Owed On a Grecian Urge
-- Posted by Neil H. Buchanan
I am currently in Hong Kong (in the airport, actually, waiting for a flight to Australia), where I participated in two tax scholarship-related events at the University of Hong Kong over the past few days. On Saturday, I was a commentator at the Taxation Law Research Programme's Third International Conference: "The European Union and Greater China: Understanding the Fundamentals of the New Taxation Relationship," an event that brought scholars from the Vienna University of Business and Economics to Hong Kong, to discuss tax issues related to trade between Europe and China. Yesterday, I delivered a lecture entitled: "Will the United States Government Ever Again Have a Functioning Budgetary System?" Both events were organized by Professor Richard Cullen and his colleagues, Dr. Xu Yan, Professor Wilson Chow, and Professor Andrew Halkyard. Everything was handled magnificently, and I have thoroughly enjoyed my first trip to Asia.
At my lecture yesterday, I spoke about the current political difficulties that have turned the U.S. government's budget process into such a mess. I spoke a bit about the debt ceiling impasse last summer, but I emphasized that the mess is merely worsened by the debt ceiling statute, because the anti-government ideologues are simply using the debt ceiling opportunistically to force spending cuts. If there were no debt ceiling (or if, as Professor Dorf and I argue he should, the President were willing to continue to issue debt in the face of a within-fiscal-year debt ceiling crisis), the same people could still threaten to shut down the government as part of the annual budget and appropriations process. The politics have become impossible, and my bottom line was that the politics will continue to be impossible until the economy improves, which would reduce the fear-based political support for those who wish to undermine the modern state.
Of course, the impossible politics of budgeting also make it less likely that the economy will improve, at least lengthening the already-slow recovery, and at worst preventing a recovery from ever fully taking hold. If we could run larger deficits in the short run, I argued, we would be better off in both the short run and the long run. But we cannot run larger deficits in the short run, because ... Well, you see where this is going.
In addition to my formal talk yesterday, I gave a short version of my talk over dinner on Sunday evening, at the request of some scholars who would not be able to attend on Monday. Interestingly, at both the Sunday dinner and at the Monday lecture, different listeners asked almost exactly the same three-word question: "What about Greece?" Neither questioner was evidently hostile, instead asking the question out of genuine confusion that I could argue that deficits are not horrible.
By coincidence, Paul Krugman's Monday op-ed in The New York Times dealt in part with this very question. What Krugman calls "the German story" is a bogus explanation for Europe's deepening economic problems (problems that might be leading the Continent -- and the world -- back into recession). The German story blames it all on fiscal irresponsibility by the governments of some of Europe's smaller and weaker economies (especially Greece, Spain, Italy, Ireland, and Portugal). As Krugman points out (and has pointed out many times before), only Greece's situation actually fits this narrative. Spain and Ireland were running surpluses before the Global Financial Crisis hit in 2008, Portugal's budget was clearly under control, and Italy's deficit was not much larger than Germany's (and was problematic only due to the hangover of bad decisions from years ago, which had since been reversed).
Because these facts are easily available (though only known, apparently, by a few of us), I answered my two questioners by pointing out that Greece is the exception, not the rule. The situation there is truly scary, but even Greece could be in much better shape if it were still issuing its own currency and could devalue it, thus avoiding the austerity that the German-led EU is forcing on the Greeks. The answer to having driven off a cliff is often not to try to drive back up the side of the cliff.
Even so, I was fascinated that two listeners independently brought up Greece as if it were a counter-point to my argument, which is that the U.S. would be better off if it ran a truly stimulative fiscal policy right now (accompanied by long-term efforts to bring down the growth of health care costs). One of those listeners is a tax scholar from central Europe. The other is a banker from the U.S. These are savvy and generally well-informed listeners, who clearly are NOT motivated by Newt Gingrich's belief that the U.S. government cannot do anything right.
This is the power of a narrative. Smart people filter information through the dominant narrative, notwithstanding how weak is the evidence to support that narrative. The narrative also wastes everyone's time, because it requires people to digress and seem to give ground, saying, "Yes, it is possible to do too much deficit spending, at which point we would have a true crisis." But good medicine can become harmful, too, if a patient overdoses; yet that does not make us respond to every medical prescription by saying, first and last: "What about addiction?" We can always be aware that there are upper limits to deficit spending (or any other useful medicine), but that is not a reason to ask about Greece every time we talk about deficits.
It is especially interesting, in fact, that the U.S. debt situation is so far away from not only Greece's, but from anything resembling an incipient crisis. Japan continues to carry a national debt equal to more than 200% of its GDP, while our debt -- even after four years of crisis-induced super-normal deficits -- still sits below 70% of our GDP. We are actually below both Germany and the U.K., with Britain's commitment to austerity having exactly the result that Keynesian economists predicted (slowing growth, high unemployment, and continued recession-induced deficits).
Cautionary tales are often useful. The urge to talk about Greece every time deficits are discussed, however, shows that the exception is causing people to misunderstand the rule.
