The Keynesian Under the Table: What Reagan's Supply-Side Defenders Keep Getting Wrong

       The Turk was the most incredible thing that most people in late-18^th century Europe had ever seen: an automaton who could play chess—and win. Between 1770 and 1820, Nobles and heads of state—from Napoleon to Benjamin Franklin  lined up to match wits with Wolfgang von Kempelen’s marvelous thinking machine. And the Turk almost always won, causing many to fear—more than 200 years before an IBM supercomputer vanquished human chess master Garry Kasparov—the obsolescence of the human mind.
       But it was all a trick. There was no machine, just an automaton sitting on top of a box that concealed a diminutive human chess master—a dwarf who had been trained to pull the levers and make it appear that the automaton was moving the pieces.
       Which, of course, brings us to Keynesian economics, or the theory of John Maynard Keynes that the best way for the government to handle a recession is to borrow money, spend lavishly, and stimulate the economy. The supposed failure of the Bush/Obama stimulus has lead to a frenzy of obituaries for Keynesianism, including this one by Forbes columnist and Reagan fanboy Peter Ferrara, who insists that, if we want to know what works during a recession, all we have to do is look at all the good stuff done by the Gipper, who "explicitly scrapped Keynesian economics for the more modern supply side economics, which holds that economic growth results from incentives meant to boost production."  

            And, as Ferrara reminds us in another article, Reagan’s accomplishments were certainly impressive: Slashing the top tax rate from 70 to 28%, deregulating anything that moved, cutting unemployment in half, and, in the process growing the economy by nearly a third and adding almost two trillion dollars to the Gross Domestic Product. “These economic policies,” Ferrara is quite sure, amounted to the most successful economic experiment in world history.”

       Does anybody else remember that there was a dwarf underneath the table? By “dwarf,” of course, I mean deficits, and the huge national debt, which reached proportionately massive levels under Reagan and has never gotten over it. The following chart, which I cobbled together from the historical data charts at the Office of Management and Budget, shows the rate of growth of both the economy AND the debt, and it makes a pretty good case that a non-trivial amount of GDP growth from year to year was, in effect, fueled by credit cards.

 

        And there is another dwarf under the table. Reagan increased military spending from an average of 4.8% under Carter to an average of 5.9%--creating, in the process, a huge Keynesian stimulus to the economy through spending in the defense sector—something that George W. Bush repeated during his eight years and that Mitt Romney is vowing to do (in the name of national security, of course) should he win in November. Whether you think that this is a good thing or a bad thing, it is most definitely a thing, and a thing that pumps a whole lot of government money into critical sectors of the economy.

       To his credit, Ronald Reagan did get unemployment and inflation under control, and he directed one of the most sustained recoveries in American history. But to suggest that he did this by ignoring Keynesian stimulus spending is silly. Large tax cuts were subsidized by large deficits, and the largest defense-spending increases in two generations pumped billions of dollars of borrowed money into the economy. That, really, is just about how Keynes said it should work.
       And, since tripling the size of the federal deficit is no longer a realistic option, let’s not fool ourselves into thinking that we can replicate Reagan’s recovery without a Keneysian dwarf underneath the supply-side table.

The Poker Economy

        In his new book, The Signal and the Noise, Nate Silver’s deals with a whole lot of things that human beings try to predict in advance: earthquakes, hurricanes, political elections, the stock market, and on and on and on. In my opinion, though, the best chapter in the book is about poker. Silver himself was once an avid online poker player who (he reports) made more than 400,000 during the years that he played the game. But his success lasted only for a few years, during what he calls “the poker bubble,” and the reason that the bubble burst is explained quite clearly in this graph found on page 318:

       You see, it’s all about the suckers--the bad players who lose heavily and whose losses allow the good players to win. Though anybody can win a single hand of poker, the people who win consistently over long periods of time have certain definable skills: they understand human nature extremely well, they are willing to realize small gains over long periods of time, and they have a deep intuitive understanding of probabilities. These skills are real, and they can lead to moderate-to-high incomes for the best players in the game.
       But whatever the final position of the players, wealth is not created during a poker game; it is merely transferred from those who do not understand the rules of the game very well and towards those who do. But this transfer of wealth only last as long as the suckers stay in the game. When they get fed up and leave, the whole game pretty much collapses until some new suckers can befound to take their place.
       And this is exactly sort of more or less what Stiglitz says in The Price of Inequality, except for “people who understand the rules of the game” read “the upper 1% of our society” and for “suckers” read “the rest of us.” It doesn’t have to be this way, of course. There really is such a thing as creating wealth, and when people do it, we all benefit by the increase in the size of the socioeconomic pie. What Stiglitz emphasizes, however, is that there is another kind of economic activity (he calls it “rent seeking”) that leverages a superior knowledge of the rules, and a higher ability to influence the game, to capture a larger share of the existing wealth without creating anything new.
       Throughout The Price of Inequality, Stiglitz presents evidence that much of the current economic activity follows the logic of the poker table, where the goal is to increase one's own share of the winnings rather than the overall size of the pot. Under such logic, strategies to create jobs by stimulating economic activity do not. New jobs require new wealth, but what we are getting is old wealth in different hands. Rich people are getting significantly richer by using their knowledge and their power to transfer more of society’s existing wealth to themselves, which is propelling income disparities to third-world levels.

