Today is Israel’s Independence Day. When I was a kid, attending a secular Zionist day school, this was a fairly substantial holiday. We would all dress up in blue and white, the choir would sing at assembly, etc. I still remember the songs we used to sing; I get a nostalgic twinge thinking about them. And I get that twinge watching my son, who attends a liberal but not secular Jewish day school, head off to school in blue and white this morning.
But if you ask me, “am I a Zionist?” I’d have to answer: “what’s a Zionist?”
An “-ism” is an ideology. It doesn’t have to be a comprehensive ideology – you can be a monarchist in the sense of being a partisan of monarchy when the question of republicanism is alive in a specific political context, without holding to some organic ideology about the nature of monarchy. But, at a minimum, holding to an “-ism” means holding to a particular ideological perspective on some large-scale political question.
So what’s the question?
“Zionism” is Jewish nationalism. The Zionist movement was a movement aiming at the spiritual regeneration of the Jewish people through the establishment of political sovereignty in the historic Land of Israel. That, I think, is a description that subsumes all the varieties of Zionism, from Ahad Ha’am to Ze’ev Jabotinsky. Inasmuch as the latter has been achieved – Jewish political sovereignty in the historic Land of Israel is an accomplished fact – it would seem that “Zionist” is a term of historic interest only.
But people still use the word – and not just people who are hostile to the State of Israel; there are innumerable self-avowed Zionist organizations out there. So what does the word mean?
I’m not sure that the people who use it are clear about this. For many of them, “Zionist” seems to mean, “partisan of the State of Israel” – but that’s not an “-ism.” You don’t call someone who supports the Greek position on all outstanding political questions a “Hellenist.” “Zionist” should, if it has meaning, refer to some living ideological question. So what is that question?
I can think of two questions to which it could possibly refer, but neither is entirely satisfactory. One is the relationship between the State of Israel and its non-Jewish (and especially Arab) minority. The other is the relationship of diaspora Jewish communities to the State of Israel.
Zionism, as I say, is Jewish nationalism, and the State of Israel represents the satisfaction of Jewish national aspirations. Inasmuch as it does so, it makes sense (from my perspective) for the State of Israel to continue to use Jewish symbols as emblems of the state, teach Hebrew as the primary language in schools, favor Jews in its immigration laws, etc. This is all extraordinarily common among states with an underlying ethnic basis, which is to say a great many states in the world today. But Israel, also like many states, has discrete minorities – in particular, a discrete Arab minority that, for good historical reasons, has difficulty collectively identifying with the state as currently constituted. There are more liberal and more illiberal possible approaches to this problem, but I don’t see any reason why “Jewish national aspirations” require failing to recognize the problem, or trying to solve it by means that involve granting that minority greater collective recognition, including the designation of national minority status (which would imply some degree of territorial autonomy) or even, in the extreme, bi-nationalism. There are practical objections that could be made to any resolution of the problem of Israel’s relationship with Israel’s Palestinian Arab minority, but I don’t see how any serious proposal needs to denigrate or deny Jewish national aspirations, and therefore why any such must be classified as “non-Zionist.”
As for the relationship between Israel and diaspora Jewish communities: an affirmative designation of oneself as a “Zionist” by a non-Israeli Jew would seem to imply some kind of recognized obligation owed to the State of Israel by diaspora communities. But what obligation? How, again, does that perceived obligation differ from the obligation that, say, Greeks in Astoria feel toward Greece? How does it extend beyond the traditional obligations to the Jewish people as a whole that Jews have asserted (and, at times, denied) for as long as there has been a Jewish people? Self-professed Zionists would argue vociferously that any such obligation does not imply anything like dual loyalty. But if it doesn’t, then how does it differ from the sentimental attachment to the ancestral homeland that is common to numerous diaspora groups?
The more I think about it, the more I think that contemporary use of the word “Zionist” is pernicious. It is used by self-professed Zionists to narrow the terms of debate – to imply that such and such course of action or political perspective is tantamount to rejecting Israel’s “right to exist.” And it is used by self-professed “anti-Zionists” to keep open a question that was settled 64 years ago: whether there would be a sovereign, recognized State of Israel in the first place.
Israel is a complicated place, with an exceptional history among contemporary states. It’s creation was an extraordinary achievement, and something the Jewish people should be proud of – and that I am proud of – without being blind to its flaws and failures. But the creation is complete. People who still think of themselves as Zionists, for the sake of the state they hold in reverence, need to recognize that the job is done, and act accordingly. “Post-Zionist” is not an ideological perspective – I can’t really imagine what a “post-Zionist” is supposed to believe – but it is an accurate description of historical reality. There remain Israeli questions; there remain Jewish questions; and those questions are inter-related. But there isn’t really a question anymore to which the label, “Zionist” supplies an answer.
Ironically, if I had to label myself, I’d reach back to a period before the advent of political Zionism for the proper term. Hovevei Zion, or “Lovers of Zion,” was the name for charitable organizations in the Russian Empire that promoted the development of Hebrew, promoted Jewish agricultural settlement in the Land of Israel, and so forth. These groups, originally non-political, were absorbed into the political enterprise of Zionism with the First Zionist Congress. That political enterprise having accomplished its goals, but the other goals of the poorly termed “cultural Zionism” being, like all cultural projects, eternally incomplete, the political cord should be resolutely cut. The ongoing relationship between the Jewish diaspora and Israel should be characterized not by political allegiance, but by love.
Every now and again, you hear stories about how Democrats “need” to win Southern white votes or working-class white male votes, or about how Republicans “need” to win Hispanic votes or unmarried female votes. And the rejoinder is, basically, that neither Democrats nor Republicans “need” any particular set of votes – they need a majority of votes. All votes (within any given jurisdiction where an election is being held) are equal.
That’s true from the perspective of each party. But it’s not true from the perspective of the voters.
