Saturday, July 9, 2011

Governments, Families and Deficit Worriers or How to Convince a Deficit Worrier

When it comes to talking about deficits, politicians are fond of comparing governments to families - even Barack Obama, who probably knows better.  Social disapproval of families who live beyond their means is high in any functioning society (especially from financially successful middle-class families) - so this works as a way of connecting to middle-class voters.  In other words, it's a popular position to take - something that goes beyond complicated economic theory about how it all works and feels intuitively right. 

Unfortunately, as Paul Krugman never tires of pointing out, this comparison is wrong - governments are NOT like families: they can print money, raise taxes, they can intervene in the economy in a hundred productive ways.  Therefore - while governments can't sustain deficits forever, especially when economic growth is sluggish - cutting the deficit is not going to put the economy back on the path to recovery - unlike a family, where cutting spending can indeed help a family from going bankrupt.

Unfortunately this argument never cuts any ice with deficit worriers (I'm talking about non-economists here, who, like me, have only a rudimentary and basic understanding of how the whole system works).  This is important because one of the reasons politicians - even Democratic ones - seem so perversely obsessed with the deficit is because the American public in general cares about it deeply

Why does the assertion of how governments and families are different not make deficit worriers change their minds?  The reason is not hard to find.  There seems to be something almost unintuitive about this - and also something that offends what I call the "protestant ethic*" of the middle-class.  Michael Kinsley expressed it well in an article he wrote:
My fear is not the result of economic analysis. It’s more from the realm of psychology. I mean mine. The last time I wrote about this subject, The Atlantic’s own Clive Crook called me a “fiscal sado-conservative.” I would put it differently (you won’t be surprised to hear). Maybe, at least on economic matters, I’m a puritan. The recession we’ve been going through did not occur for no reason. Even though serious misbehavior by the finance industry triggered it, sooner or later it was bound to happen. For a generation—since shortly after Volcker saved the country, and except for a brief period of surpluses under Bill Clinton—we partied on borrowed money. We watched a real-estate bubble get larger and larger, knowing but not acknowledging that it had to burst. Then it did burst, and George W. Bush slunk off to Texas, leaving Barack Obama to clean up the mess. Obama has done the right things, mostly, pushing through a huge stimulus package and bailing out a few big corporations and banks. Krugman says we need yet another dose of stimulus, and maybe he’s right.

But this cure has been one ice-cream sundae after another. It can’t be that easy, can it? The puritan in me says that there has to be some pain. That’s not to say that there hasn’t been plenty of economic pain. But that pain has come from the recession itself, not the cure. [Emphasis mine.]
Some of this resonates with me - and I suspect - this is one of the things that animates the deficit worriers, even if subconsciously - let's think of it as an internalization of the Protestant Ethic especially its "there is no free lunch" feature. 

Which is why I like David Leonhardt's blog-post today - it offers us reasonable people another way of convincing deficit worriers - a large percentage of the United States voting population - about why deficit-cutting is not a good idea at the moment:
Ms. Snowe and Mr. DeMint compare the federal government to a family that supposedly has to balance its budget, and the comparison is actually a useful one. If a middle-class family had to run a balanced budget every year, it would never be able to buy a house or send a child to college. 
I think this is a great argument - especially since it has the potential to appeal to the middle-class innate Protestant Ethic.  It makes the case that a deficit, or an unbalanced budget, is a productive thing - just like taking out a loan for a car, a house or college is considered a device for upward mobility and progress.

I'll let you know how it works.

*While I use the word Protestant Ethic loosely - and certainly not in the exact sense in which Max Weber  used it - I use it especially to gesture towards the middle-class tendency for delayed gratification.  The whole idea of "save now,  use later" or "work hard now, have fun later" is deeply inscribed in middle-class habits and I suspect is the reason why social disapproval of families who live beyond their means is so common and well-entrenched.