In Europe (and in New York state) a fundamental test for liberalism
In the post-World War 2 era, most industrialized nations have adopted the same basic superstructure of liberal democracy: multi-party elections, labor protections, civil rights, and a safety net.
Europe has taken the model farther, faster than most other nations, enacting employment-for-life rules, building vast public sector industries, and building universal education and health care programs.
Democrats and liberals in the US have followed a different course, but the basic blue print — their vision for a better America — is much the same.
It’s worth noting as an aside that this doesn’t all amount to socialism. Socialism, broadly speaking, envisions public or worker ownership of most of the economy.
Liberal democracy even in Europe has followed a different path, harnessing (through taxes an jobs) the strengths of capitalism, while seeking to rein in its excesses (through labor standards and regulation).
The problem of this system is that The People — taxpayers, voters, citizens — have steadily demanded more and more from their governments.
When the economy tanks, we blame Washington. When people get sick, we want them to be cared for, even when they can’t afford it.
We want our roads plowed, our food inspected, our elderly parents cared for, our farms subsidized, our arts organizations (and church charities) funded, and on and on.
Two governments in particular have waded deep in this seductive mire: Greece and New York state.
In Greece, the national government is so far in debt that their bonds have been reduced to junk status. And yet government workers continue to march in the streets refusing to grant even modest concessions.
In New York state, government accountants predict that the state will run out of money in June. State workers have not only refused to make pay concessions; they are insisting on the 4% raise promised to them before the state economy fell off a cliff.
Greece is still hoping for a bail-out from other European governments.
But New York state already had its bail-out, in the form of the Federal stimulus. That bought us a year to resolve this fundamental challenge to our definition of good government.
Some might argue that the solution here is simple: raise taxes.
But even Governor David Paterson — a liberal Democrat — is convinced that the capitalist engine at the heart of New York is already over-taxed.
In the medium and long term, answering this test, defining what a responsible government should look like, is the fundamental challenge of our time.
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Really oversimplifying here, Brian. The Greek and Spanish crises are about a lot more than “liberalism.” A lot of economists are saying it’s an example of the Euro expanding too quickly into countries that weren’t ready for a unified currency, given the state of their development. Without the ability to let their currency adjust, they had little wiggle room to adjust when the financial crises hit. That’s a short, inefficient explanation, but there’s a lot more at work here than just the size of government.
And to put New York’s problems all on the back of big government and “liberalism,” without acknowledging the role of the mostly unregulated financial industry, is really just spouting ideology. This financial crisis is a test case in what happens when you let corporations have their Galtian paradise–no regulations, not much tax on the richest playas. It’s an experiment that’s gone on for the past 30 years. It failed.
NY’s government is too big and inefficient, certainly. But is the current crisis only the result of too much government. Or to ask a question, as you like to do to prod thought, is it also the result of too little government?
Anon-
I think most Americans agree that there are some places where government does not to expand.
But I would argue that — despite the current debates over financial reform and healthcare — those are the easy steps.
The harder steps will be deciding where and when government needs to contract.
–Brian, NCPR
The crisis Brian is speaking of is a government fiscal crisis, not a private sector crisis. The fact is what do you do when government can’t pay for its obligations?
Europe has made a trade off, it tolerates long term persistent unemployment and lack of opportunities for many of its young and slower economic growth in exchange for more the government services, lower rates of poverty and more security for those in the middle to lower portions of the economy.
The problem is NYS has made no such decision or trade-off. We have a large government that does not provide a safety net; we are a state that has relatively high rates of poverty higher rates than many states with smaller governments and average government services. So why do we spend so much more than other states, what is going on?
I posted my first comment before reading this from Paul Krugman:
http://www.nytimes.com/2010/04/30/opinion/30krugman.html
An excerpt–
“The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. Even Greece’s 2007 budget deficit was no higher, as a share of G.D.P., than the deficits the United States ran in the mid-1980s (morning in America!), while Spain actually ran a surplus. And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.
Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.”
Lets also recall it wasn’t just the sub prime market that caused the world wide recession. This started back when wold oil prices shot through the roof. To blame this strictly on Wall St is incorrect.
I would also argue the “Galtian paradise” existed. In fact, regulations on borrowers meeting quotas and, frankly, crooked politicians caused a good deal of the crisis in housing and the Bear Sterns collapse, etc. It wasn’t a lack of regulation, it was improper regulation.
Brian said:
“But I would argue that — despite the current debates over financial reform and healthcare — those are the easy steps.
The harder steps will be deciding where and when government needs to contract.”
That’s fine. But that’s not what your post was about. It was about “liberal” government failing the Greek economy. Hindsight being 20/20, wudda-cudda-shudda found a better jumping off point for the discussion you wanted to have, and which Helen, et al, are having.