Voters participate in the general interest. But they also have specific interests – interests that may or may not be aligned with the general interest. The assumption embedded in Federalist #10 is that, in a large Republic, the general interest emerges from a competition between specific interests. Whether or not the design of our Republic facilitates this competition and the emergence of the general interest therefrom may be questioned, but the idea that this is where the general interest comes from marks the big divide between liberal constitutional designs that emerge out of Montesquieu and constitutional designs that emerge out of Rousseau (to pick two French examples; I could have picked examples from British or American intellectual history instead).
From the perspective of the two parties, all votes are equal, and the goal is to assemble a majority – more specifically, to assemble a stable, enduring majority for the lowest cost. A key to lowering cost is to achieve an identification between groups of voters and the party. Once this identification is established, and voters are properly sorted, they can be retained at relatively low cost in terms of policy achievement. Because one party is perceived as their “home” while the other party is perceived as inherently hostile, voters can be mobilized simply to prevent the other “team” from winning, without actually expecting their own “team” to advance the ball significantly.
This process, in the interests of each party, is, logically, against the interest of the voters in question. The very natural process of identifying with a particular coalition, which appears to be advancing that group’s influence, is actually the process that limits that group’s impact. The group is being tricked into entering an arms race with voters of an opposed group. And arms races are, in general, irrational outcomes for both sides.
Effective lobbies, therefore, refuse to be trapped in this fashion. They work both sides of the aisle, and are quite public about the fact that they want their position to become a bi-partisan consensus. From ConAgra to AIPAC to the AARP, the goal of effective lobbies isn’t to become identified exclusively with a single team. It’s to move the entire playing field in their direction as much as possible. And that means engaging with both teams, even if you have a preference between them.
So the assumed formulation I began with isn’t just wrong – it’s backwards. Republicans don’t need non-white votes to win elections – non-white voters need to lobby Republicans to support a policy agenda that advances their interests, if only so that the Democrats (which may remain their party of preference) know they can’t take their votes for granted. Democrats don’t need white evangelical votes to win elections – white evangelicals need to lobby Democrats to support a policy agenda that advances their interests, if only so that the Republicans (which may remain their party of preference) know they can’t take their votes for granted. More generally, groups of voters organized around common interests should strenuously resist the temptation to identify with either political party. The more they play it coy, the more likely they are to advance their interests at lower cost. Moreover, and this is crucial, the more they play it coy, the more the two parties will need to pay attention to their participation in the general interest, because they cannot count on them being “captured” by “team” positions with respect to their specific interest.
The route from here to there, unfortunately, isn’t easy to discern. For one thing, the interests of the leadership of such organizations is not perfectly aligned with the interests of the membership. Indeed, in certain ways their interests are in direct conflict. Identification with a particular “team” provides the leadership of the organization so identified with greater opportunity for political advancement – and this higher political profile provides obvious justification for their organization retaining them in positions of leadership, even if there is little evidence that the ball is actually being advanced faster than it would have been with a different strategy. Moreover, even if this conflict could be resolved, as with any arms race there is the difficulty of persuading anyone to make the first move.
But such moves need to be made. Let me end this by slightly dissenting from one of my favorite commentators, Ross Douthat, in his obit for Charles Colson:
We only have two parties in America, and to be active in politics inevitably requires identifying with one more than the other, and probably becoming directly involved with one or the other as well. But given how unlikely it seems that a political party in a fallen world would have a platform that comports precisely with God’s intentions for human affairs, any serious Christian should assume that there are places where his or her party is getting some important issue wrong, or at the very least giving it insufficient attention. And just recognizing those places or issues is not enough: The Christian Republican or the Christian Democrat has the obligation to focus on them as well, to prioritize them and call attention to them even when it annoys or frustrates their co-partisans, in order to demonstrate where their ultimate loyalties really lie.
It’s probably superfluous for me to do so, since we blog for the same site, but I recommend reading the exchange between Daniel Larison and Conor Friedersdorf on whether there’s a dime’s worth of difference between Romney and Obama on foreign policy.
Conor basically makes the case for agnosticism thusly:
- Romney clearly is willing to say anything that his audience wants to hear, so we have no idea what he “really” believes and therefore no idea what he’d actually do in office.
- Obama appeared to be campaigning in 2007-2008 on a significant change in course in foreign policy, but then delivered a very high degree of continuity with the Bush Administration; hence, there’s no reason to think that he’ll be more restrained than Romney would in the exercise of American power.
- Hence, a plague on both their houses.
Larison’s response, basically, is to look at what the candidate has said, look at who he hires, and look at what his coalition favors. Romney has campaigned as a unilateralist, arguing consistently in favor of a more confrontational policy and a higher defense budget. He has hired a collection of neoconservatives in good standing to advise him. He has behaved, consistently, as if the greater political risk is appearing insufficiently hawkish. It doesn’t matter whether Romney believes what he says. If he says something because he thinks it’s in his interest even though he doesn’t believe it, presumably he’ll do that same something for the same reason.
I want to strongly endorse Larison’s rejection of Kremlinological interpretations of what Romney “really” intends. Steve Sailer has said advanced such a reading several times, suggesting that Romney learned two lessons from his father’s “brainwashing” debacle: never publicly question the consensus of the foreign policy experts – but don’t believe those experts either. Implicitly, he’s suggesting that Romney is secretly unconvinced by the dominant hegemonist paradigm, but has been assiduous about stridently supporting that paradigm publicly to protect his viability within the system. I don’t think this is a useful way of thinking about things, for the very reasons Larison suggests. If Romney campaigns as a strident hawk, he will not have the political capital to reverse course – and there’s no reason to believe he’d want to make reversal a priority anyway. Obama, remember, reneged on some of his campaign promises in order to remain within the foreign policy consensus. That’s a much easier – and more common – task.
But I think Conor has a point as well, specifically if we look at Iran policy. Romney has campaigned on a policy of confrontation on all fronts. I would expect this to result in poorer relations with a host of countries such as Russia and Turkey. But there is a difference between confrontation and war. War is a high-risk gamble. Romney, to me, doesn’t seem much like a high-stakes gambler.
