Typical in this regard is an exchange between the journalist Ezra Klein and Congressman Paul Ryan, one of the leading US politicians who advocate cutting Medicare out of concerns for budget deficits.  Ryan’s reply to Klein does not address the core issues but creates a strawman with which he then argues.  The arguments of deficit hawks are strong on a fearful narrative about rising interest rates, future government defaults and rising inflation but have not been well substantiated, especially with reference to the specifics of the current economic situation with low interest rates, high unemployment, and low levels of investment by private industry in developed countries.  Paul Krugman has satirized this position as a belief in “Invisible Bond Vigilantes” and “Confidence Fairies”.

As markets are “reflexive”, meaning that expressed opinions, even poorly substantiated ones, help shape perceptions and therefore outcomes, one wonders if the negative opinions expressed by deficit hawks about government bonds are efforts to, out of spite and/or political ideology, induce bond buyers to demand higher interest rates than they ordinarily would.  To date, luckily, these bond buyers have generally remained unmoved by the dire predictions of the deficit hawks.  Viewed through this lens the opinions of the deficit hawks might be seen as a form of extremely dangerous market “trash talk” used often by short sellers to make the markets move the way they want to earn a (short-term) profit.  In this case the “profit” would be political influence and power with cuts to social programs to which the deficit hawks have a personal opposition.

A Political Advantage Despite Disconnection from Reality

If the debate is not being decided by strength of argument and documentation of claims, how is it then that the deficit hawks’ argument has had such a powerful influence?  Despite the likely damaging effects on the economy of the influence of the deficit hawks, why is there a climate of opinion in Washington and in the media that favors their views?  Many Washington political actors and the current political consensus in national polls indicate that budget deficit cutting is considered to be a top priority despite its predictable damaging effects.  How has this largely fact-free campaign to destroy the economy and to perhaps induce a downgrade of governments’ credit ratings when they most need it been such a wild success?

Rep. Raul Grijalva of New Mexico, along with Rep Keith Ellison of Minnesota, are the co-chairs of the 79 member Congressional Progressive Caucus which has issued a reality-based "People's Budget". Despite the considerable size of their Caucus, public awareness of these budget efforts is minimal, even as members of this caucus are interviewed by the media, generally on subjects other than "big picture" budget issues.

For the most part, this success is a function of the domination of media channels by the proponents of fiscal austerity who are very well funded and very well connected.  No public, sustained debate has been waged between those arguing for continued deficit spending and deficit hawks.  While many distinguished economists oppose the anti-deficit drive they are not organized among themselves.  While some notable critics of deficit hysteria sometimes appear in the media as experts, their appearances may be framed by their hosts in such a way as to forestall a full exploration of how deficit hysteria has been manufactured and what are its likely effects.  The 75-member Congressional Progressive Caucus have issued a “People’s Budget” that resists most of the calls of the deficit hawks but this has to date received little attention in the media.  The “People’s Budget” for the most part reflects the attitudes of a majority Americans on individual issues when it comes to budget priorities and taxation.  To be considered “serious” in the current media atmosphere, one is supposed to keep separate the wishes of Americans for more social services from the drive to cut those services, via means of the deficit debate.  Given the prevalence of the fiscal austerity discourse and clever management of the media by deficit hawks, it has thus so far been more likely that pundits and commentators will uncritically repeat the “memes” of the deficit hawks.

Another element to the success of anti-deficit mania was critical early support given to the budget deficit cutting narrative by President Obama.  Obama, like his Republican predecessor before him, engaged in deficit spending to rescue the economy in 2009 and 2010.  Leaders in other nations initiated similar efforts to stimulate their economies after the 2007-2008 financial crisis.  However, Obama engaged in this spending in a way that did not fully justify to the American public the usefulness of the mechanism of running public deficits during a downturn to, for instance, spur economic growth through public spending.  He acted as though he was drawing on a self-explanatory “conventional wisdom” about economic stimulus which was in fact opaque to most of the American electorate.  In 2009 and 2010, Obama allowed what became the “Tea Party” and their Republican allies to dominate public discourse about his more activist government policy initiatives, remaining strangely silent in the face of their attacks.

