The Question Is…

September 2nd, 2011 at 4:33 pm

…Have we, as a nation, lost the ability to self-correct?

Any system, whether it’s biological, political, or economic, must be able to diagnose and fix its problems if it is to survive.  I don’t mean to be gloomy or dramatic, but I’m wondering if our political/economic system is up to that task. 

We face an economy growing at stall speed and a moribund job market.  We’re stuck in vicious cycle where weak labor demand and ongoing deleveraging means constrained households are not spending.  The lack of consumer demand signals to corporations that this isn’t the time to invest in America, so they’re investing into emerging, expanding economies, and doing very nicely for it (corporate profits have more than recovered from the downturn).

Our only hope of turning this around in the near term is aggressive monetary and fiscal policy, and I’d say especially the latter.  The President, I believe, has a solid jobs plan lined up that he will announce next week (assuming everyone’s aligned their schedules…).

Yet, the likelihood that his plan will clear the political bar it faces in the House of R’s [sic] is not high.  I don’t want to be too pessimistic.  I still think, for example, renewing the payroll tax holiday will clear the bar.

But my larger point is this: sure, we are facing extremely tough economic problems, but they are not insurmountable and the evidence is that they would be amenable to policy intervention. 

At least, they would be if we could break out of these policy handcuffs we keep putting on ourselves.

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18 comments in reply to "The Question Is…"

  1. Blake says:

    It is truly depressing that one political party and its media allies have essentially given up on any semblance of sensible policies, even the policies they used to support.

    In fact, if the ideologues who have been ruling CNBC since, well, forever, but more so since Obama became president (not to minimize the effort by people like you and Bob Reich to counter) seem to have the following “solutions”:

    1) Cut taxes, especially for the rich
    2) Cut regulation, all of it, with rotating targets for the most hated regulatory agency (EPA, SEC, MMS)
    3) Blame the unemployed for being lazy and wanting to do just enough to stay on unemployment

    None of these are useful, or even starting points for getting to the right solutions, but as usual, Obama is starting to cave into their ideas by destroying prospects for cleaner air by suspending a new EPA rule. Is there any hope that the deteriorating economic conditions, particularly with jobs, will split the obstructionist GOP from the ones who don’t want to ensure a bad economy to improve their own political fortunes (if there are any left)?

    It seems like a few have popped up recently, like Colin Powell and Chuck Hagel.

  2. Brenda says:

    Human social institutions are created and maintained by our collective intentionality. Constitutions, universities and cocktail parties only exist to the extent that we collectively intend they exist. If I am at a cocktail party it can only remain one if I and others believe that it is a cocktail party. If someone arrives who does not share that belief but instead thinks that they are at a mob riot and start punching other guests it is still a cocktail party, just a disrupted one. If enough guests arrive who start fights with other guests they may succeed in convincing party goers that no, this is not a party, it’s a brawl.

    What we have in the US is a number of people who do not believe in the rule of law. They believe that everyone should pursue their own personal self interest to the exclusion of all else and that the social order will be maintained by the magic hand which will naturally arise from everyone’s collective greed.

    This belief is delusional.

    What we need to do is to convince others that individual greed really is destructive to the overall project that is civilization. Contrary to the claims of Ayn Rand and Libertarians, the pursuit of one’s rational self interest above all else will not result in the utopia they think it will. But will in fact plunge us into a more primitive society and the rule of strongmen.

    (This is informed in large part from John Searle’s “Making the Social World”, which I highly recommend. He is a prominent philosopher and his books are very accessible.)

    • general c. san desist says:

      …John was an undergrad adviser of mine. When he would use that scenario in class, a few of us would chime in with something to the effect of too much alcohol or stop inviting the TA’s.

      While not the most cerebral of the department, he was the most entertaining (beside Bert Dryfus, of course) & hence his accessibility.

      Attending cocktail parties was a pretty loose affair in those days… rubbing elbows with faculty was not discouraged. The subject didn’t change…Reagan (the Gov), Nixon, the war, the military.

      Remember, Reagan had unleashed the National Guard on his own citizens. Students & faculty were not putting up with his crap. The atmosphere was ripe with dissension & full of energy…ah, those were the days…kinda miss’em.

