Wall Street Journal columnist Thomas Frank is by far the most interesting part of that paper’s dull gray Op Ed page. Back in January he suggested that the world’s governments smack down those wing-nut gold bugs by selling all the gold in their central bank vaults — a plan that most gold bugs found hilarious, since they doubt that central banks have much gold left to sell.
And last week he explained that our current troubles were due, get this, to a lack of trust in government’s ability to solve our problems. A few excerpts:
Once in office, the strategic thinking went, Democrats could slowly brighten the antigovernment mood by setting up various transparency and accountability programs. And they could turn that frown upside-down simply by doing what Democrats do, namely, by using government to solve big public problems, beginning with the grotesquely expensive health-care system.
But as the drama played out, these clever flanking maneuvers failed. Now it seems unlikely that Democrats will ever get their chance to change the public’s attitude toward government in this indirect way; the antigovernment animus struck first, bringing the health-care debate to an end with a summer of unanswered town-hall protests and a voter revolt in Massachusetts.
Bruised by the backlash, President Barack Obama came before the nation last month to address the problem. “We face a deficit of trust,” Mr. Obama observed in his State of the Union address, “deep and corrosive doubts about how Washington works that have been growing for years.”
But what will the president do to assuage those doubts? In his speech, he mentioned a crackdown on earmarks, implementing government transparency measures, and banning lobbyists from his administration’s high positions. They are all good and necessary reforms, of course. But one suspects they will do little to allay the grandiose fears of the broader antigovernment set.
A more daring course would be finally to confront the antigovernment catechism directly, to attack his opponents where they are strongest. For decades, conservatives have explained every episode of government failure by shrugging: What do you expect? That’s just the way government is. When government fails to do the job—even when it’s a government presided over by conservatives themselves—it automatically reinforces core assumptions of the right.
Although this explanation is hollow and a little bit poisonous, it carries the day even in the unlikeliest circumstances. So the Bush administration screws up emergency operations in the aftermath of Hurricane Katrina, and conservatives use the episode to call for the privatization of federal emergency operations. Government didn’t work because government never works.
And yet the toxic truth is staring us right in the face: The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians. Government agencies failed because they were often turned over to industry lobbyists. Government regulators didn’t regulate because they were starved for resources. The government work force had no esprit de corps because it was constantly being insulted by its bureaucrat-denouncing bosses. According to a story that ran in the Washington Post last week, government workers earn 26% less than private-sector workers in comparable jobs.
The debate is coming soon, whether liberals like it or not. The most colossal government failure in many years may be the next big issue in Washington, as Congress turns to proposals for re-regulating the financial industry.
No one denies that federal bank regulators dropped the ball during the housing boom of the last decade. Conservatives, for their part, will fit that failure neatly into their usual story line, asserting that those regulators need to take the blame for the deeds of the nation’s mortgage lenders, bond-rating agencies, and financial innovators. The answer, conservatives will say, is not more regulation but less. They will wave their rattlesnake flags. They will holler for freedom. They will pocket contributions from Wall Street.
And unless the president and the Democrats in Congress are prepared to steel their nerves and speak forthrightly for once about the causes of government failure, the Democrats will lose again. Nothing will be done. And failure this time around won’t just look bad at the polls, it may well set the stage for another financial disaster.
This is classic stuff: “And they could turn that frown upside-down simply by doing what Democrats do, namely, by using government to solve big public problems, beginning with the grotesquely expensive health-care system.” ; “The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians.”
But it’s classic not just because it’s out-of-left-field absurd. It’s classic because it reflects the dominant view of both major parties that a policy fix is possible, that there is a combination of spending programs, tax rates, foreign policy initiatives and such that would set things right. So we have this non-stop debate over universal health care, the Afghan troop surge, cap-and-trade, and a “spending freeze”, all of which are sold as crucial to “getting us back on track”.
All, without exception, are irrelevant. If, through some grand compromise, the entire wish list of both left and right is enacted tomorrow, it won’t make a bit of difference. And if legislative gridlock stops anything from passing for the next ten years, the outcome will be pretty much the same.
Think of the U.S. as a family that’s busily renovating the kitchen while their house burns down.
Debt, of course, is the fire in this analogy. The U.S. has borrowed more it can ever hope to pay off, and for a country as for a family, when you owe too much your life changes in unpleasant, sometimes catastrophic ways. By now virtually everyone who cares has seen a debt-to-GDP chart, but I can’t help tossing up one more, because this single image conveys more useful information that a year’s worth of cable news talking heads or newspaper Op Ed columns.
No one really understands the U.S. balance sheet, of course, and because we own a printing press, the growing imbalances have yet to bite. Which is why the struggles of Greece are so enlightening. As part of the euro zone it doesn’t own the printing press that makes its currency. And now that it can’t borrow to fund its deficits, it has to decide — very publicly — how to live within its means.