Furthermore, President Obama very quickly attempted to “balance” his use of an activist Keynesian strategy of deficit spending to stimulate the economy with support for a new deficit-cutting campaign carefully prepared by billionaire Pete Peterson.   He appointed deficit reduction commissioners to two deficit commissions that were heavily inspired by Peterson’s view of budget deficits.  Obama in public discussions has reinforced the framework of the deficit hawks, stating at one point that government has to, like “families and small businesses”, “tighten its belt”.   Thus media pundits have gleaned additional justification from the President’s speech and actions in parroting deficit hawk talking points despite their scant basis in reality.

The Deficit Hawk Moral and Emotional Narrative: Punishment for Excess

Beyond these advantages in the balance of supporting publicity and the political power of its endorsers, there are seductive elements to the deficit hawk narrative that make it attractive to politicians and media figures.  Cognitively, the deficit hawk position offers a very simple narrative through which to view the complexity of economic affairs.  In addition this narrative has similarities to and emotionally resonates with various prophetic narratives from the Judeo-Christian tradition.   In this narrative, economic sinners get punished for spending too much money, for being, implicitly “lavish”, “imprudent”, and “profligate”.  The self-appointed prophets calling for this punishment excuse themselves of being the ones who dole out the punishment but defer instead to an impersonal “hand of the market” that will come in and right what is wrong.  In this narrative, the bond market plays the role of “divine intervention” in the affairs of human beings.  `

The ground for this narrative has also been well prepared by 30 years of holding interventionist or “Big” government responsible for all economic ills, starting with the Reagan Administration.  In the narrative promoted by the deficit hawks, the debts being decried are the debts of government, the main “sinner” in the narrative promoted by the American Right and now echoed in many mainstream media outlets. While the current economic crisis and its aftermath are very heavily conditioned by massive private debts, the focus on public debts makes this morality play feel less personal for many who are underwater on the mortgages or swamped by other loans and credit card debt.  It may be perhaps diverting for a moment to hold the government up as the scapegoat, even if this turns out to be secondary to the problem of a massive overhang of highly indebted households, weighing down the economy.

Fundamentally the largely fact-free success of the deficit hawk argument aimed at social spending rests on a potential for wide swaths of the American public and in the publics of other nations to be shamed at this historical moment about debt and spending on consumer goods.  In the years prior to the economic downturn, some people took on debt that they knew they couldn’t handle.  Some of this debt was used to supplement stagnating wages and salaries for living expenses. Some people spent money on relatively luxurious products or lifestyle choices rather than choices out of necessity.   There is no clear line in this between desperate efforts to stay in the middle class and spending on luxuries but both can be shamed via the use of this anti-debt narrative.  In the context of the current downturn and the personal consequences of these choices, many people are feeling foolish and experiencing regret.  The economic bets that they had made have turned out wrong.  Why, they think, should the government spend on them now for their social welfare?   After all, they think, they have lost, they hold themselves in part personally responsible…they have been imprudent.  Is it fair if they ask for help?

The sometimes implied and sometimes stated deficit-hawk answer to this last question is simple:  “No, it is not fair to ask for help if you have experienced a failure or have been imprudent”.   Meanwhile, in other roles, these “champions” of fiscal austerity often work quite hard to make sure that their political patrons get preferential treatment at the public trough.   However, as long as the discussion focuses on public debt that is related to the needs of ordinary people, the public debts incurred by shoring up the financial system or by expensive military contracts remain largely outside the compelling and shame-inducing narrative spurred on by the deficit hawks.

Fooled by “Smart for One, Dumb For All” Morality

Seeing beyond the narrative cleverly constructed by the deficit hawks involves understanding the variety of ethical systems that are available to us and how the trap has been sprung for politicians, pundits, and the public.  Politicians and pundits have streamed to the deficit hawk narrative because they feel that it represents “virtue” and protects them from damaging political attack.  However virtues are just one type of moral system and we need our leaders to use more complex means of recognizing and discussing “the Good”.   Virtue ethics is a particularly self- and individual-oriented “meta-ethics” that is by no means is a complete foundation for ethical public policy and political leadership.