I am currently in Hong Kong (in the airport, actually, waiting for a flight to Australia), where I participated in two tax scholarship-related events at the University of Hong Kong over the past few days. On Saturday, I was a commentator at the Taxation Law Research Programme's Third International Conference: "The European Union and Greater China: Understanding the Fundamentals of the New Taxation Relationship," an event that brought scholars from the Vienna University of Business and Economics to Hong Kong, to discuss tax issues related to trade between Europe and China. Yesterday, I delivered a lecture entitled: "Will the United States Government Ever Again Have a Functioning Budgetary System?" Both events were organized by Professor Richard Cullen and his colleagues, Dr. Xu Yan, Professor Wilson Chow, and Professor Andrew Halkyard. Everything was handled magnificently, and I have thoroughly enjoyed my first trip to Asia.
At my lecture yesterday, I spoke about the current political difficulties that have turned the U.S. government's budget process into such a mess. I spoke a bit about the debt ceiling impasse last summer, but I emphasized that the mess is merely worsened by the debt ceiling statute, because the anti-government ideologues are simply using the debt ceiling opportunistically to force spending cuts. If there were no debt ceiling (or if, as Professor Dorf and I argue he should, the President were willing to continue to issue debt in the face of a within-fiscal-year debt ceiling crisis), the same people could still threaten to shut down the government as part of the annual budget and appropriations process. The politics have become impossible, and my bottom line was that the politics will continue to be impossible until the economy improves, which would reduce the fear-based political support for those who wish to undermine the modern state.
Of course, the impossible politics of budgeting also make it less likely that the economy will improve, at least lengthening the already-slow recovery, and at worst preventing a recovery from ever fully taking hold. If we could run larger deficits in the short run, I argued, we would be better off in both the short run and the long run. But we cannot run larger deficits in the short run, because ... Well, you see where this is going.
In addition to my formal talk yesterday, I gave a short version of my talk over dinner on Sunday evening, at the request of some scholars who would not be able to attend on Monday. Interestingly, at both the Sunday dinner and at the Monday lecture, different listeners asked almost exactly the same three-word question: "What about Greece?" Neither questioner was evidently hostile, instead asking the question out of genuine confusion that I could argue that deficits are not horrible.
By coincidence, Paul Krugman's Monday op-ed in The New York Times dealt in part with this very question. What Krugman calls "the German story" is a bogus explanation for Europe's deepening economic problems (problems that might be leading the Continent -- and the world -- back into recession). The German story blames it all on fiscal irresponsibility by the governments of some of Europe's smaller and weaker economies (especially Greece, Spain, Italy, Ireland, and Portugal). As Krugman points out (and has pointed out many times before), only Greece's situation actually fits this narrative. Spain and Ireland were running surpluses before the Global Financial Crisis hit in 2008, Portugal's budget was clearly under control, and Italy's deficit was not much larger than Germany's (and was problematic only due to the hangover of bad decisions from years ago, which had since been reversed).
Because these facts are easily available (though only known, apparently, by a few of us), I answered my two questioners by pointing out that Greece is the exception, not the rule. The situation there is truly scary, but even Greece could be in much better shape if it were still issuing its own currency and could devalue it, thus avoiding the austerity that the German-led EU is forcing on the Greeks. The answer to having driven off a cliff is often not to try to drive back up the side of the cliff.
Even so, I was fascinated that two listeners independently brought up Greece as if it were a counter-point to my argument, which is that the U.S. would be better off if it ran a truly stimulative fiscal policy right now (accompanied by long-term efforts to bring down the growth of health care costs). One of those listeners is a tax scholar from central Europe. The other is a banker from the U.S. These are savvy and generally well-informed listeners, who clearly are NOT motivated by Newt Gingrich's belief that the U.S. government cannot do anything right.
This is the power of a narrative. Smart people filter information through the dominant narrative, notwithstanding how weak is the evidence to support that narrative. The narrative also wastes everyone's time, because it requires people to digress and seem to give ground, saying, "Yes, it is possible to do too much deficit spending, at which point we would have a true crisis." But good medicine can become harmful, too, if a patient overdoses; yet that does not make us respond to every medical prescription by saying, first and last: "What about addiction?" We can always be aware that there are upper limits to deficit spending (or any other useful medicine), but that is not a reason to ask about Greece every time we talk about deficits.
It is especially interesting, in fact, that the U.S. debt situation is so far away from not only Greece's, but from anything resembling an incipient crisis. Japan continues to carry a national debt equal to more than 200% of its GDP, while our debt -- even after four years of crisis-induced super-normal deficits -- still sits below 70% of our GDP. We are actually below both Germany and the U.K., with Britain's commitment to austerity having exactly the result that Keynesian economists predicted (slowing growth, high unemployment, and continued recession-induced deficits).
Cautionary tales are often useful. The urge to talk about Greece every time deficits are discussed, however, shows that the exception is causing people to misunderstand the rule.