Voice

Sometimes a factual error is just a factual error

I've spent a rather alarming portion of this week wading into intellectual pissing matches, so I'm loath to respond to Michael Kinsley's response to last week's brouhaha over austerity policies. But one paragraph does merit some pushback. After noting the backlash to his last column, Kinsley writes the following:

There are two possible explanations. First, it might be that I am not just wrong (in saying that the national debt remains a serious problem and we’d be well advised to worry about it) but just so spectacularly and obviously wrong that there is no point in further discussion. Or second, to bring up the national debt at all in such discussions has become politically incorrect. To disagree is not just wrong but offensive. Such views do exist. Racism for example. I just didn’t realize that the national debt was one of them.

Kinsley assumes that it must be the second explanation, and then goes on from there.

I can't speak for anyone else who pushed back against Kinsley's column from last week. Speaking for myself, however, I blogged about it because Kinsley was "spectacularly and obviously wrong." I say this because almost everything I wrote in my response to Kinsley I knew at age 18 after taking Economics 101 in college.

To explain, let me focus on Kinsley's motivation for thinking that the austerians have a point:

Austerians believe, sincerely, that their path is the quicker one to prosperity in the longer run. This doesn’t mean that they have forgotten the lessons of Keynes and the Great Depression. It means that they remember the lessons of Paul Volcker and the Great Stagflation of the late 1970s. “Stimulus” is strong medicine—an addictive drug—and you don’t give the patient more than you absolutely have to.

This is wrong for three reasons, one pedantic and two substantive. First, to be pedantic, the austerity debate is about the wisdom of using expansionary fiscal policy -- i.e., running a significant federal budget deficit -- to alleviate downturns. Paul Volcker was the chairman of the Federal Reserve and thereby responsible for setting monetary policy. He had nothing to do with fiscal policy. This is a distinction that I learned in my first few lectures on macroeconomics. So either Kinsley phrased this badly or he's confused about what this debate is about.

The substantive errors can be explained more easily once you look at this chart of the budget deficit as a percentage of GDP:

So, looking at the above, you find Kinsley's two substantive errors. First, during the period that Kinsley seems to find so relevant -- the late 70s -- you discover that the budget deficit as a percentage of GDP was shrinking and not growing. So, to repeat a theme, I'm not sure where Kinsley is getting this notion that expansionary fiscal policy is responsible for the high inflation of the 1970s [Maybe Kinsley would argue that stagflation was an aftereffect of the spending spike that followed the 1973-1975 recession?! --ed. OK, except a glance at that chart shows that compared to the 1980s, the 1970s was a period of fiscal probity. Oh, and as I said before, there was that whole expansionary monetary policy/commodity price shock thing happening as well. Which I learned about from my Econ 101 textbook oh so many moons ago.]

Second, contra Kinsley (and Charles Lane while we're at it), stimulus is not an addictive medicine. The above graph shows budget deficits expanding during recessions and then shrinking again as the economy recovers.

Look, this isn't rocket science -- Kinsley made an argument about austerity that got a lot of basic economic facts about the 1970s and the current era very, very wrong. Dare I say, spectacularly and obviously wrong.

So there's really no point in further discussion.

Argument

What Happens Overseas Should Stay Overseas

Why foreign-policy wonks shouldn't write about domestic policy.

The foreign-policy universe is a bit like Mean Girls. Just as that film broke down high school into very specific subcultures, the world of foreign-policy wonks also has its own particular fiefdoms. Smug Realists, for example, can't resist teasing other cliques with taunts about Iraq or "imperialism." There are the Snooty Africanists, who disdain (often with cause) all popular media coverage of that continent as ridiculously superficial. And the Climate Change Crowd can't believe the rest of us are debating trivialities as the atmosphere gets saturated with carbon dioxide.

In recent years, however, I've noticed a new subculture emerging among foreign policy professionals. They frequent Council on Foreign Relations (CFR) meetings, Sunday morning talk shows, C-SPAN Book TV talks, and the New York Times op-ed page. Let's call them the Turning Inward crowd. To be clear, they are not isolationists -- I defy anyone to use that term on Thomas Friedman, Michael Mandelbaum, Charles Kupchan, or Richard Haass. Rather, what defines the Turning Inward crowd is the belief that the source of America's biggest problems does not lie overseas, but at home. Therefore, any responsible foreign-policy wonk needs to turn his or her analytic lens to what ails the United States first before focusing on the rest of the world.