The Cornell economist Robert Frank has highlighted a set of problems in economics that he calls “smart for one, dumb for all”.   Probably the most famous example of a “smart for one, dumb for all” phenomenon is the Paradox of Thrift, which was observed in the Bible (Proverbs 11:24) but was later introduced into economics via John Maynard Keynes in the 1930’s.  The paradox of thrift observes that when everybody tries to save and cut consumption, which is considered to be a personal virtue and advantageous, the economy stagnates and shrinks.  So while it may be “smart” for an individual to “save for a rainy day” or for later investment, if everybody prioritizes saving, incomes overall shrink, as does the entire economy.  One of the almost universally acknowledged problems of the Chinese economy is a demonstration of the paradox of thrift:  due to a poor social welfare system, Chinese do not consume enough of what they produce and instead “save for a rainy day” leading to what many feel to be an overdependence on exports.  The Great Depression of the 1930’s and now the Great Recession are marked by the paradox of thrift, with most individuals and families trying to scrimp and save all at once reinforcing an economic downturn.

An obvious example of a "smart for one, dumb for all" problem is the use of automobiles in densely populated areas. Each person attempts to gain an advantage by taking their vehicle only to encounter others doing the same, eventually leading to traffic jams, like this the world's longest jam in China in August 2010. Those who adopt a "smart for one, dumb for all" perspective alone, who are often advocates of the "free" market, tend to ignore this type of conflict of purposes. (Photo: cdn.benzinga.com)

There are less abstract and more common “smart for one, dumb for all” phenomena.  It may be smart for an individual to drive their car to work to save time but if everybody does this at around the same time, we get traffic jams and parking problems.  If one person discovers a new way to make money they may start a thriving business but if more and more people get the same idea, that business starts to look “dumb” as a means to make a living.   If everybody tries to sell their home at the same time, they either cannot find a buyer or they get a lower price than they had hoped.  Likewise if everybody tries to buy houses in an area at the same time, the prices get bid up beyond some real appreciable value.

Not everything is a “smart for one, dumb for all” phenomenon.  A risk distribution system like an insurance policy, whether public or private, is “dumb for one, smarter for all”.  Similarly, a public transit system into which everybody pays is “dumb for one, smarter for all”.  In general abiding by laws is “dumb for one, smart for all”; if you are the only one abiding by a law you might think of yourself as “stupid”.

The Fundamental Cognitive Error

Deficit hawks are approaching economics and economic policy from the perspective of an exclusively “smart for one, dumb for all” morality or ethical system.  Deficit hawks assume that what is “good for one, is (therefore) good for all”, arguing from an individual case and then generalizing.  In this case, they are, taking the perspective of an individual that it is wise to save and not spend, therefore EVERYBODY should save, including government.   But reality intervenes and one finds that no, if everybody cuts spending, the economy shrinks and collapses.  However this has not stopped deficit hawks from promoting their morality and prominent politicians from falling into their trap.

In its misleading simplicity, the deficit hawk narrative is a species of thinking that one might call self-confirming or ego-centric, within which one’s biases and “common sense” are always re-confirmed by reality.  The notion that “government = corporations = individuals” makes it easy for politicians and individuals not to have to think too hard about the diverse nature of these entities.  One can simply remain within one’s own everyday point of view.  This is perhaps understandable for “the man on the street” but ultimately politicians need to confront the “big picture” rather than reduce that big picture to a simple bromide.  President Obama’s re-iteration of this speech about government needing to “tighten it’s belt” like a family or a business was tragic in its reinforcement of this erroneous view.  The President was reinforcing the “smart for one, dumb for all” morality of those who in real terms are his opponents, even though he may personally share parts of their unrealistic belief system.

Political Leadership, Economics and Reality Require More than “Smart for One, Dumb for All”

An ethical system that only recognizes “Smart for One, Dumb for All” opportunities for moral or economic action leads ultimately to social fragmentation.  A misbegotten alliance between certain schools of economics/political economy (neo-liberal neoclassical) and powerful interest groups has created a far reaching “common sense” which suggests that we must always start action from the perspective of the individual and then “cut” our view of society to fit this framework.  In economics a derivative of this philosophical/meta-ethical enterprise has been the effort to reduce macroeconomics to microeconomics, or base the former on the latter.  The result, in the hands of one to two generations of economists has been to form an ego-centric bias within economics, which forms the basis of so much public policy.  This bias within economics has been co-opted by some powerful interests to step-by-step shape our public discourse to fit their short-term and short-sighted goals.   Paul Krugman’s observation that we have entered the “dark age of macroeconomics” is one sign of how “smart for one, dumb for all” morality has come to dominate discussions among supposedly serious economists.