As numerous analysts have concluded, that can only be achieved by cutting every citizen’s income by a painful amount. But the resulting drop in consumer spending will push the government budget even further into the red, requiring more cuts, which will lower spending even more, and so on. You see the problem: Without a printing press a bloated public sector can’t function.
The Greeks aren’t debating how many new soldiers to commit to their many foreign adventures or how to expand entitlements to cover everyone all the time. That’s because they’ve smelled the smoke and seen the flames. Now they’re standing in the front yard, garden-hoses in hand, trying to save some small part of what they’ve spent the past generation building.
If that happens here in the U.S. we’re gonna have deflation instead of inflation or another great depression. Your excellent book on the collapse of the dollar was suggesting Hyper-inflation, are you now changing your mind? Is it different for us since we do have a printing press? Will gold crater while the dollar surges in value against other fiat currencies?
Yes indeed, Thomas Frank is quite interesting. I love his fallacious line of reasoning: “The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians.” Huh? Well, government may have been run into the ground primarily by politicians but antigovernment politicians? Bwaaahaaha! Not only is he an idiot but he’s funny too! Since he, like Krugman, believes big government is the solution to what ails us, I’m sure it would be difficult for him to understand that redistributing wealth from where it should be to where it ought not be hurts everyone but the politically well-connected and reduces economic growth. The free-market has failed us therefore we need more/better government regulation argument is really tired. We’ve had increasingly less free-markets since the establishment of the Fed in 1913. Now, we have corporatism.
Besides the sheer stupidity of his left-leaning blather, he fails to grasp the gravity of what the world economy is facing… primarily that the mathematical limit of debt-based capitalism has been reached and there is nothing central banks can do to stop the inevitable collapse that results from too much debt. There’s no year of Jubilee to clear the debt so this must happen naturally through deleveraging and default. There’s nothing Obama or any other politician can do about it. I think governments worldwide will attempt to turn this coming collapse into a stagflationary one rather than a deflationary one. Governments hate deflation because it is the fair and proper result of the government interventions that caused the credit boom and it forces governments to shrink. Politicians fear it because they get voted out of office. I bet even “antigovernment politicians” fear it 🙂
deflationary depression and hyper-inflation are basically the same thing. either you’re messing with the numerator or the denominator. either no one has any money and people can’t service their debts, pay taxes, or buy things … or everyone has money but things cost so much they can’t participate in the economy.
usually, the deflationary collapse precedes hyper-inflation.
Jason C – should and ought are synonyms.
The first quote referenced is not an idea the author is suggesting as the truth – it’s his interpretation of what the strategy of the Obama administration was at the time that they took office. So really the thesis of the above article can only really be based on the other example offered: “The reason government has failed so spectacularly in our time is because it’s been run into the ground by antigovernment politicians.” This is a shallow point of view but not a wrong one.
The overall tone of the above article is sarcastic and dismissive towards the WSJ author. While you may not agree with the author, I think we can have a much more engaging discussion. I believe the point the WSJ author was attempting to get across is that the government, although universally accepted as necessary has not been effective. Whether or not this is due to politicians or lobbyists advocating the “free market” is another question entirely – there is probably evidence to support any view point along the political continuum.
But as our author above has analogized, to answer this question would be to renovate the kitchen as the house burnt down. It’s moot at this point trying to determine what went wrong instead of either evacuating our house or putting the fire out. Evacuation may be our only recouse in this case. Once those of us who make it out of the house with our lives are safe, it will be crucial to look back and try to understand how the fire started.
The suggestion that this mess is the fault of government is laughable. Our government is merely a shill for the paper money boys and does their bidding. Our Treasury is little more than a branch office of Goldman Sachs.
I have one question for those of you blaming government. Is there ever a time when you blame the fat cats, crooks and liars who lost the trillions of dollars that caused this mess?
Brad,
Obviously Goldman Sachs, JP Morgan Chase, et al are bad guys who deserve to be impoverished or imprisoned. But rapacious bankers are just a symptom of the deeper problem, which is a government that prints unlimited amounts of paper currency and hands it to the banks in order to finance a global military empire and a cradle-to-grave welfare state. With sound money (i.e. money that exists in a limited quantity and can’t be created out of thin air) the government would have to tell us the truth about what’s possible and grow only to the extent that tax revenue is available. Bankers, defense contractors and oil companies would have less free money to play with and would commit fewer crimes. And the rest of us would have to behave like adults and stop demanding free stuff from our governments.
BTW, back about 1842 Alexis de Toqueville observed, “The great American experiment with democracy will work so long until the people find out they can raid the Treasury.”
Well guess what, kids?