      Our problem, Brenda, is that most people are not equipped to even fathom a light weight like Professor Searle, much less an jared or paul k. I hope this wasn’t an intrusion.

      • Brenda says:

        I don’t think Searle is lightweight at all. He pretty much won the consciousness debate thirty years ago with his Chinese Room argument. Neurologists who took his advice are today experiencing success while the CompSci fantasy of strong AI lies dead in the water.

        The ability to put difficult ideas into clear prose is not “lightweight”.

  3. D. C. Sessions says:

    The problem isn’t whether we can diagnose the problem. The question is whether we can close the loop to correct/improve our diagnostic methods.

    Example: theocrats never have a problem diagnosing problems, because all problems stem from being insufficiently observant. (Some marvelous examples in the Book of Job, by the way — rather trenchant commentary on the religious there.) The test for a society is whether it can recognize that throwing virgins into the volcano isn’t doing the job and come up with a better solution.

    Right now, that’s where we are. We have lots of diagnoses, and the one that is currently dominant leads to the “now, more than ever” treatment plan that got us into the this mess in the first place.

  4. Doug says:

    I don’t think it has ever been a natural response to self-correct. It is the result of both parties coming together to craft an appropriate response to the economic challenge that has historically enabled our country to manage through tough economic times.

    Now, however, the Republicans are more interested in defeating anything Obama is supporting than doing anything to help people in need. The economy is crying out for fiscal stimulus and despite the best efforts of the Fed, monetary policy is reaching the limits of its effectiveness.

    What I struggle to explain is why the wealthy are so supportive of destructive Republican policies. Would not the owners of stocks and businesses reap much of the benefit of a stronger economy? Why the singular focus on lower taxes? Shouldn’t the focus be on maximizing wealth after taxes?

    Have the wealthy drunk so much of the anti-government Kool-Aid that they cannot understand that in times of slack consumer demand, additional government spending is needed?

    • D. C. Sessions says:

      I struggle to explain is why the wealthy are so supportive of destructive Republican policies.

      Just because they’re rich doesn’t mean that they’re immune to ordinary human imperfections. Like self-delusion, to name one.

      Have a look at the notions over the ages that farmers have believed. Many of them were not only useless but actually counterproductive to making a living from the land, but they persisted for centuries or even longer.

      Think about it: a community of subsistence farmers who barely survived if they got it right and for whom mistakes meant death persisted in counterproductive beliefs about their livelihoods for hundreds of generations. In light of that is it surprising that the very wealthy, who will never miss a meal or lack for anything regardless of what mistakes they make, indulge themselves with pleasant fantasies?

  5. Marc Lipton says:

    Echoing the last comment, the monetary spoils that come with winning elections apparently outstrips the gains these interest groups expect to receive in policy changes that support obama. I’d be curious if this hypothesis could be proven true or false

    • D. C. Sessions says:

      the monetary spoils that come with winning elections apparently outstrips the gains these interest groups expect to receive in policy changes that support obama

      Don’t discount the non-monetary gains that they get from living in a fantasy world. They can afford it, after all. They can also afford to be selective about the company they keep, which reinforces the ideation.

  6. Sandwichman says:

    “…Have we, as a nation, lost the ability to self-correct?”

    Yes. Both the Keynesian and the “supply-side” remedies have played themselves out. To be blunt, they have been gamed into irrelevance.

    We now have a kind of policy intellectual “heat death” such as Pynchon described in his 1957 story, “Entropy”: “in which ideas, like heat-energy, would no longer be transferred, since each point in it would ultimately have the same quantity of energy, and intellectual motion would, accordingly, cease.”

    What remains of the two defunct strategies is a futile search for “balance” between them: a little infrastructure spending here… a smidgeon of tax cutting there…

    The Keynesian/supply-side duopoly is an isolated system built on an ideology that assumes competitive efficiency. As Pynchon also pointed out in his story, “nothing but a theoretical engine or system ever runs at 100 percent efficiency.”

    We didn’t just lose the ability to self-correct, we abdicated it in favor of the myth of a self-adjusting market that John Maynard Keynes repudiated some 77 years ago. The neo-classical synthesis restored that discredited mythology by allowing for non-transformational tinkering around the edges.

