Monday, August 1, 2011

Listening to CSPAN

When I am in Switzerland, I don't spend a lot of time listening to or reading the news, but here I have been listening to CSPAN, my attention captured by the debt drama. ("Drama" is of course the right word -- it's a grand opera, which reminds one of the centrality of theater in our political system. We keep hearing those words employed metaphorically -- "theater", "drama", "narrative" -- but I'm struck by their non-metaphorical accuracy; we have a political system in which government is a branch of the performing arts).

Within the drama, between the antagonists, my sympathies are generally with Obama and the democrats -- the crisis is manufactured, the Tea Party freshmen privilege ideology over good economics, etc. etc. But the Democrats are digging in over the wrong things, and yielding over the wrong things.

The Tea Party's proposal to gradually raise the retirement age to 67 or so, for instance, seems at first blush pretty sensible in a world of increasing lifespans (since I drafted this line, however, David Moles has argued that this isn't the case; lifespans are decreasing in some demographics, the US has insufficient leisure time already, and Social Security's finances are actually fine. I am somewhat dubious about the last point and await further edification. A better alternative to raising retirement age would be a New Open Door policy on immigration, allowing lots of young working-age immigrants to come smooth out our demographic pyramid).

And the idea of mandated fiscal prudence is also actually a good one -- the implementation is macroeconomically naive, but that can be fixed. I don't understand why Obama does not counter with his own technocratic dynamic balanced budget amendment, one linked by formula to the business cycle, allowing deficits when growth stumbles, requiring surpluses when growth rages -- or, say, allowing the Fed to set the "allowed deficit/required surplus rate" as a kind of extension of monetary policy. (I also think the Treasury should try funding itself partly with long-term, revenue-indexed bonds -- paying dividends, as it were, on the government's operations -- which would automatically help adjust outflow to the business cycle).

In return for things like that, I would of course have liked to see reform of the tax code and repeal of the Bush tax cuts in return. Raising retirement ages may perhaps be sensible seen in isolation; but to do so, thereby demanding that working people work longer, while retaining a lopsided tax code which is swiftly concentrating the country's net worth into the hands of fewer and fewer people, is kind of obscene. (The Swiss have a wealth tax, on your net worth above a high limit; if you think about it, this is less distorting than having a property tax on real estate, but no tax on other asset classes. Why should the government care how you allocate your assets, and if it did care, why discourage real estate in particular?)

Instead the Democrats (not only Obama and the leadership in the final deal, but almost all the Democrats fulminating on CSPAN) are doing precisely the opposite; caving immediately on revenue, and thus committing the country to another economically broken attempt at trickle-down supply-sidism and "starving the beast", in the name of resisting any imposed fiscal discipline and any modification to Social Security. Is this entirely due to what sounds good as a soundbite -- the memetic fitness of the individual phrases "cut taxes!" and "save Social Security!" ?

I wonder if CSPAN has actually done more harm than good, by making every single thing said on the floor or in any committee into a campaign speech? Sensible, innovative blue-sky stabs at ideas of third alternatives can presumably only be aired now in the Congressional bathrooms, or through aides?

This is the more optimistic analysis, of course. The more cynical analysis is that the deal we got, is the precisely perfect deal for the owners of the country (as opposed to the inhabitants of the country). The owners of the country are already resigned to living in gated villas, so they do not need entitlement programs and the like; they don't mind so much if the poor riot, or the seas rise. They do not want the dollar to collapse or for America to default, as it is convenient for them to have a stable financial system. They are appreciative that the politicians stayed up all night and made a big deal about the debt ceiling, so that at the last minute everyone will be forced to agree to the deal they ordered. One thing you can say about this deal is that Wall Street will be very pleased, and the cynical interpretation is that that in fact predicts pretty much everything about the deal. The bond markets -- the "smart money" -- never acted the least bit worried about default; perhaps they were in on the plan.

(One reason living in Switzerland is pleasant is that the owners of Switzerland have not resigned themselves to living in gated villas; they like living downtown, and so it is necessary to have a social safety net, lest the poor become unsightly.)

I was blithely listening to CSPAN in the car, this past week, and when I went to turn it off one day, Noah cried from the backseat "Turn it back on! I want to hear about the debt!"

Shocked -- I'd assumed he was daydreaming -- I left it off, reached my hand back to take his, and asked, "oh Noah, are you worried about the debt?"

"Yes!" he said.

"What are you worried about?"

"We owe so much to China," Noah said, "and we can't pay it back and they'll come kill us."

"No," I said. "They will not come kill us. First of all, we can totally pay them back. Second of all, even if we didn't, nobody is going to kill anybody. They would just be mad and not want to lend us money any more."

Noah looked dubious.

"Look," I said, "Let us talk about the absolute, absolute worst case, even if we really owed so much money that we really couldn't pay it back. For one thing, we could always just give them something else. Like, say, Alaska. We bought Alaska from Russia originally. Alaska is worth a whole lot of trillions of dollars. So in the worst case we could just sell everyone who owes us money Alaska."

"Okay..." Noah said, somewhat mollified.

"Of course that would not be fair to the people in Alaska, so we'd more likely sell them little bits of things all over the place... a forest here, a bank there. But secondly, I have been leaving this radio on and letting you listen to all these angry, scared, upset adults for days. But do you know what they are so angry and scared and upset about?"

"What?" Noah said.

"They are so upset because they are used to America being the richest and strongest country. They think America has to always stay the richest and strongest country, and if it doesn't it will be terrible. But even if they totally mess things up terribly and spend all America's money and ruin everything, that doesn't mean anyone will kill us. It just means America will stop being the richest and strongest country and start being an ordinary country. Not even a really poor country like Haiti or Chad. Just a regular country like, say, Egypt or Poland or Brazil. Would that be so bad?"

"No," Noah said, "actually it's better to be an ordinary country than to be the strongest country." And he went off to camp pleased that we were heading in this sensible direction.

(I checked with him this morning before posting this. "Yes, I want them to keep increasing the debt," he said, "because that will solve the problem." What problem, I asked? "The problem," he explained patiently, "of America being the richest country.")