But recessions happen, they have always happened and they will always happen in the future.
So when we look at state or national governments that want to spend relatively large amounts, they will certainly do worse during recessions as compared to governments that spend less.
You can’t blame the private markets for a government unwilling or unable to balance spending and revenue. I think Brains point is legitimate; are we as a society willing to really pay for what many liberals or progressives want?
Greece and New York state were both running unsustainable deficits prior to the recession.
Both were funneling money to safety net and social justice programs, rather than infrastructure and forward-going investments.
In both states, politicians were responding to the public’s demand for more and better services without significant tax increases.
This is, in a nutshell, the weakness of the liberal democratic ideal.
Citizens (and the special interest groups that represent them) expect more and more from their governments; politicians have a natural self-interest in providing it.
But now we appear to have reached — and perhaps exceeded — a kind of natural horizon.
Some liberal economists, including Krugman, have argued that debt really isn’t that big a deal.
But when most of the liberal democratic world is borrowing at huge levels in a permanent, systemic way, the question becomes fairly obvious.
Who will keep lending us vast sums of money so that we can take care of our sick, poor and elderly?
And why is it that we can’t pay our own way, for things that we think are important and moral like healthcare?
–Brian, NCPR
The fundamental problem is that New York state government’s finances were too heavily dependent on revenue from Wall St… Ironic since anyone even remotely familar with investing knows the important of diversification, not putting all your eggs in one basket.
NY spends 70% more per medicaid recipient than the national average. Why is this? There is too much waste and the benefits are too generous – far more generous than Medicare benefits. Medicare, for example, does not provide dental, chiropractic, hearing aid, and vision while NY medicaid does. I don’t think medicaid should eliminate all of those benefits, but I do think there should be co-payments for those benefits.
Brian Mann said: “Greece and New York state were both running unsustainable deficits prior to the recession.”
Brian, read the Krugman column, including the excerpt included above. IN the NY example, you may be correct. But in the case of Greece, its GDP-debt ratio was the same as Reagan’s, a level of debt that was sustainable, and in fact was easily remedied under Clinton.
You’re trying to make an ideological point on economics, which is fine. But you’re using the wrong example dragging the Greek-Euro crisis into this. The Greek crisis is a monetary-system problem, not a liberal-government problem.
New York is a different kettle of fish.
Anon –
I disagree.
Krugman pulls a head-fake here by suggesting that the deficits Greece was running before the recession were sustainable — by comparing them to Ronald Reagan’s deficits.
But Reagan’s deficits weren’t sustainable.
Reagan helped to invent the disparity between the ambitions of liberal democracies and our unwillingness to pay for the services we want from government.
Ironically, Krugman is like many conservatives in that he is a debt dove.
He’s convinced that debt just isn’t that big a deal. That’s ideology.
I’m a journalist.
The simple fact is that Greece and New York state are imploding under debt — and under the burdens of fiscal promises these governments have made but cannot keep.
That’s the systemic quandary that liberal democracies face.
–Brian, NCPR
Brian,
With all due respect (and I mean this), Krugman is a Nobel-prize winning economist who has done groundbreaking research on, among other things, interest rates, recessions and currency devaluations.
You are a fine journalist, who reads a lot of the Beltway conventional wisdom about economics and absorbed a lot of it into the way you see the world.
Nothing wrong with that. But that way of seeing the world seems to find the same cure for every economic problem: a kind of eat-your-peas fiscal prudence, bordering on prudery, for the working class (give up your social security, your parks, your school music programs–it’s not sustainable), while accepting unlimited defense spending and low taxes on the wealthiest as a state of nature that is unalterable. (Not saying you harbor all those sentiments; just that that’s what you’re most likely to see reading the WaPo and New York Times and Wall Street Journal and cable news.) It’s an ideological mindset that colors all the coverage from the mainstream media, and one that led to some spectacular policy failures in places like Russia, California and Wall Street It is for the most part anti-Keynesian, anti-union, anti-liberalism and pro-mega-business. It’s really part of the media air we all breathe.
I think you fell into the trap of ascribing views from that mindset onto the Greek situation, which at its heart is about the Euro, and not the size of the welfare state and its attendant deficits.
Again, the pros and cons of the welfare state and deficit spending
are fine conversation topics, especially in New York. But comparing New York’s problems to the Euro crisis is inapt.
Anon –
Yes, it’s a fair question: Why would a journalist question the wisdom or acumen of a guy like Krugman?
My first answer would be that there are plenty of experts out there with better credentials than me.
If I went silent on every issue that they’ve held forth on, we’d have to shut down the blog.
Now on to the specifics of your (and Krugman’s) argument.
Krugman, and a lot of fiscal liberals, are doing debt damage control right now, trying to fend off conservatives who have suddenly gotten religion on the Federal deficit.
