Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Behind the Crisis in American Governance: Delusions about the Economy Treated As a Matter of Differing Economic “Taste” – Pt. 1/2 – Michael Hoexter

This is a syndicated repost courtesy of New Economic Perspectives. To view original, click here. Reposted with permission.

By Michael Hoexter

While the US political system (federal, state and local) has been assumed to be one of the more stable political institutions in the world, over the last two decades a series of confrontations between the Republicans and the Democrats has started to expose serious faults in American governance.  The current government shutdown is just the latest and in all probability not the last in a long line of aggressive efforts originating almost always from the right-wing of the Republican Party intent on destabilizing and delegitimizing its opposition with no seeming regard for the integrity of the institutions of government as a whole.  There is a sense of “entitlement to win” on the Right that is not mirrored on the supposed “Left” represented by the Democratic Party.  From that sense of entitlement, the Right feels justified in using extreme measures to get its way, including shutting down government to extract political concessions from the party that currently controls both the Presidency and the Senate.

I have written elsewhere that many on the Right apparently suffer from a “pathology of the will”, which enables sufferers to mentally blot out the contours of the surrounding world in favor of their preferred vision of how the world should be arranged.  There appears to be an excess of wanting, of will, that seems to overwhelm a more typically adult recognition of how those desires will be channeled and/or frustrated by the world outside.  The Republican Right, in contrast to the moderate “Left” and Center (as represented by the Democrats), seems to feel entitled to impose their vision because they believe that their wants and needs, or those of their wealthy patrons, eliminate from consideration those of other people, as well as can (magically) override the functioning of impersonal systems.   This will to win may serve them or their patrons well when fighting over the spoils in a zero-sum game but does not help them in coming up with an effective leadership strategy for society as a whole.  Political moves that are the equivalent of stamping their feet like willful children then would appear to be a “natural” outgrowth of this mind-set.  Another critical component of the pathology of the will, as I have observed it, is a propensity to tell lies as both a strategic and a habitual behavior.  When one believes that the world must conform either to one’s own wants or to those of a superior class of people whom one thinks that one represents (the “job creators”), to verbally misrepresent the world or one’s opinions is viewed as a virtue if it serves either your or your patrons’ apparent interests.

But the Republicans’ tactics have been aided and abetted by a combined political, journalistic and academic environment that treats their views and fabrications about the world as simply the expression of varying “tastes” about government and the economy.  As it turns out, despite the distaste that some express about their current tactics, the right-wing Republicans’ “taste” in policy is in fact privileged under most circumstances by the media, by academia, and even by their political opposition, in particular and alarmingly by President Obama, their nominal opposition.  The crisis in governance then has multiple actors in it with differential responsibilities and roles.  For the current impasse, one group, the Tea Party Republicans, is primarily to blame but the other groups involved have helped that one side come to its position of veto power despite this radical minority representing 18% of the population or less.

Game Theory and the GOP Offensive

That the Republicans promote and/or are prey to unrealistic beliefs about the world doesn’t mean that there isn’t a logic behind what they are doing, a self-centered logic that is almost entirely about a bid for more political power.  Game theory has a parsimonious way to describe how the Republicans have been able to extract more concessions from Democrats than the Democrats have from the Republicans.

Originating in analyses by the Rand Corporation of the nuclear confrontation between the US and the Soviet Union, game theory is based on the theoretical construct of the Prisoner’s Dilemma, which is a scenario where there are two prisoners, members of a gang in separate prison cells under interrogation that have the choice to either “defect” or “cooperate”.  If they both choose to cooperate with each other by denying the crime they each get a small pay-out (shorter prison term). If one “defects” by confessing and the other “cooperates” by denying the crime, the defector gets the biggest payout (immunity), and the cooperator gets the lowest payout (longer prison term).  In repeated rounds of the Prisoner’s Dilemma game, the stable solution for defections has turned out to be “tit for tat”, where if one party defects then the other party should defect in the next round in response to the defection. Game theory and its variations schematizes the “problem of other minds” when dealing with a high-stakes negotiation.