The “smart for one, dumb for all” moral and cognitive universe is of necessity a particulate or atomistic view of society and an “additive” view of how one achieves overall social welfare.  Each individual, household or corporation succeeds or doesn’t succeed, adding to the overall success or lack of success of the society as a whole.  While in some senses, a “not-false” view of how society works, this perspective avoids systemic phenomena that are only visible if we look at the “forest” rather than the trees.  One only “sees” the paradox of thrift as well as the need to provide certain public amenities, which are as real as it gets, if one can perceive the “forest” rather than just a collection of individual “trees”.

It makes all the sense in the world for individuals in their everyday life as well as entrepreneurs and corporate leaders to assume a “particulate” “smart for one, dumb for all” perspective on their affairs.  There are so many real-life “games” (in the sense that any multi-party interaction can be viewed as a game, whether serious or not serious) that are played, which are “zero-sum” so it helps to be smart and compete with others in these games to get some of the spoils.  It is also often smart to locate one’s own unique virtues, develop them and display them to others.  However, there are other “games” which we all play together, with which we need to modify our perspective and cooperate.  It is in the arena of politics where we have the best opportunities to address some of these “win-win”, “smarter-for-all” games.

Politicians, even those politicians who make special claims that they represent the general interest, have then been operating over the past 30 years within an ever-shrinking moral universe, where “smarter for all” issues and policies are taken off the table and out of the discussion.  Unfortunately leading Democrats have fallen hard for this perspective, as both Bill Clinton and now Barack Obama try to fit “liberal” or left of center politics into a framework where the promotion of individual virtues takes precedence over broader social goals.  Obama’s likening of government to a family trying to tighten its belt is only one of the more obvious concessions and/or endorsements of this “particulate” view of society and social problems.  His philosophical preference for what might be called “pragmatism” has apparently led him to believe that what is “practical” for him as an individual as well as a political leader is to go with the flow of what might be called a neo-liberal view of society (Margaret Thatcher:  “there is no society, only individuals and familes”).

Additionally, in choosing not to take a principled stand against powerful interests, the consideration of one’s own career path and that of one’s children and family (smart for one) may loom large for younger Presidents like Obama and Clinton.  The lucrative post-Presidential career of Clinton and the desire for “chummy” relationships with the wealthy and the powerful may be a powerful motivation to assume the perspective of business leaders, which in our current era has been biased towards the “smart for one, dumb for all” moral universe.  In thinking of his own post-Presidential career or those of his children, Barack Obama may be, consciously or not, acting in ways that reinforce the dominant but short-sighted ethical perspectives that diminish the importance of “smarter for all” policy.  A “get along” policy might appear to be a good move for him personally but not good for the American public and their future.

To regulate business effectively as well as to initiate projects that may anger or discomfit powerful economic stakeholders, government must be able to assert a distinct authority over these stakeholders that rests on its handling and the continued public announcement of “smarter for all” perspectives and phenomena.  Whether the President or politicians will be thanked later for taking these stands by powerful stakeholders should be of no consideration, though in the current electoral system this is, on my part, a fond hope.

While the personal preferences and choices of leaders like Barack Obama and Bill Clinton are very important, the public as a whole bears some responsibility for allowing “smarter for all” policy to be placed on the back burner.  The American public, in particular, has been fairly passive so far with regard to issues like cuts to social welfare, climate change, growing poverty, and mass unemployment.   Mass protests, such as those in Wisconsin, have just started after decades of neo-liberal policy. Additionally, at the voting booth, the electorate has fallen for the “smart for one, dumb for all” morality promoted by politicians of both parties.  If, for instance, Obama strikes a deal with Republicans that cuts Medicare and Social Security, he faces no challenger in 2012 who is likely to unseat him because of these concessions.

The ultimate “smarter for all” issues like climate change, a sustainable economy and a post-fossil fuel energy system will remain on the back burner until such time as we either consciously or implied through action move beyond “smart for one, dumb for all” as an exclusive way to look at the social world.

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