And they’re right: Conservatives have almost no credibility on this issue.
They’re using debt as an argument to derail liberal policy initiatives backed by the Democrats.
But they didn’t mind debt when it was being used to fund their initiatives (wars and tax cuts primarily, but also a prescription drug benefit for seniors).
Krugman is also right that a lot of mainstream journalists have bought into this narrative blindly.
That’s what his essay is about: It’s not really an astute analysis of the Greek financial crisis.
Rather, it’s an effort to head off a line of argument.
Summed up, his case goes like this:
Don’t bother to look at Greece or Europe as examples of debt-gone-wrong. The problem is different.
It’s monetary policy. It’s restrictive and clumsy trans-national agreements.
Fair enough. That’s his argument.
Now here’s mine, for what it’s worth.
I understand that debt is an important and safe tool for liberal democracies to use.
There is an enormous amount of debate as to what levels of long-term, systemic debt are acceptable.
Krugman — like Dick Cheney and others across the political spectrum — is one of those thinkers convinced that there is almost no ceiling on the amount of debt that a society can take on.
I happen to disagree.
I think when a society decides that it wants a long list of goods, services and benefits, but doesn’t want to pay for them, that is patently unsustainable in the long term.
We can see this fact playing out in real time.
Governments like Italy and Greece — and the US — are borrowing vast amounts of money.
Greece is on the verge of collapsing. Not because of monetary policy but because it has debts coming due that it can’t pay.
We’re nowhere near that level, but already 5% of our Federal budget goes to debt service, a percentage slated to rise rapidly.
Now, a note about your argument, that I have fallen into an essentially conservative mindset.
That might be true if I were suggesting that the answer is simply to deconstruct the fabric of our liberal democracy.
I don’t happen to support that idea.
We need a social safety net. We need a strong defense. We need widely available education. We need arts.
Our public employees deserve decent salaries.
The problem is that our appetite for these things has exceeded our willingness to pay for them.
So we have some decisions to make.
Do we raise taxes? I think we’ll probably have to. Does that sound like a pro-mega business idea?
Do we cut programs, and wages for government workers? I think we’ll probably have to do that too.
I think these are responsible decisions that need to be made.
The challenge — and excitement — of a liberal democracy is that we have to figure out how to make them.
The danger is that there will always be politicians (conservative as well as liberal) telling you that you can have all these things for free.
–Brian, NCPR
Dr. Krugman is only one voice and many Nobel Prize winning economists disagree with him, and frankly he is now simply political. So yes I respect his opinion, but I respect it knowing that he is a liberal just as I respected Milton Freedmon’s (also a nobel prize winner) opinion as a conservative when he was alive and very much against this sort of deficit insanity.
You can’t run a ponzi scheme and expect it to work, you don’t need a Nobel prize to understand that. So what we are doing in NYS and what Greece is doing is spending more than we have the ability to bring in. So we either cut spending or take more in. There is no magic bullet; with one exception and that is borrowing. So we borrow and borrow and borrow and who will pay this debt? We won’t, our children will, the result will be substantially lower rates of growth for our children, it is indeed a form of inter generational theft, our kids can’t vote.
But the bottom line is it does not really matter in my opinion and this is where I would be I guess a cynic? We will not be able to really cut spending or raise taxes in NYS. We are already one of the highest if not the highest per-capita taxed states in the nation, and that is not just taxes on wall street that includes everyone so that option is out. Ok how about cutting spending? There are simply too many very well funded interest groups to realistically do that, it is not going to happen. So what will happen? Well we find ways to borrow until the crisis is forced on us from the outside; just like in Greece.
That may not be a bad thing.
Brian,
Very thorough, as usual. I didn’t question your right to question Krugman; I’m making the point that I trust his economic analysis more than yours, based on his credentials, and based on the conventional deficit-hawk assumptions that I believe you (along with most of the rest of the media and the country in general) can’t help but absorbing, since it’s the only narrative going.
And again, I’m fine with your discussion of debt levels and so forth. That’s super.
I’m standing by my point, though. The Euro crisis was not the right jumping off point for a broad discussion of “liberalism.”
This crisis in Europe is about the Euro not allowing a response to debts coming due–not to the debt itself. Greece would be hurting without the Euro, but not on the verge of collapse. Spain is an even better example, because it was in surplus. And as this thread shows, I’d read this in many places, BEFORE I read the Krugman piece. His was just handy, and timely, on teh google. (I didn’t mean for you and Krugman to get in a death match, I swear.)
Anyways… I’m sure your readers are as tired of this thread as you and I are.
On to the next crisis.
Fair enough. I enjoyed the chat.