That doesn’t mean he couldn’t be backed into war. Indeed, it strikes me as highly plausible that Romney would, by pursuing a failed policy of confrontation, create a situation where his credibility was at stake if he did not escalate to the use of force. But, then again, President Obama has already put himself in much the same position by pursuing a policy of coercive diplomacy.
Would a President Romney go to war with Iran if backed into it? Or would he back down in some weasely fashion, revealing himself to be a big talker with a little stick? I don’t see how we can know. The upshot, though, is that I see the choice (with respect to Iran) as follows. I believe Obama is trying to resolve the Iranian situation without resort to war. But he’s committed himself to war if his policy of sanctions fails. And I believe – based on his actual behavior, both his willingness to use force and his unwillingness to stray outside the foreign policy consensus – that he would launch a war if he felt that sanctions had failed. That is to say: I don’t think he’s bluffing. Romney, I believe, is not interested in a diplomatic solution to the Iranian situation. He’s interested in posturing against Iran. When that posturing fails to deliver any results, will he go to war? Or will he continue posturing? I don’t know how we can know for sure – I don’t even know how Romney can know for sure; he’s never been in that seat, or anywhere near it. But it seems to me that to vote for Romney on the assumption that he will exercise more restraint than Obama is to vote for him on the assumption of bad character – that is to say, we’ll be saved from war by his (assumed) unwillingness to follow up belligerent threats with violent deeds. That’s very worth considering if what you’re trying to do is figure out what a Romney Administration would actually look like. It doesn’t seem like a good reason to vote for somebody.
(To be totally clear: I am not at all arguing that a willingness to wage war is an index of good character – far from it. Nor am I arguing that a willingness to refrain from using force, or to back down from a commitment when circumstances change, is an index of bad character – far from it. Reagan was right to pull the Marines out of Beirut. Obama is right to be staying out of Syria. I’m saying that making promises you don’t intend to keep is an index of bad character. Bush Jr. was right not to go to war over Georgia. But his Administration gave every indication that it was willing to back the Georgian government up in its confrontation with Russia, a reckless promise that had to be broken. That showed back character. We have every reason to believe that Romney will make reckless promises with respect to how he will handle Iran. We don’t know whether he’ll keep them.)
I’m going to keep doing this, but stop pretending that it’s a weekly. To recap: I’m taking two films that you might not think would go together, and juxtaposing them for what I hope is a fruitful cinematic dialogue. Earlier editions of the double feature feature are: (1) “The Philadelphia Story” and “Blue Valentine”; (2) “Richard III” and “The King’s Speech”; (3) “The Tree of Life” and “A Serious Man”.
The last entry in this series was considerably longer than I generally intend these things to be. This one will, I hope, be a bit more normal in length.
* * *
“Blazing Saddles” is one of the funniest movies ever made. It’s also a tricky one to watch these days. You see, there’s this . . . word. That character after character says. Which you can’t say anymore. (For good reason.)
I’ll give you a hint: it begins with an “n.”
When I rented the movie recently to watch with my nine-year-old son, I gave him a little talk beforehand, basically to the effect of: this movie is one of the funniest movies I’ve ever seen; I believe it’s a great movie; and I’m not ashamed of the movie in any way. But: if you quote some of these scenes to your friends, and somebody overhears you, and they don’t know you’re quoting this movie, you are going to get in a huge amount of trouble.
It’s not just the “n-word.” Think about some of the quotes from this film:
“Excuse me while I whip this out.”
“Where the white women at?”
“Fifteen is my limit on schnitzengruben.”
The film is positively gleeful as it revels in a particular racial-sexual stereotype. Which is thrilling – but there’s a reason the film is able to get away with doing this, and it’s not just that this was the 1970s. Bart needs to walk a fine line for a mostly white audience to experience the frisson of identifying with his potency (sexual and otherwise) without being threatened by it. And Cleavon Little is perfect cast for the part, endowing this trickster character with just the right mix of charm and swagger.
This is a feature of the “have it both ways” type of humor that appears to be the sweet spot for humor that trades on stereotypes. Straight out ethnic humor, practiced by a member of the relevant ethnicity, is “inside” humor; outsiders are rarely fully welcome. Practiced by an outsider, such humor frequently and understandably offends. But humor that simply refutes stereotype is generally, well, humorless. The sweet spot both participates and undermines at the same time. This is what the Marx Brothers did with their immigrant protagonists and their WASP antagonists; and this is what Mel Brooks does at his best, as he did here.
The second layer of this reveling, of course, is that this is a Mel Brooks movie; this is Jewish humor. That comes out obviously in scenes like the yiddish-speaking Indians, but it’s also very much implicated in the racial-sexual stuff. A Jewish male fantasy of being hung with, shall we say, a schwartze schnitzengruben, is not very far from the surface.
* * *
What’s interesting to see is how this fantasy has evolved in the generation between “Blazing Saddles” and the other half of my double-feature, “Harold and Kumar Go To White Castle.”
Two scenes in particular seem apropos. Scene one: Harold goes across the hall to see if the two Jewish guys want to go to White Castle with them:
Goldstein: Sorry, kids. We ain’t goin’ nowhere. We’re watching The Gift. Supposedly Katie Holmes shows her titties in this movie.
Harold: Is that all you Jews ever think about? Tits?
Rosenberg: Katie Holmes is a nice, respectable, wholesome girl… and I’m gonna see her boobs.
And two, later on, Harold and Kumar, through a series of unfortunate circumstances, have found themselves in jail, with Tarik, an obviously highly intelligent African American man:
Tarik: I kept saying, “I understand I’m under arrest. Now please stop beating me.”
Harold: I don’t understand how you can be so calm about all this.
Tarik: Look at me. I’m fat, black, can’t dance, and I have two gay fathers. People have been messing with me my whole life. I learned a long time ago there’s no sense getting all riled up every time a bunch of idiots give you a hard time. In the end, the universe tends to unfold as it should. Plus I have a really large penis. That keeps me happy.