This kind of logic has its appeal and cheerleaders -- including President Barack Obama, who has riffed a lot about "nation-building at home." This was a theme of Friedman and Mandelbaum's That Used to Be Us as well as one of the themes in Kupchan's No One's World. CFR President Richard Haass has penned the latest manifesto from the Turning Inward crowd, with Foreign Policy Begins At Home: The Case for Putting America's House in Order. More than any of these other works, Haass's book illustrates both the strengths and weaknesses of this particular subculture. Let's look at them one by one.

STRENGTH: PROVIDING REALISTIC THREAT ASSESSMENTS

Reading a lot of foreign policy commentary, you'd think that the United States was facing a world of unprecedented threats -- China's rise, old-fashioned terrorism, new-fangled cyberterrorism and the like. The truth is that the United States faces no threat even remotely as big as it did during the Cold War.

This is one of the points that Haass and the Turning Inward crowd like to stress for why turning inward might be a good idea. It is precisely during a moment of minimal external threats that a country should turn inward to remedy its internal weaknesses. Indeed, the opening sentence of Haass's Foreign Policy Begins at Home concludes, "The biggest threat to America's security and prosperity comes not from abroad but from within."

WEAKNESS: AUSTERIAN ECONOMICS

Goodness, but the Turning Inward crowd likes austerity. Their general perception is that the United States has bankrupted itself over the past few years with profligate spending and borrowing, and that painful cuts are necessary. Haass epitomizes this argument, arguing that the federal government needs to cut its budget deficit by approximately "$250 billion a year over the next four to five years," explaining that: "The world is looking for a signal that the United States has the political will and ability to make hard choices."

The trouble with this argument is that it overlooks three rather important facts. First, based on borrowing rates, the world has been copacetic with U.S. fiscal policy for the entire post-2008 era. Indeed, as the Economist pointed out, "never in recent economic history have interest rates been so low for so many for so long."

Second, by engaging in expansionary Keynesian policies, the federal government (successfully) aided in the deleveraging of the private sector.

Third, this demand for fiscal austerity is two years out of date. Indeed, as the Congressional Budget Office recently reported, the budget deficit as a percent of GDP has dropped faster in recent years than at any time in postwar economic history. The contrast with the far more severe, and far less successful British exercise in austerity is rather stark.

New York Times columnist Paul Krugman recently argued that many austerians advocate these policies because of "the urge to see economics as a morality play." Haass, and the rest of the Turning Inward crowd, seem to fit this accusation all too aptly.

STRENGTH: HIGHLIGHTING THE RIGHT WEAKNESSES

If you only paid attention to news coverage out of Washington right now, you would conclude that the greatest domestic threats facing the United States are homegrown terrorism, overregulation, corruption, and fiscal laxity. All of those are problems, but weaknesses in America's infrastructure and K-12 education system are more serious. It is to Haass's credit, for example, that even though he wants a smaller federal budget, he simultaneously calls for a hike in the gasoline tax to pay for better roads and bridges. He also advocates for a longer school year.

WEAKNESS: CONTEMPT FOR DOMESTIC POLITICS

When foreign-policy wonks analyze the United States, they get easily frustrated because, to them, the solutions seem so simple and the politics seem so hard. So they start focusing on gerrymandering and outside money and special interests and the Internet and How Much Better Things Used to Be. Haass manages to avoid the gerrymandering trap, but he does fall prey to some of these other tropes.

This nostalgia for an age of pre-partisan politics makes a few errors. First, as Larry Summers pointed out last month in the Financial Times: "Throughout American history, division and slow change have been the norm rather than the exception. While often frustrating, this has not always been a bad thing.... The great mistake of the gridlock theorists is to suppose that all progress comes from legislation and that more legislation consistently represents more progress." Indeed, two of the major trends favoring the U.S. economy over the long run -- the domestic energy boom and the revival of manufacturing -- had little to do with the federal government.

Second, compared with its peers, the U.S. system of government has been surprisingly nimble. In the five years since the financial crisis, Congress has passed legislation that saved the U.S. financial system, rescued the auto sector, enacted the largest fiscal stimulus program in the world, overhauled its financial regulation, passed ambitious health-care legislation, and then took steps to rein in deficit spending. As I type this, the House and Senate are moving forward on comprehensive immigration reform. Next to either the European Union or Japan, the United States has been a hive of productive political activity.

It is certainly true that the United States has seen its share of rancorous domestic debate -- but the Turning Inward crowd mistakes this for complete paralysis. Which it isn't.

Most members of the foreign-policy community embrace economic globalization, and believe firmly in David Ricardo's principle of comparative advantage.  The problem with the Turning Inward crowd isn't that they are completely wrong about what ails the United States. It's that they, compared with those policy wonks who work on American political economy, simply don't know as much. So while the grand strategy of Turning Inward has its appeal, perhaps this clique should take a cue from Ricardo and maintain its focus on the rest of the world.

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