Recessions aren’t about sins
Matt Yglesias dings me for recommending the conclusion to David Brooks’s recent column, which reads, in part, “many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.”
I deserve the hit. Like Matt, I don’t believe recessions are about sins, and suggesting otherwise confuses the issue severely.
Larry Summers once gave me a good quote on this. “The central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending and they’re solved by more confidence, more borrowing and more spending,” he said. But “people see economic issues through moral frames and people think there’s an extent to which recessions are punishment for sins — mainly sins of excess — and you don’t expiate sins by binges. So there’s a kind of moral counterintuitiveness that has made it difficult for the public and for political figures to accept stimulus.”
The truth is I didn’t read Brooks’s final sentences that closely. The part of his conclusion I meant to endorse were the two paragraphs preceding the line about sin:
When you are the president in a financial crisis, you have the power to pave roads and hire teachers. That will reduce the suffering of real people who would otherwise be jobless. You have the power to streamline regulations and reduce tax burdens. That will induce a bit more hiring and activity. These are real contributions.
But you don’t have the power to transform the whole situation. Your discrete goods might contribute to an overall turnaround, but that turnaround will be beyond your comprehension and control.
That’s basically right. One problem with the Washington conversation is that when your hammer is stimulus, or maybe Fed policy, there’s a tendency to cast every problem in terms of insufficient stimulus and cowardly Fed policy. And make no mistake: I think our stimulus has been insufficient, and our Fed policy overly cautious. But even in a perfect world, there are limits to what policy can do, and in the world we live in, a lot of the major impediments to recovery — the crisis in the Eurozone, slowing growth in emerging economies, gridlock in the American political system — are outside the president’s control.
But the public rarely hears about that because everyone in public life has an incentive to exaggerate the impact their policy proposals would have. It would really be a bummer of a speech if the president took the podium and said, “my ideas might reduce unemployment by half a percentage point, or even ma bit more, but don’t expect any miracles.” Similarly, Speaker John Boehner wouldn’t get much applause for taking the podium and saying that reducing regulations and reforming the tax code might help the economy grow on the margins, but he simply doesn’t believe there’s much we can do to ease suffering in the short-term. That, however, is his actual position.
It is well within the bounds of the possible for the president, with a bit of help from Congress and the Fed, to make the situation better. It is not clear to me, however, that he, or even they, can actually make the situation good. That’s not an excuse for inaction, or insufficient action. As Brooks says, reducing suffering and employing people is a real contribution.