    Wonderful policy possibilities open up when one sets aside the useless and mischievous constraints of presumptive perfect systemic efficiency. Markets don’t have to be assumed competitive any more. Economic actors don’t have to be assumed rational (with perfect foreknowledge). The real world, rather than Dynamic Stochastic Grand Theft Auto, can serve as the object of study.

    The non-transformational tinkering has run its course.

  7. Jim Gonyea says:

    “…Have we, as a nation, lost the ability to self-correct?”

    I think you are asking the wrong question. I think the question you need to ask is who benefits the most from the current situation continuing and potentially becoming worse. Someone, some group, is benefiting from the current situation. Who is it and what are the gaining? And likely the most obvious group isn’t the correct answer.

    • Jean says:

      Excellent comment. I’ve been trying to figure that one out for a while. Any suggestions?

    • perplexed says:

      I agree that “can we self correct?” may indeed be the wrong question, but I’d like to suggest that it may be more enlightening to ask “who loses the least” in a stagnant economy that’s trying to achieve deflation. Under our current policies and gridlock, the poor, the unemployed, and the under-employed bear most of the “costs” and the worst of the consequences of this stagnation. The wealthy rentiers bear none of the costs or consequences but fear that inflation, wealth taxes, inheritance taxes, and income taxes may indeed impose some costs on them; none of which are acceptable to them. Hiding behind obfuscation, long ago discredited economic theories, and bought and paid for politicians keeps them from having to justify why their plight should be the “Nation’s” number one priority going forward. Those still working are insulated from the most serious consequences but still face some “opportunity costs” that better economic times could provide as well as the psychological costs of walking along the edge of cliff, knowing that one small slip could quickly put you among the group that is absorbing most of the brunt this “situation.”

      If you look at the sheer numbers in each of these groups, it becomes readily apparent that, in a democratic republic, the “default” policy position should be to provide assistance to the huge numbers suffering at the bottom and as well as reassurance that those policies would be the ones that were most likely to benefit those walking along the cliff. Since the only realistic theory we have now for exiting a liquidity trap such as the one we’re in now is that proposed by Keynes and demonstrated to be successful by a combination of increased government spending followed by even more government stimulus spending to engage in the 2nd World War, wealth taxes coupled with stimulus spending would logically seem to be the politically safest route to go. Having a position that protects the few wealthy rentiers at the cost of everyone else should be political suicide. So why isn’t it? How is it that such a small minority was able to gain such enormous political power in a “representative” democracy?

      The reality is that in order to “self correct” we need our government to be able to act “in the interest of the people,” and “the people” need to be able to trust that that’s what their government is doing. Just like the wealthy now trust that the republican leadership will indeed act in their interest. But, in order for the government to do so, it needs to gain the trust of the people that it is indeed pursuing policies that are in the peoples’ interest. This will never happen if the “people” are not sure that their “representative” are acting as their “agents” and not as the “agents” of those that paid the way for the politicians to get in office.

      Our lack of ability to engage in the taxing and stimulus spending we so desperately need is a terrible symptom of the underlying problem that our government no longer represents “us,” but only some of “us.” We can not “self correct” until we are willing to deal with this conflict of interest we thrust upon our politicians with our campaign finance laws. Our politicians need to be able to act in “our” interest without fear of retribution from those who finance their campaigns. When they can do so, we’ll be able to “self correct.”

  8. Jean says:

    The cynicism of the right believes that as soon as they regain power they will be able to fix the problem — in fact, the mere fact of the right regaining power, they believe, will solve all the problems that we are now facing. With that kind of cynicism, there is no real intention to make things better now, nor is there a realistic assessment of how bad things really are. If all they have to do is get back into the White House, things can’t really be all that bad, so they believe.

    Unfortunately, things really are that bad, and made worse by this kind of thinking. It is possible, however, that since the Republicans have set themselves up as stumbling blocks, getting them out of power in the House might actually make a difference. And we might be able to start fixing things if Congress and the President were both sincere in their efforts to improve the situation.

    How ironic is that?

