They’ll Love Us If We Just Hurt Them Enough
by digby
In addition to Brad DeLong’s disturbing musings about the current deficit fever breaking out among the beltway elite, which I wrote about earlier this morning, here are a couple of other articles on the subject which are worth reading as we try to sort out just what is going on here.
Here’s Neil Irwin at the Washington Post making a very interesting observation about the common wisdom that says the bond market will collapse if the US doesn’t get its deficit under control immediately:
The U.S. government debt is rising inexorably, according to the conventional wisdom in Washington, and the political system is too paralyzed to take unpopular actions to rein it in. Privately, many policymakers take it as a given that the situation will change only when the nation faces a Greek-style fiscal crisis.
But apparently nobody told the people who lend the U.S. government money. On Friday, they were willing to hand over their cash to the Treasury for 10 years for 3.3 percent interest, a level so low it implies they consider the United States among the safest investments in the world. Collectively, those investors — think mutual funds, pension funds and foreign central banks — could lose hundreds of billions of dollars if they’re mistaken and the United States has a debt crisis.
It is the Beltway vs. the bond market, and they can’t both be right.
That’s right. But if I had to guess, the same bond traders who are investing in the safest investment in the world are also the ones telling the beltway bozos that the bond market is about to collapse if the US doesn’t destroy its public safety net as soon as possible. These are not mutually exclusive goals after all.
Krugman goes a bit deeper with his piece on the Pain Caucus from a couple of days ago:
Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea — not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts. And the O.E.C.D. predicts that high unemployment will persist for years. Nonetheless, the organization demands both that governments cancel any further plans for economic stimulus and that they begin “fiscal consolidation” next year.
Why do this? Again, to give markets something they shouldn’t want and currently don’t. Right now, investors don’t seem at all worried about the solvency of the U.S. government; the interest rates on federal bonds are near historic lows. And even if markets were worried about U.S. fiscal prospects, spending cuts in the face of a depressed economy would do little to improve those prospects. But cut we must, says the O.E.C.D., because inadequate consolidation efforts “would risk adverse reactions in financial markets.”
The best summary I’ve seen of all this comes from Martin Wolf of The Financial Times, who describes the new conventional wisdom as being that “giving the markets what we think they may want in future — even though they show little sign of insisting on it now — should be the ruling idea in policy.”
Put that way, it sounds crazy. And it is. Yet it’s a view that’s spreading.
Doesn’t it sound just a tiny bit like people are looking for reasons to destroy the safety net? Yeah, I thought so too.
DeLong speculated that this is the result of out gilded age wealth inequality and I think that’s largely correct. These High priests of politics seem to live in an alternate universe from the middle class, in which “sacrifice” means other people having to give up their homes, their futures and their jobs in order to satisfy the deity we call “the market.” It’s fairly primitive stuff, actually.
But I think it’s also something more politically prosaic: Democrats are just dying to use this as another opportunity to inflict suffering, thus proving once and for all that they are the party of “responsibility.” Moreover, they seem to see the current financial crisis as a good time to evoke the Shock Doctrine to get that done. They’ve been thinking along these lines since the beginning of the administration and don’t seem to have shifted their thinking in light of all the evidence that this unemployment crisis isn’t easing more than a year later.
Both Summers and Sperling said there would not be consensus in today’s session about how to fix the program. They also said the public was more receptive to the government making hard decisions necessary to keep SS from running out of money in the long run, because Americans are anxious about their private retirement savings and the value of their houses.
Sperling said: “I think there may be a lot more openness than we thought in the past for people to have an honest discussion about the shared sacrifice necessary to have Social Security solvency. That this would be a sure thing they could count on, and they could count on for the next 50 to 75 years.”
At the end, Sperling also tried to cut through disagreement over whether the program was in a state of crisis. “I really hate the whole argument about, is this a crisis or is this not a crisis? Why do we not want to preempt a crisis. Why do we not want to do something early? It is a shame on our political system that there has never been entitlement reform without a gun to our head. . .Wouldn’t it be a tremendous confidence-building thing to act early and smart?”
These people want credit for fixing social security, which they acknowledge means that people are going to have to “sacrifice.” Why these silly Democrats think the Republicans are going to hold hands with them on this is beyond me and the idea that the people will appreciate them doing it is delusional.
So, when Washington behaves like a gaggle of Marie Antoinettes, gibbering about “doing something early” on the backs of their suffering countrymen, it becomes clear that they truly are living in an alternate universe, as DeLong suspected.
And the Big Money Boyz just keep counting their filthy lucre.
Update: Dave Johnson at CAF discusses the GOP motivations here.
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