       According to one narrative of the current recession, unemployment remains high because job creators are still being taxed too much. If we stop stealing their money, they will be able to do what they do best: create new wealth and produce new jobs. But this formulation only works if we are living in an economy where the highest performers are creating new wealth. If Stiglitz is right, we are living in a poker economy, one in which the top players are simply better able to game the system than the suckers. To the extent that this is the case, continuing to tilt the playing field towards the current winners is probably the stupidest thing that we can do. Even the worst poker players will often refuse to change the rules to make them lose their money even faster.

       Will the majority of Americans ever do the same? In the 1998 poker movie Rounders, Matt Damon gives us a warning: “If you can't spot the sucker in the first half hour at the table, then you ARE the sucker” (Silver, p. 317). As this is very likely the case in our economy today, isn’t it about time that we stopped playing the game?

2016, Obama's America: A Carnival of Nonsense

       Four times in the past month, somebody has taken me aside (usually when I was talking about my book on the Founding Fathers) and asked me, in a hushed voice, “have you seen the movie 2016? You really should. It will explain everything.” And so I did. This is a pretty rare step for me. I don’t watch movies, normally. And I don’t even own a TV. But I am going around the country trying to present myself as a refuter of the extreme right, so I broke down and gave myself something else to refute. Here it goes.

       Having encountered Dinesh D’Souza in the past, I was expecting a fairly slick piece of propaganda—something like Michael Moore’s anti-Bush screed, Fahrenheit 9-11(not coincidentally, the only political documentary ever to gross more than 2016: Obama’s America). With the exception of the “slick,” this is more or less what I found. The production values of the film are mediocre at best. More important is the message, which is, to put it bluntly, a bunch of nonsense.

       I am not talking about “nonsense” in the “gee-I-really-don’t-agree-with-your-politics” sense of the word, but in the “no-rational-human-being-could-buy-your-cartoonish-mix-of-psychoanalytical-doublespeak-baseless-speculation-and-third-rate-McCarthyism” sense of the word. The film really is that bad.
       Here is the central assertion of 2016 in a nutcaseshell: Obama’s decisions as president have been so startlingly bad and so consummately anti-American that we need to look deep into his family history to understand them. We find it by looking at his father’s anti-colonialism and his desire to please the absent father that he hero-worshipped. Because 20^th century anti-colonialism is anti-everything-America-stands-for, Obama hates American values on a very deep level. This is not his fault, of course—its just the way he was raised.

       Let me present three key scenes from the movie that give us a better sense of its narrative arc. The first scene is what rhetoricians call a “parade of horribles,” or a scary list of all of the America-hating, Third-World-loving Barack Obama has done:

      Got it? But here’s the thing: not a single one of the horribles is self-evidently true. Some of them are patently false (the bust of Churchill is still in the White House where it has always been); others are extremely biased evaluations of actions that could just as easily be spun the other way (stating that America would remain neutral in the Falkland Island issue, as it has always been, is only “taking the side of Argentina” under a very labored interpretation of side-taking). Every sentence in this clip could be rebutted, or at least contested, with far more evidence than D’Souza presents in its favor. But this is not exactly a movie about evidence.

       Except when that evidence involves the Freudian psychology that the Dinesh D’Souza of Illiberal Education detested, but which D’Souza 2.0 seems to have embraced. Enter New York psychologist Paul Vitz, whose controversial academic work attributes mental disorders such as atheism and liberalism to the absence of strong fathers.

      Even among reputable Freudians, it is considered good form to actually talk to a patient before issuing a diagnosis--especially when you have to make a call as weighty as "he hates and resents his father" and "he hates and resents America because he actually loves and idolizes his father." Dr. Vitz, however, is comfortable making the call based on a book in which Obama actually says that he loves and respects America because he was disillusioned by his father's politics.

       But Vitz's diagnosis is the key to D'Souza's whole argument. Once we know that Obama really wants to show his absent father that he is a good son, we can finally understand why he hates America so. It is because his father was a post-colonial scholar, asserting (against all of the evidence) that colonialism was actually bad for the colonized people. The only way for Barack Obama to be his father’s son is to hate colonialism (and America) too. Mystery solved. And here is the proof:

      And there you have it. Obama hates America because his father wrote an obscure article in a political journal advocating higher taxes. Doesn't it all make sense? I knew it would.

       The real question, of course, is not “why is Obama such an America-hater,” but “how has a political attack film that can offer nothing better than 100-year-old defenses of colonialism and 50-year-old apologies for Freudian psychoanalysis become such a prominent part of the hard right’s anti-Obama echo chamber"? Clearly, we who teach critical thinking have fallen flat on our faces and allowed our students to go into the world without an even basic understanding of what constitutes an “argument.”