The breast-obsessed Jewish guys down the hall are stand-ins for the Jewish creators of “H&KGTWC.” The scene lets us know that, on another level, Harold and Kumar themselves are surrogates; as Asian-Americans, they are “new Jews” and this movie is their baptism in certain conventions of Jewish-American humor. (And Goldstein and Rosenberg should also serve as a warning: Brooks’s metaphorical grandchildren have gotten wise to their own erotic obsessions; perhaps as a consequence, those obsessions, and those grandchildren, seem far less vital than were the men who ogled Lilli Von Shtupp.)
And Tarik? Tarik is so over-the-top as a counter-stereotype precisely as a way of telegraphing that the creators are wise to what they themselves are doing. Tarik is a parody of the talismanic Negro. But he’s also playing out a vestige of the old fantasy. After all, he conforms to stereotype in one very important way – the same way that Bart did. And it keeps him happy.
* * *
“H&KGTWC” is a fun ride, and worth seeing. But what struck me in placing the two movies next to each other is the suburban smallness of the newer movie’s canvas. For all that it was hailed at the time for its freedom from the confines of political correctness, “H&KGTWC” is a very firmly hedged-in movie. Its humor comes substantially from its acute consciousness of where those hedges are – it knows all the rules of political correctness, and breaks them conscientiously, not anarchically. One misses the openness of the old frontier.
UPDATE: More than one commenter has pointed out the substantial contribution Richard Pryor made to the script for “Blazing Saddles.” So what we’re looking at isn’t entirely a decline from Brooks’s era of American Jewish humor, but the effect of losing that crucial collaboration with one of the greatest black humorists of all time. My apologies to Pryor and all devoted Pryor fans for my omission.
Unconventional Monetary Policy Is (Part Of) The Problem, And Eliminating Cash Is (Part Of) The Solution
Periodically, policymakers and market participants have speculated as to whether or not there is a bubble in Treasury securities. Here’s Sheila Blair yesterday:
The Fed has maintained interest rates at or near zero for four years running, even though the financial system has been relatively stable since 2009. The Fed’s actions have kept Treasury bond prices high (while keeping the government’s interest costs low), but the fundamentals do not support the high valuations, given the fiscal mess we are in. Sooner or later, the bond bubble will burst. History has shown that a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending always ends badly. Absent a change in policies, a toxic brew of volatile interest rates and uncontrollable inflation could define our future.
Do make my argument, I’m going to wade into last week’s debate between Ryan Avent and Matt Yglesias about whether or not eliminating cash would improve monetary policy at the zero bound. But first I need to recap the debate.
Right now, when the Fed thinks we are entering a recession, it lowers rates to increase the money supply in response to elevated demand for money (equivalent to lower demand for goods and services), and when inflation begins to pick up the Fed raises rates to reduce the money supply in response to lower demand for money (equivalent to higher demand for goods and services). If they do their job well, the economy should hum along a more stable trajectory than would be the case if the money supply were fixed. That’s the theory, anyway, and in the 1950s-1960s and 1980s-1990s the theory seemed to work well in practice.
But if inflation is stable and low (which is what we want), then interest rates will also generally be rather low, which means that if we tip into recession there is very little room to cut rates before they reach zero. This is the “zero bound” problem. Once rates hit zero, the central bank can only increase the money supply through unconventional means – buying longer-term bonds, for example.
Yglesias argued several months ago that eliminating cash would eliminate the zero-bound problem:
Stop for a moment and ask yourself whythe interest rate can’t be reduced much below 1 percent. The trouble is cash. At any given time, relatively little paper currency circulates in the United States. Instead, most of the American money supply consists of bank accounts and other electronic stores of value. People prefer to keep money in bank accounts because it’s convenient and because you get interest on it. If the rates were driven below zero—in effect a tax on holding cash in the bank—people would just withdraw money and store it in shoeboxes instead. But what if you couldn’twithdraw cash? What if all transactions were electronic, so the only way to avoid keeping money in a negative-rate account was to go out and buy something with the money? Well, then, we would have solved our depression problem. Too much unemployment? Lower interest rates below zero, Americans will start spending and investing again, the economic will grow, and unemployment will go back down to its “natural rate.”
To which Avent responded last week:
[I]nflation and negative interest rates are basically the same. Both take an amount of money in the possession of an individual and erode its purchasing power over time. Arithmetically, higher inflation reduces the real cost of borrowing, generating, at the zero lower bound, that all important negative interest rate. You can target a rate of inflation in order to generate precisely the desired interest rate, thereby encouraging households to spend, borrow, and invest in a manner consistent with full employment.
Now, Mr Yglesias might have argued here that the central bank is incapable of creating a higher level of inflation—that the problem remains a technical one—but he doesn’t. Rightly so, in my view; a central bank that can create an unlimited amount of money and engage in open-market operations should have no trouble creating inflation. Rather, he argues that higher inflation is a “bizarre and unpalatable proposal…for the economic and political elite”. But in what way is higher inflation different in its impact on the elite than negative interest rates? One could argue that political backlash is more likely with negative rates; the government has at least a veneer of protection from anger over higher inflation in the form of money illusion. With negative rates, the dynamic would be explicit: the value of the money you have in your saving account is getting smaller, and that is a direct result of government policies. Maybe the citizenry will pull its money out and gleefully go a-spending. Or voters will arm themselves and install Ron Paul as supreme leader.
It is true that there are lots of different ways the Fed can do. But during the Great Moderation the thing the Fed did do was stabilize the macroeconomy by cutting interest rates. Everyone anticipated the Fed’s behavior to follow a Taylor-type rule in which inflation and unemployment data determined interest rates. You would read paradoxical-sounding stories about the stock market jumping on disappointing jobs data, precisely because everyone felt they understood how everything worked. The problem with the zero lower bound then becomes that as rates got closer and closer to zero nobody knew what was going to happen. . .
