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. 

What are the lessons of Gurgaon?

The recent New York Times piece on the city of Gurgaon is pretty good - and naturally, has gotten everyone talking.  (For responses, see Alex Tabarrok, Kevin Drum, and Matt Yglesias.)

Me, the first thing I thought after reading it was: why are well-researched and well-presented solid pieces like this not printed in the Indian media?  Why is it that it is the New York Times that publishes a story like this - which we all (Indians, that is) then email to each other saying "Have you checked out this nice story about Gurgaon?"

Of course, the answer to that came pretty immediately.  The story wouldn't really make sense in an Indian context because most Indians (middle-class Indians that is, who would be reading such a story) would know exactly what it was talking about and greet it with a yawn.  Yes, shabby or non-existent government services are the order of the day in India.

As Yglesias points out (contra Drum), the one "ideological" conclusion you can definitely draw from the piece is:

The first takeaway point from Gurgaon’s success in the face of the lack of municipal government is to underscore the incredible value of good government.

True enough - although this is hardly an ideological point.  Ideology comes in when we debate what services the government should provide - and everyone pretty much agrees that whatever services it provides need to be good. 

And of course, the next question becomes: what exactly is the way towards good government services?  And the answer - at least right now for India - is to encourage neo-liberal reforms and hope in turn that the rise in the standard of living and competition from private services leads to a citizenry that expects better government services.  It's by no means clear that this will work - but it seems to me the only possible way.   

My contribution to the Google Ngrams show

Google released its Ngrams tool two weeks ago and everyone seems to have tried something or the other with it.  (Some folks also pointed out wisely that we need to make sure that the data this visualizations rely upon is accurate -- or at least we need to find a way to estimate its accuracy.)

But anyway, back to my point.  In our Social Theory class this semester, we read David Harvey's "The Condition of Postmodernity."  Harvey's thesis in this book is that what we call postmodernity is a specific cultural manifestation of the changes in the economic framework.  The structure of capitalism, he thinks (like a good Marxist), changed in the 1970s and went from a regime of Fordism combined with Keynesianism to a regime of flexible accumulation (looser labor laws, easier capital flows, etc.).  Postmodernism is a specific cultural outshoot -- the superstructure -- of these changes in the base.

So.  I put in "productivity" and "efficiency" into the Ngram and this is the graph that came up: (click on the figure to see a bigger version)

Interesting, isn't?  I consider "efficiency" perhaps to be the word associated with Fordism.  "Productivity," used so much in corporations today, seems to me more of an instance of the new post-1970s economy of flexible accumulation (at least according to Harvey). 

The number of instances of "efficiency," peaks around 1920 and then falls (although it rebounds and keeps fairly steady).  The 1970s are the period when flexible accumulation starts to replace Fordism.

On the other hand, "productivity" is pretty non-existent, starts to increase around 1960 and peaks a little after 1980 and then drops down again.  Again, this seems to vaguely conform to the Fordism to flexible accumulation shift.

I am not really going anywhere with this and I suspect I may be getting something wrong as well.  Still, it's suggestive though, isn't it?  Worth investigating.

Anyone have any suggestions, ideas, explanations?