In game theoretical terms, the right-wing of the Republican Party has shown their willingness to “defect” in any circumstance and they know that the Democrats will almost never “defect”, i.e. throw the Republicans under the bus, politically or break with the consensus Washington position that favors Republicans.  Republicans current laissez faire attitude towards governing, can be considered in game-theoretic terms a “defection” in relationship to the Democrats.  In negotiations the ability of one party to “take or leave” any offer, puts that party in control of the negotiations.  If one party shows that it will always “take” what is offered, if not at the first pass then subsequently, that party in the negotiations will almost always lose.

The Democrats have shown themselves to be serial “cooperators” and celebrate themselves as such.  This has gained them only slight political benefits for a number of reasons:

1)    The Washington press typically takes a “both sides do it” approach and hasn’t exposed the Republican’s brinkmanship and rewarded the Democrats’ civility.

2)    Most Democrats have not represented a clear social or economic ideal with regard to actual policy but instead simply represent comity and compromise among the political elite.  The elite of the Democratic Party apparently do not notice that many in the electorate have values and concerns that extend beyond how officeholders deal with other officeholders.

3)    Furthermore, the Republicans represent a more intense version of the same underlying neoliberal paradigm that is the current political-economic “common sense” in Washington.  Democrats are a less “true” version of the dominant neoliberal tendency.

4)    As sketched out above, Republicans take full advantage of Democrats’ poor negotiating techniques by “defecting” when it suits them; i.e. they always have two options.

President Obama is largely responsible for the recent intensification of the “extreme cooperator” stance of the Democratic Party, especially in his first term in office.  In his second term, Obama seems to realize that his signature political achievements are now threatened and has started to shine a harsher light on the Republicans, whom he had treated before with kid gloves.

Ultimately, to negotiate effectively and still retain political integrity, the Democrats would have to show their willingness to “defect” by exposing the Republican tactics as borderline treasonous and signs of a commitment to anarchism/chaos rather than governing.  The Democrats would have to make their public criticisms of the Republicans insistent and damaging to the Republicans, rather than hope that a quick venture into criticism of their opposition will yield immediate results and a return to comity.

It would help, as well, if Democrats would actually consistently stand up for ordinary people, for the financial reality of government’s ability to issue dollars, and for principle rather than be a kinder, gentler version of a sell-out to the donor class and business interests.   As Joe Firestone points out, the Democrats have in this standoff many choices and can never sincerely claim that they have “no alternatives”.  It is just that if they confine themselves to the framework that the Republicans prefer, they appear to have few options to, in game-theoretic terms, “defect”.

An Economic Delusion:  Autonomous Capitalism

The long-term crisis in governance in the US will not, however, be undone simply by clever negotiating tactics at this particular point in time.  Ultimately belief in the institution and potential effectiveness of government has been gradually but continually undermined by the decades-long neoliberal propaganda campaign that idealizes markets and demonizes the functions of government that control, stabilize, and have the capacity to support the economy.  The neoliberal propaganda campaign has been multi-vocal and multi-channel with politicians, political operatives, academics, journalists, think tanks, and prominent right-wing businesspeople all having important roles in spurring on the collective delusion that markets are always the optimal solution to every economic and political problem.  It starts, of course, with there not being even a robust definition of what markets are as a social and economic institution and from there the magical thinking about markets and capitalism grows.