But if there were no logistical barrier to going negative, people could just assume that the Fed would keep using its tool of choice and its rule of choice and do what the rule said. No muss, no fuss. It would feel a bit funny the first time it happened, but since the economy would have recovered faster the Fed would have gone back to raising rates faster and ultimately there’d be less discontent than there is with the status quo.
Yglesias and Avent have wandered into a cul-de-sac, I think, in speculating about what would be more or less politically difficult – targeting inflation or simply cutting rates – while skating breezily over what is technically more difficult. The fact is, the political difficulty in pursuing unconventional monetary policy is closely related to its technical difficulty – or, rather, to the fact that we don’t know whether unconventional monetary policy works predictably well.
The Fed normally operates by manipulating the overnight rate not simply because of tradition, but because it is a relatively simple instrument. It is trying to manipulate the most money-like instruments in the market – because it is responding to changes in the demand for money (over which the government has a monopoly). When it starts behaving unconventionally, buying longer-term government bonds or even bonds not issued by government (or, in the extreme, even stocks or real assets), it can be less and less certain of the precise consequences of its effects – what the magnitude of the impact will be on inflation expectations, but also what other follow-on consequences there will be for the markets and the economy.
Take a look at the bond market today. Longer-term bonds are relatively low-yielding. Because short rates can’t go below zero, you’ve got a very flat yield curve. A flat yield curve is, generally, an expression by the market of low expectations for long-term nominal growth. That’s not what the Fed wants, ultimately. It wants the market to expect higher nominal growth, because those expectations will drive investment. Normally, it would engineer an upward-sloping yield curve by cutting short rates. But because it can’t cut short rates any further, it’s intervening at the long end of the curve. It’s trying to push people out of “safe” long-term bonds and into riskier assets (or into spending), but in the process it’s engineering the flattening of the yield curve. Until they get the change in nominal growth expectations they are hoping for (whether because inflation expectations pick up or because real growth expectations pick up), they are, in fact, engineering precisely the bubble Blair is warning about in her column. That’s an unintended side effect of unconventional monetary policy.
Yglesias and Avent act as if everybody knows that the Fed can produce precisely the desired level of inflation by a simple act of will: target the level, and the market will expect that the target will be hit. Leaving aside questions of whether the Fed can measure inflation well enough to target it, the assertion would still only be true if the Fed credibly declared that it didn’t care about anything else except the inflation target. Which it cannot credibly declare. It’s just not conceivable that the Fed would ever be believed in stating that no other political or economic factor matters to it at all. Not even the ECB says that. If unconventional monetary policy has less-known side effects – or unknown side-effects – then policymakers are rationally going to be more cautious in applying it.
This caution, in turn, feeds the bubble phenomenon. A bubble takes time to build up. Expectations that certain conditions are going to be semi-permanent need to set in. That’s precisely what’s happened with respect to interest rates. The Fed has said that it is going to keep rates low indefinitely because expectations for growth remain low. So the market has every reason to believe that the curve will remain flat. Which means it can discount the risk of a sudden spike in rates from very low levels. The aggressive discounting of a downside risk is pretty much the definition of what a bubble looks like.
Now, imagine what would have happened if short rates could go below zero. First of all, the Fed could have responded much faster to the recession, and could have intensified its response as the depth of the recession became clear. And precisely because it could have responded faster, the recession would never have gotten as bad as it did. Negative nominal short rates would have constituted a bailout of the banking system that favored the strongest firms rather than the weakest ones – since banks borrow short and lend long, all banks would have seen profitability increase sharply – and the toxic assets on their balance sheets might therefore have more quickly found a clearing price. The structural problems of the American economy would remain. I still believe the natural rate of unemployment would have increased significantly, because rational expectations for real growth drop when you realize that much of the growth you just experienced was illusory and bubble-fueled. But we would not have overshot so much to the downside, and therefore we would not have had to play catch up. And, because we would not have had to play catch up, we would not now be dealing with worries about a new bubble at the same time that we are worried about terrifyingly high lingering unemployment.
Yglesias ends his most recent piece thusly:
I say all this, I note, not to argue that we need to scrap paper money. The point is that it’s very bad for the Fed to have a policy rule that breaks down in moments of severe crisis. It’s like having an umbrella that dissolves in water. We either need to run a background level of inflation that’s high enough to avoid zero bound episodes, or else shift the policy lever to something that’s not effected by these issues.
But a rule is only as good as the tools for applying it. A higher level of background inflation means a higher level of uncertainty about inflation – the primary reason why low inflation is favored over high inflation is precisely that the variance on low inflation is lower, and stable inflation expectations are conducive to higher real growth, which, in turn, is the driver of real increases in wealth. And shifting the policy lever given current tools means institutionalizing unconventional monetary policy – in spite of the fact that we have a higher degree of uncertainty about the side effects of using these unconventional tools. This, again, would increase uncertainty about the effectiveness of monetary policy.
It might still be a good idea, on balance, to have higher background inflation. It might still be a good idea, on balance, to institutionalize unconventional monetary policy. But there would be real costs associated with these choices. It behooves the soft-money crowd to reckon with those costs, just as it behooves the hard-money crowd to reckon with the costs of long-term unemployment (which it frequently doesn’t do).
By contrast, the costs of eliminating cash strike me as quite limited – and the upside quite significant. Pushing short rates below zero is not equivalent to pushing down long rates by means of unconventional policy. It’s not equivalent – and it’s superior. Better tools don’t come along that often. Yglesias shouldn’t back away from promoting one when one comes along.
Francois Hollande is widely expected to defeat Nicolas Sarkozy in the runoff election next month; speculation is already rampant about a possible “end to austerity” as Hollande has called openly for the renegotiation of the “Merkozy” pact. But Sarkozy, contributor of the last three letters to that pact, doesn’t differ materially from Hollande in his views of what he himself agreed to. Listen to Arthur Goldhammer:
[T]he defining characteristic of this election is that the primary cleavage has not been between right and left, but between the first and second tier candidates. In the top tier, there’s Sarkozy and Hollande, with around 30 percent each. Then in the next tier, there’s [Jean-Luc] Melenchon on the extreme left and [Marine] Le Pen on the extreme right.