  9. Robert says:

    IMHO the nation certainly has the capacity within to diagnose and correct any systemic problem. With the advent of the internet, blog sites and social media we now have powerful tools available to present, discuss, and widely disseminate proposed solutions to our greatest problems. I’d like to offer one such solution to THE problem that we have been extensively discussing on OTE for quite some time:

    Warren Mosler, one of the founders of MMT, offers 3 bipartisan proposals that are specifically designed to ensure business has good paying jobs for anyone willing and able to work. Warren believes these proposals are supported by all Americans including the Tea Party on the right and Progressives on the left and everyone in between.

    1) Proposal #1: full payroll tax suspension for employees and employers.

    This means more take home pay for workers and lower costs for business (providing margin breathing room) which will help keep prices and inflation down. With more disposable income to spend final sales should go up and employers can begin hiring again and hopefully create the 20+ million provate sector jobs that are desperately needed.

    The Tea Party hates taxes and Progressives hate regressive taxes so this proposal is a win-win.

    2) Proposal #2: a one time $150 billion Federal revenue distribution to the 50 state governments with no strings attached.

    This will fill the state revenue hole created by the recession and keep the states afloat at least until the sales and job recovery spurred by Proposal #1 restores their lost revenues.

    The progressives will like this because it helps the states sustain essential services, and the Tea Party believes money is better spent at the state level than the federal level. So this proposal is a slam dunk.

    3) Proposal#3: a federally funded $8/hr transition job for anyone willing and able to work, to help the transition from unemployment to private sector employment.

    The federally funded transition job allows the unemployed to get a transition job, and show employers they are willing and able to go to work every day, which makes them good candidates for graduation to private sector employment.
    Progressives have always known the value of full employment, while the Tea Party believes people should be able to work for a living, rather than collect unemployment. This is a grand slam home run.

    For more details please visit Warren’s web site:

  10. David Welker says:

    Is President Obama capable of going a month without totally alienating liberals?

    Right before his jobs speech, President Obama decides to kill, at least temporarily, EPA regulations that would reduce smog.


    Does he think that preemptive concessions to conservatives will make them more cooperative? Well, he has traveled down that road more than once. It has never worked. It will never work. So that would just be plain stupid.

    Here is what is going to happen after Obama’s jobs speech. Conservatives will instantly attack it. Although I am sure it will contain many concessions to their point of view.

    Liberals, who might have had something to rally around, won’t be able to get over the distaste of Obama showing that he is quite capable of being weak and undependable. AGAIN. First he capitulates to Boehner on the timing of his speech. (Is Obama capable of fighting for ANYTHING???) Next, he decides to go ahead and kill some necessary EPA regulations that will prevent illnesses and save lives.

    With a “liberal” President like this, who needs a conservative opposition? With “friends” like this, who needs enemies?

    Is Obama capable of doing anything right??? I don’t think he can go even a month without some sort of major unforced error or unnecessary concession.

    Maybe Obama is running in the wrong primary. He seems more like a moderate Republican than a Democrat. Actually, I am not sure if he is really a moderate. Maybe is a full blown conservative.

    As a liberal, I am dreading Obama’s jobs speech. I really am. I doubt it will accomplish anything. His speech is already being attacked by conservatives, and he hasn’t even given it yet. And I wonder what concessions Obama is going to preemptively give away to accomplish that nothing.

    If Mitt Romney wins the Republican nomination, President Obama is very much far from assured of getting my vote.

    No drama Obama does not seem to have the passion or will to fight for anything. If he loses in 2012, as a liberal, I will not feel we have lost much. I want a REAL liberal in the White House, not some sort of insincere triangulation machine.

    If you are getting the sense that I am disappointed in Obama’s decision to kill the proposed EPA regulations protecting air quality, you are getting the right idea.

    This is part of a negative pattern exhibited by President Obama.

  11. Mara Williams says:

    I hate to be simplistic and naive but the ONLY thing this country needs is a huge increase in the minimum wage. If the minimum wage were increased to $18 for employees over the age of 18 (which would hush the industries that rely on seasonal/high school workers) our country would be on our way to recovery. Because minimum wage does trickle up, people would have reliable income to SPEND again, SAVE again and could AFFORD their homes again. The government wouldn’t be subsidizing this surge to the economy, the corporations would. They obviously aren’t expanding/creating jobs with their profits and they are obviously making profits.