Monday, July 5, 2010

Brooksian Economics versus Actual Economics

Ah, another week, another David Brooks attempt to condense a complicated issue into a story about the social forces dominating American economic life. On his plate today, Mr. Brooks uses the fear of deficits to attack any increased stimulus:

The theorists have high I.Q.’s but don’t seem to know much psychology. Lord Keynes, though a lesser mathematician, wrote that the state of confidence “is a matter to which practical men pay the closest and most anxious attention.” These days, debt-fueled government spending doesn’t increase confidence. It destroys it. Only 6 percent of Americans believe the last stimulus created jobs, according to a New York Times/CBS News survey. Consumers are recovering from a debt-fueled bubble and have a moral aversion to more debt.

Though I do appreciate his acknowledgement of Keynes foray into behaviorism, an often overlooked aspect of his theory, he seems to miss the boat here. Via Ben Somberg:

A Pew Research / National Journal poll from early June asked "Which of the following national economic issues worries you most?" Number one was "job situation" with 41%. "Federal budget deficit" got 23%.
An NBC / Wall Street Journal poll from early May asked "Please tell me which one of these items you think should be the top priority for the federal government." Sure enough, "job creation and economic growth" won with 35%. "The deficit and government spending" got 20%.
A Fox News poll also in early May got even more dramatic results. "Economy and jobs" topped the priority list with 47%, while "deficit, spending" garnered only 15%.
A CBS / NYT poll in early April found 27% prioritizing "jobs", 27% the "economy" and 5% prioritizing "budget deficit/national debt."
In the USA Today / Gallup poll from late May . . . participants were asked "How serious a threat to the future well-being of the United States do you consider each of the following." For "federal government debt", 40% said extremely serious, 39% very serious, and 15% somewhat serious. For "unemployment", 33% said extremely serious, 50% said very serious, and 15% said somewhat serious.

You know what American's don't like, having to compete with 5 other applicants for every job they are applying for, while also being underwater on their mortgages. Even if there exists some anxiety over the amount of deficit the government holds, the increased quantity of money in people's pockets goes a lot farther to quell that unrest than half-hearted attempts at budget peacockery. These arguments about quelling the anxiety of the consumer seem to see behavior only being affected by governmental policy and not economic fundamentals. To deficit hawks, only the government's fiscal policies can impact the firm/consumer's feelings about spending decisions, whereas signs of economic growth can not. If this were true why would economic anxieties be reaching their zenith when the ARRA is on the decline, and the economic recovery is slowing down. Both of these trends would seem to either indicate the irrationality of hawks, which would seem to be a case for more spending no matter what, or that other factors are at play in increasing the anxiety of firms/consumers. I'll have a post later elucidating my feelings about government stimulus and waning aggregate demand, though if you view my blogroll, it would seem pretty apparent on which side of the debate I stand.

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