The top tier favors some version of adaptation to the global economy, they want to enable the E.U. to survive and to improve France’s competitiveness in the world. To them, the biggest issue is what to do about the euro crisis, although curiously they’ve had very little discussion of that. The second-tier candidates want to resist the forces of globalization. So in France, about 55 to 60 percent of voters are in favor of adaptation, but there’s about 30 percent voting to resist.
Hollande and Sarkozy are establishment candidates. They differ in personality, in which interest groups they can take for granted and which will be hostile to them, and at the margins they differ in policy priorities. But they are both establishment French politicians. They agree much more than they disagree. They are both absolutely committed to the survival of the EU. They are also both in favor of the EU remaining a “union of states” (as opposed to evolving in a federal direction, with more sovereignty ceded to a central government directly accountable to a European electorate). And, within the context of those two positions, they would like to see EU policy evolve in a direction more friendly to the French – which, in the current context, means being more accommodative monetarily and/or more explicit about backstopping the debt of member states.
Those preferences are listed in the order in which, I believe, Sarkozy holds them. And Sarkozy’s agreement with Merkel reflects that policy priority list: no formal cession of additional sovereignty, but on the other hand the concession that there must be austerity.
Hollande may, at the margins, care more about spurring growth. But that would require caring less about something else. That something else is either preserving the EU, or preserving French sovereignty. And Hollande is not going to risk the unraveling of the EU itself.
I wouldn’t be totally shocked if Hollande were willing to cede more to Germany in terms of giving formal control to Brussels to set economic policy priorities in France, if, in exchange, Germany would accept a more formal guarantee that the ECB would backstop debt issued by member governments. Whether or not Merkel would take that deal, her opposition has already indicated that it would.
But that’s not at all the same thing as “forcing” Merkel or the ECB to adopt a more accommodationist policy. That’s not the way negotiations work. You offer something. In exchange, you might get something.
If he isn’t prepared to offer meaningful concessions on the structure of the EU, then I don’t see why Germany would agree to renegotiate. In which case, we get a lot of posturing and paralysis. A lot of articles about how the EU itself is on the brink of collapse. Which will prompt a lot of reassurance from Hollande that breaking up the EU is the last thing he wants, or would allow to happen.
Those are the practical possibilities. The election might mean more progress or less, depending on what Hollande is willing to offer. But it doesn’t promise a dramatic change in direction. The center of gravity for power in Europe remains where it has been.
I thought Thomas Frank told us that only conservatives in states like Kansas voted on social issues, often against their own economic interests. So liberal Californians do it too. Imagine that.
As a long-standing hater of identity politics on both the right and left, I nod my head vigorously. But I bear a message of (partial) hope.
California may be in the process of transition from being a competitive two-party state to a one-and-a-half party state. In general, I think being a competitive two-party state is better – both a sign and a driver of political health. But, living as I do in a one-and-a-half party state, I can say that you can make things work.
What happens, basically, is that the legislature becomes the brokerage house for the various interest groups that dominate the overwhelming majority party. This creates an opening for the opposition party to seize control of the executive, on the banner of protecting the general interest from the depredations of the special interests. The problem is that the opposition party, because it cannot wield real power in the legislature, can’t build an infrastructure for a real party statewide. So it becomes the vehicle for a series of more or less high-profile individuals who can carry a statewide campaign. The pressure from this outside force, in turn, forces the majority party to, occasionally, offer up a candidate from its own reform wing in order to be competitive on a statewide level with a reform-minded opposition.
This dynamic is basically why Democrats tend to lose the mayoralty of New York (in spite of the fact that there are, to a first approximation, no Republicans in New York City), why Deval Patrick is the first Democratic governor of Massachusetts since Michael Dukakis, etc. Identity politics on a small-scale matters enormously in such a politics, but on a grand culture-war scale it almost fades away. The Schwarzenegger Administration in California may have been a harbinger of a similar future for that state.
The good news is that while the one-and-a-half party state isn’t a great political setup, it can work well enough. The bad news is that the states I’m comparing California to are mature, slow-growing states; implicitly, I’m accepting that California has matured, and is no longer the overwhelming locus of natural growth in the United States. (The United States itself may well be maturing similarly.) Or maybe that’s not bad news; don’t call it “maturity” – call it “the best years of your life.”
The worse news is that California has a uniquely screwy referendum system that may make it difficult for a one-and-a-half party state to function – because the strength of the executive should come from its ability to speak for “the whole people” and negotiate with the legislature from that position of strength, but if the people speak for themselves regularly via referendum then this ability is constantly undercut.
Apropos of the original Kotkin article: he praises a series of regions – the Gulf coast, the High Plains, the Southeast – for being more competitive by being low-cost (cheap land and cheap labor). It’s worth pointing out that California can only compete on land prices by increasing density, something Kotkin deplores elsewhere in his article), and you can only compete on labor costs by driving down wages, which doesn’t sound like a great development strategy to me. Looking at, on the one hand, regulatory encumbrances on development and, on the other, how to make essential public services more efficient, would seem to be much more promising avenues to explore. Exactly the kinds of things that have been the focuses of “reform” candidates in places like New York and Massachusetts.
Looking at a list of unemployment rates by state, my first impression is that two variables – proximity to Canada and percentage of the state economy involved in the oil and natural gas industries – explain much of the variance in unemployment. North Dakota, on the Canadian border and in the midst of a shale boom, has the lowest unemployment rate in the nation (3.0%); the highest rate (12.0%) is suffered by Nevada. With 11.0% unemployment, there’s clearly something the matter with California that isn’t wrong with neighbors Oregon or Arizona (each at 8.6% – each state is much smaller, of course, but Oregon and Arizona have many things in common with northern and southern California respectively). But I also wonder “what’s the matter with Idaho and Rhode Island?” whose unemployment rates also seem out of line with comparable neighbors. (Idaho = 7.9%, versus 5.8% for Utah, 5.3% for Wyoming, 6.2% for Montana; Rhode Island = 11.0%, versus 6.5% for Massachusetts, 7.7% for Connecticut, 7.2% for Maine.)