Ultimately the fantasy-laden vision that has developed is that capitalism as represented by loosely regulated or unregulated markets is an autonomous, self-stabilizing system that at the same time paradoxically is fragile and mercurial enough to require political and economic “courtship” and “soothing” by local, regional and national governments.  Furthermore, this system of economic beliefs suggests that market institutions could do the job of government better than government itself, so it always makes sense for policymakers to try to create markets where there are now government institutions.  The fantasy presented is that government is an entirely fallible institution and markets are a nearly infallible institution.  If this delusion is assumed as a given, as has been hammered into people’s brains for three decades, logically it makes sense to pare government as much as possible and allow the private sector to attempt to take over its functions.  Within this system of thought that is supported by scandalous anecdote of government failures, some true and many false, but not by the everyday reality of mostly adequate to good government service, the GOP or others on the Right feel entirely justified in non-governing and cutting government funding as much as they can.  Unfortunately, those in the supposed Center and the moderate “Left” who are also wrapped in a version of this fantasy, cannot function as staunch and reliable defenders of the achievements of government, because they do not by their actions represent ideas and policies that are congruent with that position.

Those who cannot grasp the qualitative differences between a macroeconomic system like capitalism and individual capitalist firms, between a part and the whole, will be perhaps confused by the idea of a non-autonomous capitalism.  It is true that a feature of capitalism is that firms (i.e. corporations, businesses) are relatively autonomous but, as I will describe below, this cannot be said of the macroeconomic system overall.  If we compare our current system to the only other industrial system that has existed, the Soviet/Communist command economies, it is true that in capitalism individual firms typically make decisions on their own, though often within some regulatory framework.  This doesn’t mean they are entirely autonomous but certainly relatively so, as compared to a command economy.  The mental barrier for at least naive neoliberals and the Right has a typical fallacy of composition, i.e. that the part can substitute for the whole.  Capitalism as a system does not behave like, or have the requirements of, one giant firm.

That this economic delusion about markets is a self-aggrandizing, self-flattering vision for business elites goes without saying, as they feel entirely confirmed in the worldview that arises from their business roles and it enhances their sense of entitlement to exert power and influence when and where they see fit.  Often the extreme version of this view is called libertarianism, a label that was invented by a corporate lobbyist in the 1940’s.  The novelist Ayn Rand promoted a similar vision, a celebration of selfishness and her fantasies about capitalism, which has inspired a couple generations of right-leaning young people.  Both libertarianism and the views of Rand’s followers, there is no such thing as a differentiated, interdependent composite reality of society, i.e. social systems and instead society is just of a collection of individuals.

Academic economics with a few exceptions plays a substantial role in laying the foundations for and promoting the unrealistic vision of an economy that can exist and thrive without political institutions or interaction with a natural environment.  Neoclassical economics in particular, the dominant school of economics known for operating from airy abstractions, starts with a model of the economy that could function without the intervention of anything outside the abstractions of supply and demand.  The economic model of neoclassical economics also unrealistically assumes that the market tends towards equilibrium, rather than as is the reality, being prone to boom and bust cycles, i.e. continual disequilibrium.  The fetish of markets and demonization of government intervention are even more intense and politicized in the so-called “Austrian” school of economics that has its followers among the political Right and on the Internet.

Despite these claims for the solidity of markets as an institution, the fragile, mercurial side of this view of capitalism and markets enables the right-wing, corporate “centrists”,  and business lobbyists to attempt to scare off efforts of policymakers to regulate or exert more control over the direction of the economy.  As Michal Kalecki noted in his brilliant 1943 essay “Political Aspects of Full Employment”, unknown dangers are threatened if policymakers take a too-proactive role in steering the economy, even though these efforts would, if well-executed, mean greater profits for business.   Currently we are not facing a government that is endeavoring to take that active dirigiste role or even conduct expansionary fiscal policy, but the clever propagandists of the Right have preemptively designated weak efforts by Democrats to regulate and support the economy as if the Democrats had in an economic coup seized its “commanding heights”.  The Obama Administration, in apparent deference to the views of the GOP and some very short-sighted business leaders, has in fact starved the economy of liquidity by cutting the deficit too rapidly and threatens to do more of the same.

Behind the Crisis in American Governance: Delusions about the Economy Treated As a Matter of Differing Economic “Taste” – Pt. 1/2

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.