–Brian, NCPR
I think much of this misses the mark. The problem is not just that the crooked financial system we call Wall Street is a Ponzi scheme, it is a cancer. It feeds itself through the idea that we need to sustain ourselves through growth. Unions negotiate contracts based on a rate of inflation, retirement savings are predicated on the idea that there will be inflation and there needs to be a rate of return on investment that beats inflation so that the retiree’s standard of living remains constant, the government incurs debt which is counted on to diminish in real terms due to inflation over time, Wall Street hires lobbyists to have tax law written to incentivize investment in the stock market through IRA’s and such which the taxpayer helps fund through those tax incentives, Wall Street traders leverage money in those accounts to fund ever more complex and incomprehensible trading schemes, rating agencies give AAA ratings to investments that should be junk, taxpayers bail out failed banks and trading houses, corporations that used to primarily create products for sale start to make most of their earnings from interest on financing, banks issue credit cards that charge rates as high as 30% to people who will never be able to repay and are trapped because the banks had bankruptcy laws re-written in favor of corporations over people, the Supreme Court holds corporations are equivalent to people in terms of free speech and that money is equivalent to speech so the multi-billion dollar corporation can easily push aside the political rights of the working teacher who needs a raise so the school district has to raise taxes so the family down the block who have lost their jobs and are trapped in a credit nightmare lose their home along with enough others that the value of housing collapses then Wall Street sees the low value of homes as a buying opportunity and they buy the homes and rent them back to the people who used to own them and it all goes on and on…
Brian- I would completely disagree with your premise that “…conservatives who have suddenly gotten religion on the Federal deficit.” No, conservatives have always been against long term deficit spending and debt and usually against short term deficit spending. What you should have said is Republicans, not conservatives. There is a difference and to ignore it is to muddle the waters for no good reason.
I’m heartened to see you grasp the problems. I doubt we’d agree on the solution, but either of us would be more willing to take action than our politicians. We can worry and gripe about it all we want but they won’t do anything that jeopardizes their re-election. They will steer this bus right off the cliff while telling us the situation is well in hand and how it’s a good thing they’re at the wheel and not the other guy.
I agree with some of what Knucklehead says, but this isn’t the fault of just “Wall St” or banks or credit card companies. We, as a society, have lost the ability to take responsibility for ourselves. We don’t save, we carry enormous debt, we buy into the idea we “deserve” something so we finance it. That’s all fine to a degree, but there’s something to be said for old fashioned common sense and penny pinching. We did this to ourselves. I can’t blame Wall St or a bank for making ridiculous loans to poor credit risks, much less to the moron that bought bundled poor risk as an “investment”. The problem is they don’t take responsibility- the politicians they bought will bail them out.
Good luck finding an easy or even workable and painless fix.
That should have read- “I can’t blame Wall St or a bank for making ridiculous loans to poor credit risks, much less to the moron that bought bundled poor risk as an “investment”, when they have politicians to bail them out of the laws they made that got them in the fix.
Well if we just elect the right people they will save us.
I agree Bret this has much to do with our own individual decisions.
The business cycle happens, this time it was triggered by the housing markets the next severe recession will be something else. This is normal, we have always had recessions and recoveries. We actually had a higher unemployment rate in the recession of 1981-82 at over 10%. What is not normal is thinking that it won’t happen again or that the government can make it all better.
Brian, I think you have chosen terms that confuse the situation. At the beginning you define liberal democracy as meaning multi-party elections, labor protections, civil rights, and a safety net. These concepts are not exclusive to Liberals or Democrats, or necessarily reasons for a state or country to go bankrupt. Then you further try to blame New York’s fiscal condition on Liberals and Democrats. My recollection is NY most recently had a Republican governor for 12 years and a Republican controlled Senate for many more. And there is hardly a better example of fiscal irresponsibility than the eight years of the Bush/Cheney conservative Republicans. Conservative Republican economic policies are responsible for the huge transfer of wealth from the middle class to the wealthy elites and the dramatic increase in the disparity between rich and poor. And why don’t we look at Pataki’s and Bush’s tax cuts for the wealthy. The tax cuts were supposed to grow the economy. Didn’t happen. Now we have a recession and suddenly instead of restoring taxes on the wealthy we are talking about cutting the safety net. We rush to bailout irresponsible corporations and greedy banks but don’t have a dime to help the poor or middle class, and then blame it all on liberal democracy. I don’t buy it.
But the safety net is not where most government spending is going in NYS or the US for that matter. In fact we have very high taxes and much government expenditures, and yet we have high rates of poverty and indeed high rates of disparity between rich and poor in NYS. In the US programs to serve the actual poor are not the major portion of where most of our social spending is going.
So what is going on? I think we know.
J-one- Republican, Democrat, doesn’t matter anymore. Both “sides” spend taxpayer money without regard for the debt they incur. That money is there for them to use to buy votes, or so they seem to think. You want to stop it then you need to rethink taxes.