I stopped reading the WSJ a while ago so I’m not familiar with Thomas Frank to understand exactly where he’s coming from. Nevertheless, his declaration that gov. fails because of ant-gov. politicians is basically the same reasoning – or anti-reasoning, evasion, and intellectual dishonesty – as those who defend communism/socialism, etc: “The right people weren’t running things,” ” It didn’t go far enough,” “Corruption screwed it up,” etc. Personally, I wish we had more and truer anti-government politicians – the kind who would resist the intrusion of government into areas not mandated by the Constitution. Government actions are necessarily un-economomic to some extent (and often to a large extent), meaning that they distort the basis of free-market interaction. All of the financial shenanigans and corruption that readers’ cite are the results of gov. being involved in the economy (e.g., being involved in REGULATION – read “distortions”) Therefore, I agree that more gov. programs cannot possibly improve things economically. At best they can counter some other programs but a net loss would still exist. A massive gov. withdrawal from the economy and a down-sizing is necessary but I think a complete uncontrollable and cathartic collapse will be required for that to happen. I am sincerely interested in seeing how things play out in the years ahead. Fascinating.
Interesetig comment above about deflationary dperession and hyperinflation being the same thing. Is this true?
the way I see it, the super-rich make it through either scenario
the frugal savers who have have lived within their means, are freeof debt, and have prepared for a rainy day can manage the deflationary scenario, but will see the fruits of their labor quickly dissipate with hyperinflation.
the typical American overspending, up-to the-ears in debt glutton will (and should) get hammered in either scenarion.
@ nonpartisan–
As I understand it, during a hyperinflation there is deflation in real (gold) terms, i.e. the money supply and prices are falling in gold equivalents. You could think of it as deflation + currency collapse, as opposed to merely deflation. Looking at things in nominal terms obscures the deflation, since the currency is failing and “nominal” is drastically different from “real”.
Once the money velocity goes high enough, prices will increase much faster than the rate of money printing. A doubling of the money supply might quadruple prices (or worse). You’re really in the death spiral at that point, since every time the government prints more money, it gets even harder for people to buy things, and they holler even louder for yet more money. In terms of “stuff” or gold the money supply is actually shrinking even while they print furiously. During the Weimar hyperinflation the total gold value of all their currency shrunk by something like 95%.
Notice that this means gold doesn’t just act as a store of value and a way to preserve capital. At the end of the hyperinflation the purchasing power of gold should be much higher than before the start.
Meanwhile, businesses can’t cope with rapid inflation and go bankrupt, and production shuts down due to price controls. Capital is either wiped out by inflation or it’s “on strike” (safely tucked away in gold, silver, land, etc), so there’s no business investment going on. The economy may have an initial “crack-up boom” but it eventually grinds to a halt without a reliable currency. Which sure feels like massive deflation to the guy on the street.
This time it’s different for a couple reasons. First, because of our much maligned (unfairly IMO) social safety net, Social Security alone paid out $615 billion to more than 51 million recipients in 2008 according to the 2009 Trustees Report.
Social Security recipient spending represents roughly 3.2% of our $14 trillion economy. My eyes roll when people suggest we do away with it. Talk about shooting yourself in both feet. These same people never suggest doing away with corporate welfare programs such as the Export/Import Bank or subsidies to corporate farms.
Inflation is currently just over 9% and unemployment is about 22% using a comparable U6 according to John Williams at Shadow Government Statistics. Mr. Williams calculates inflation and unemployment using both 1992 and 1981 formula as opposed to the more convoluted machinations put out by the BLS today. I highly recommend his site.
We haven’t witnessed the often predicted, just around the corner Weimar scenario because the trillions spent to bail out the banks isn’t circulating through the economy the way Social Security payments do. For the most part, this money remains on deposit at the Fed or is held by the bailed out bank to make the books appear viable.
Why lend when you can borrow form the Fed at less than 0% and buy government bonds and notes that pay 3-5%. There has never been a better time than now to be a banker.
All this newly created money will eventually circulate beyond the tight little triangle of the Fed-Banks-Treasury and we will see hyperinflation. On that day a banker’s most valued customers just might be Social Security recipients. The retired, widows, orphans, blind and other disabled might well be the only deposits upon which the bankers can depend.
Well It seems he is referenceing the “starve the beast” crowd.. and an prime example of this anti-govt was Jon Bolton who ranted against the UN for decades and was appointed to be our rep. there. You have to remember that 1994 rep. crowd who took over and used that anti govt as leverage so for those on the outside of the onion still caught up in the good cop bad cop rhetoric of the last millenium this may resonate. I think those who are awaking to find that they have been operated on and the morphine drip is empty are far beyond this.
Its hilarious for me to hear this left wing dribble from the op ed page from a supposedly “right wing” paper. The same goes for fox news who is owned by the same guy who owns the wall street journal there all hacks and make me sick, especially sean vannity. I wouldn’t call people who go to tea parties anti govt. Any time you start calling a large group of people “anti government” you make them out to be militias. People on the right are for less government not no government. Damn fool get a clue.