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Sunday, February 27, 2011

A Country Is Not A Company, A Country Is Not a Household

National governments have policy tools and resources that are unavailable to CEOs or folks sorting bills at kitchen tables. Every single person who appeals to intuitions from these domains is misleading you and you must be profoundly wary of them. Companies and households are nodes in national economies, not models of national economies.

It is easy, of course, to see why such appeals to everyday experience are attractive to pundits and politicians, especially to not very bright or to not particularly scrupulous pundits and politicians. But just as it is perfectly understandable but utterly misleading to say that the world is flat because it seems flat and that the Sun rises and falls because it seems to do so, it is also perfectly understandable but utterly misleading to say that we should be cutting spending as the first (or even only) recourse to balance our budget and "get our fiscal house in order" just as responsible firms and households would do.

With interests rates up against the zero lower bound as in fact they are, public investment to stimulate job growth and hence address the ongoing human crisis of historically high levels of long-term unemployment won't be offset by higher interest rates that would force a job contraction in the relevant time frame. That isn't an easy phenomenon to wrap your head around, I suppose, at least not until you give it a little thought. Certainly, it is initially counter-intuitive so long as you are drawing from the quotidian experience of a small company's or a household's budgeting priorities.

But, come what may, precisely at a time like this deficit spending can be stimulative in a national economy. We can indeed, if we are judicious and intelligent about it, "spend our way to prosperity" more quickly and effectively than not, even though in a company or a household spending at such a time might be profoundly reckless. Further, such public investment via deficit spending might be the only real stimulative tool at hand to circumvent the widespread long-term misery demanded by what pass for "market-based" corrections.

That such misery is morally unacceptable to any responsible person when there are alternatives available is what Keynes was pointing out when he replied to market ideologues recommending such "natural" but immiserating corrections (for majorities of their fellow citizens, from most of whose lives such economists were disconnected by personal wealth and station and the sociopathy that so often go with them) that "in the long run we are all dead."

Of course, Republican demands for tax cuts for the rich (curtailing revenue) while cutting spending (public investment for the maintenance of order and provision for tomorrow) make little fiscally responsible sense either in terms of the company and household analogies they so eagerly and falsely apply to Democrats. But, then again, the Republicans are a holy army of market and religious fundamentalists on the road to serfdom, channeling money and influence to would-be patron feudal lords while knocking out all the supports of would-be serf majorities at every opportunity, under every pretext, and it has been a long time since anybody demanded conceptual coherence or argumentative consistency from the likes of them: theirs is the only-apparent but apparently irresistible coherence and consistency of relentless insensate bulldozing momentum.

It is the job of pundits and politicians to explain such things to the people in whose names or for whose benefit they are administering the policy apparatus of government or commenting on the vicissitudes of its working. We need to stop paying those who fail in this responsibility. At the moment, too many of these flat-earth failures are running the operation to the ruin of all.

1 comment:

jollyspaniard said...

the really odious thing about the government as corporation analogy is that it removes the average joe working man from the centre and replaces him with capital. The working man is somewhere between a means to an end and a liability.