Stealing our title from a book of the same name, we thought we would offer a slightly more speculative post today. It is evident which economic idea currently possesses a grip on public debate independent of the economic interests it advances: austerity. In a recent interview (available free on iTunes at ‘Behind the News’ with Doug Henwood), the economist Brad DeLong pointed out that the ‘hard money, anti-inflation, fiscal austerity’ lobby in the US used to be a group whose economic interests matched up with ideology. But now, it is hard to match interest to ideology. The interest of manufacturers and retailers is in growth and thus in some forms of debt-financed stimulus, not in turning off the spigot just at the hinge of a double recession. (Recall that, after government spending fell in the fourth quarter last year, government spending declined by 5.2% in the first quarter this year, the largest drop since 1983. All this happened before the debt-ceiling debate even got underway.) An economic idea appears to have independent, political power.
Delong was bemused enough by the disjunction between ideas and interests that he said he was inclined to “punt it over to sociologists or cultural studies people” to explain the austerity craze: “I listen to Ron Paul and Rand Paul and it feels like ideas that ought to have died a century ago…ideas that made sense when your super-rich were really landlords who lent out money on 99 year leases.”
As we suggested before, we may not have to look quite so far as cultural theory to explain the public willingness to embrace austerity. The Democratic Party has been the party of austerity for a while now. When a party beats that drum enough, it becomes the only sound a good portion of the population hears – a portion that does not have an economic interest in that idea. But there is another economic idea out there, which complements austerity: the economic limits of the state. An important feature of what the blogosphere calls the neo-liberal progressive turn in the Democratic Party has been the idea that the state can only play a limited economic role. It perfects imperfect markets. In an interesting post on unemployment insurance, Mike Konczal at Rortybomb called the neoliberal model “an approach to governance where the state’s role is one of creating and completing otherwise incomplete markets.” Whether or not neoliberal is the right word, there is a very specific idea at work here. It is the post-Cold War idea that one must scale back ones expectations for collective intervention in and management of the economy. The distortions are too radical, the coercion too extensive, the information too disperse, to do anything but correct market failures. Note that this does not necessarily even mean provide public goods – this neoliberal turn went hand in hand with ‘creating’ markets in classic public goods like transportation (toll roads) and education (vouchers).
So the ruling ideas here are not just austerity and the attack on entitlements, but also a scaled back sense of what democratic control of the economy can mean. Indeed, the background, unifying idea is a lowering of expectations generally. It strikes us that, for anything even as old school as a debt-financed jobs program to get off the ground politically, a much wider argument will have to be won. This is an argument that the state can and should do more than just shave the rough edges off markets, and create markets where they don’t create themselves. It is not enough to show that markets sometimes radically fail, or that dominant economic theories failed to predict the crisis. Those are negative arguments, but they do not create new ideas to replace the old ones. A positive argument will have to be won regarding the ability of a democratic state to manage the economy.