I guess what I’m saying is that if this US election is fought around amnesiac discontent at an incumbent during tough economic times, then Obama will lose. Which is why Romney’s strategy appears to be entirely that argument. But if the choice is between drastic European-style austerity on Romney lines, with the burden carried primarily by the poor and working poor, and Obama’s emphasis on more long-term structural cost-cutting, infrastructure investment and more revenue from the rich now, then the equation shifts.
I may be wrong, and it doesn’t thrill me, but my bet is that the West is moving leftwards for pragmatic reasons. And that America will not be immune. Pendulums swing, and the long free market period of 1979 – 2007 is giving way to a more government-based management of the unintended consequences of the right’s initial success and subsequent over-reach. And if Obama doesn’t use Europe as a warning sign for what Romney would bring to America, he’d be missing out on an important opportunity.
A few points in response.
First, European governments keep changing, but the ECB doesn’t change its tune. That suggests that changes in government don’t concern the ECB. In particular, they don’t seem concerned about an electoral turn to the left. Which is wise of them, because there is precious little evidence that nominally left-wing parties in Europe are more averse to structural reform than nominally right-wing parties. The reforms that the Germans want the rest of Europe to adopt, after all, are the kinds of reforms they adopted under the last Social Democratic government, and the Dutch government just collapsed because a far-right coalition partner bolted.
Second, Sullivan refers to the President’s “emphasis on more long-term structural cost-cutting, infrastructure investment and more revenue from the rich now,” but the President has a record to run on. The question is whether that record encourages people to believe that he will, in fact, emphasize long-term structural cost-cutting and infrastructure investment, as well as more revenue from the rich now. The main Obama talking-point in the structural cost-cutting area is the cost controls in the ACA – and Obama deserves praise for these relative to the opposition, which demagogued against them with language about “death panels.” But it’s still a very thin reed because what it really amounts to is a promise to cut costs. And a pie-crust promise to boot: easily made, easily broken. As for infrastructure investment, there’s been a great deal of talk about it, but very little actually to point to. And the reason, again, is structural: the Administration didn’t make a priority of implementing reforms to make infrastructure spending more efficient – and therefore budgets for projects like high-speed rail exploded even as the political will to fund them evaporated. When the initial stimulus plan was pushed through, there was a lot of talk about how few projects were “shovel-ready” with the result that very little infrastructure spending actually materialized. Some left-wing critics said that the problem was too much concern about only funding “good” projects – we should be willing to waste money, these critics said, to get people working. My view was the opposite: the problem wasn’t too much scruple about waste; the problem was too much scruple about tackling vested interests that keep costs high, which in turns both makes potentially worthwhile projects look like they have a lousy return and pushes out the timeline for actually being able to launch these projects (since the high costs are often driven by long timelines). Point being, Sullivan assumes what needs to be proven to the electorate: that the Obama Administration has a recovery plan and a means for implementing it.
Finally, though, President Obama can’t use Europe as a “warning sign for what Romney would bring to America” because: (a) Romney’s a Republican, and Republicans hate Europe and believe in American exceptionalism, just like they are against deficits and for smaller government, and no matter how many times you argue that these perceptions are untethered to reality it doesn’t matter: the brand is the brand; (b) nobody in America knows anything about what is going on in Europe, and it is inconceivable that anybody is going to successfully explain the situation to people in order to score an obscure political point. If Americans know anything at all about what’s going on in Europe, they know that the Greeks borrowed a lot of money from German bankers and blew it all, and now the Germans want their money back and the Greeks rioted. The Italians and Spaniards probably (your average observer assumes) are just bigger countries with somewhat milder problems of living beyond their means. If Europeans don’t like austerity, that’s because nobody likes austerity – but only pansy Europeans would riot over it; Americans would just buckle down and work harder. This view is mostly nonsense, but you’re not going to disabuse people of the nonsense they believe that easily. If Obama tries to tie Romney to Europe, Romney will just say that Europe’s problems are the result of decades of policies like Obama’s – and true or not, that will be the winning argument.
For over a year now, the biggest short-term risk to the global economy has the been the ongoing European debt crisis. For political reasons as well as substantive ones, the Obama Administration for some time has been jawboning the ECB (which has been more conservative than either the Fed or the Japanese central bank during the crisis) into being more stimulative. So when the world’s central bankers descended on Washington last week, Treasury Secretary Timothy Geithner tried again:
“The success of the next phase of the crisis response will hinge on Europe’s willingness and ability, together with the European Central Bank, to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of markets,” Geithner told the IMF.
“None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least,” [Mario] Draghi [President of the ECB] said on April 20 while attending IMF meetings in Washington. [Jens] Weidmann [President of the Bundesbank] said in an interview that “the problems in Europe can’t be solved by monetary policy measures.”
“The ECB is drawing a line to keep pressure on governments to make the necessary adjustments,” said Megan Greene, head of European economics at Roubini Global Economics LLC, who was in Washington. “If push came to shove the ECB would step in, but they’ll hold the line for now.”
Those “necessary adjustments” aren’t exclusively or even primarily related to this year’s budgets; they are structural adjustments related to pensions, labor rights, etc. As I argued from early on in the crisis, the ECB is playing hardball because of the enormous risk of moral hazard if the ECB were to bail out the southern European countries without getting structural reform in return. The ECB wants the pain to continue in southern Europe until countries like Italy, Spain and France enact the kinds of reforms that the Schroeder government enacted in Germany a decade ago – and to get binding commitments that those reforms will continue in the face of political opposition from entrenched interests (commitments that may amount to handing over a certain amount of sovereignty to European institutions effectively controlled by creditor nations like Germany). They are not willing to let the Euro itself collapse – that’s their red line – but they are willing to let lots of people suffer in the short term to get what they think are important reforms for the long term. They are certainly willing to see Obama lose the next election as collateral damage.
The usual thing to say about why the ECB can get away with this is that they are unelected bureaucrats, so they can push an unpopular agenda with impunity. But why would they want to do so? Well, although they are unelected, they are not completely unaccountable. More than to any single other center of power, they are accountable to the government of Germany. They are not being particularly responsive to the center of gravity in Italy or Spain – but they are being responsive to the center of gravity in Europe as currently constituted. And it’s not at all clear to me they have the Italian or Spanish politics wrong either. Do the Spanish really want to be the ones who broke up the Euro? Do they really think they’d be better off outside? If so, what has changed about their view since they originally joined the Euro? The benefits of Euro membership are very substantial. The political leadership in the Southern European countries knows that to leave the Euro rather than take on, for example, pension reform would be economically catastrophic. If the ECB wants to keep playing hardball politics, I predict they’ll win.
What’s interesting to speculate on is the degree to which this situation has parallels in the United States. The Obama Administration’s initial response to the economic crisis centered on a $1 trillion stimulus plan. That plan primarily consisted of tax cuts and direct aid to the states to forestall layoffs, plus a grab-bag of longstanding Democratic spending priorities. There wasn’t really an effort to use the aid to the states as a lever to force structural reforms.
I continue to believe that this is the major reason why the stimulus has proved at best tepidly popular: because it looked like a giveaway to AFSCME. Preventing layoffs was a good idea – pro-cyclical austerity wasn’t going to help the economy, and legitimate functions of government didn’t suddenly become less important to society because of the deep recession. But there was an issue of fairness: some people got direct government assistance to preserve their jobs, while others did not. And the issue of fairness has economic consequences: if the government behaves as if its own efficiency isn’t important, that will affect people’s assumptions about the economic drag associated with government spending, which will affect their expectations for growth.
Since then, the Obama Administration has pivoted twice. First, to a focus on long-term deficit reduction, which required a focus on entitlements. President Obama ran a problem here: he required the cooperation of the opposition to make any headway, but they had no political incentive to help because the reforms were bound to prove unpopular, as they would involve cuts to programs that benefit a broad swathe of Americans. When this strategy failed, the President pivoted to a greater emphasis on fairness – particularly Republican solicitude for wealthy taxpayers. But the fairness argument – while stronger than his previous strategy – runs into the problem that it presumes on the people’s trust in President Obama as the steward of their tax dollars.
That trust needed to be earned by action that clearly took on prominent clients of the government, even as deficits were deliberately expanded. It’s not an accident, I think, that among the most popular governors during the ongoing economic crisis have been those – like Democrat Andrew Cuomo and Republican Chris Christie – who are perceived as having been tough with public sector interests (without going too far by trying to annihilate those interests). The center of political gravity in the United States, in other words, may not be so far away from where the center of political gravity in Europe is.
In the general election, the Democrats are going to try a variety of different attacks on Mitt Romney. One prominent one is going to be the Bain Capital connection. They will portray the Republican nominee as a Wall Street fat cat out of touch with ordinary Americans, but more than that, as somebody who happily destroyed businesses in order to make money for himself, as the embodiment of the rigged rules of contemporary capitalism whereby financial manipulators prosper whether or not they build profitable businesses. The GOP is going to respond (among other things) by arguing that precisely because Romney has private sector experience, he’s in a better position to “fix” the American economy. But I wonder whether a better way to turn the Bain history to Romney’s advantage isn’t to say: yeah, I restructured companies to make them more efficient, and yeah, that often involved layoffs. Sometimes it involved killing off the business altogether. And that’s exactly what I’m going to do with the government. I’m not ideologically averse to government. I don’t want government to wither on the vine. I just want Americans to get their hard-earned money’s worth.
If the general election is “I want the rich to pay their fair share” versus “I want people to keep more of their money,” the President has the winning argument. If the general election is “I want the rich to pay their fair share” versus “I want taxpayers to get their money’s worth,” I think the challenger has the upper hand.
Where enthusiasm and potential fundraising is concerned, Palin clearly would have had a huge edge on Santorum, giving her the opportunity to build the kind of infrastructure that he conspicuously lacked. But then again, nothing in her post-2008 career suggests an aptitude or appetite for the kind of work required to build a smooth-running (or even occasionally-misfiring) national campaign. Team First Dude and Co. would have spent much more money than Team Sweater Vest, no doubt, but whether they would have spent it wisely is another question. (Recall that Rick Perry spent a lot of money, too.)
Romney’s rival, once Palin wasn’t in the race, was supposed to be Perry. He had the right kind of credentials, he could raise money, he wasn’t obviously absurd like Bachmann or Cain (or, in a different way, Gingrich). Had he not imploded spectacularly, he clearly would have consolidated conservative support, and we would have had a two-man race. But, to my surprise, he did implode spectacularly, and almost immediately.
So the Palin counterfactual can be rephrased as: if Palin, entering instead of Perry roughly when he did, performed as atrociously in her rollout as Perry did in his – uttering gaffe after gaffe, flailing in the debates, wasting money on bizarre ads – would she also have imploded? Or would she have held onto a big chunk of the primary electorate in spite of all, enough to prevent any other alternative to Romney from emerging, and turn the primary into a Palin-Romney contest fairly early?
If you phrase it that way, it feels to me like opting for the first alternative – she would have flamed out like Perry – is another way of saying that Klein’s premise is incorrect. No, Palin doesn’t have a special bond with her supporters; she was just the vehicle of the moment, and a particularly potent one, for the moment. Had she run, and proved to be a terrible candidate – compared to Republican rivals, not compared to a hated Democrat – her supporters would have reluctantly moved on. They abandoned Herman Cain; they would have abandoned her. They might love her, but they wouldn’t want to lose with her.
I agree with Douthat that that’s the smart bet. And I suspect Palin, on some level, knows it. Entering the race would have been a test of the proposition of Palin-specialness. And Palin, in her post-2008 career, has been quite careful about avoiding such tests. There’s surely a reason for that beyond laziness.