It's the economy, stupid.

February 2, 2008 1:07 AM

The return of tight money fiscal conservatism?Former Chairman of the Federal Reserve Paul Volcker endorses Barack Obama.

This could be a big deal for economic conservatives, as Volcker, though appointed by Carter, was the Fed chairman during the Reagan administration's best economic years. (Greenspan oversaw the late 80's recession. Many wanted Volcker to replace Greenspan at that time.)

In sharp contrast to Alan Greenspan's career, however, Volcker was openly critical of large tax cuts and deficit spending. (from Time, 1982)

Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s by limiting the growth of the money supply. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. However, the real estate market plumetted as a result, and farmers, hurt by high interest rates, marched on Washington. In recent years, he has warned of a major upcoming currency crisis and has criticized both Greenspan and Bernanke for policies that encourage a bubble economy, saying "It's not fun raising interest rates."

Is bitter medicine needed for a healthy economy?

posted by markkraft (35 comments total)

Volcker has always been outspoken regarding politics, especially as it pertains to the economy (obviously). The groundbreaker on this story is that he is stepping out and supporting a candidate, and not that one that many would have thought to have the best economic plan.

I have to admit, I normally don't listen to or give much thought to who endorses who simply because there is normally motivation behind the endorsments that aren't always "what's best for the country", but with Volcker, I have to give his opinion some thought.

He doesn't endorse candidates every election. He's worked with both parties. He understands the economy as well as anyone. To endorse Obama means more to me than getting 10 politicians to endorse him.
posted by JD Rucker at 1:27 AM on February 2, 2008

Wow, damn. Very impressive. Go Obama.
posted by blacklite at 1:50 AM on February 2, 2008

Is it really about 'bitter medicine'? Seems to me the problems in the US are about paying for what you consume - in both the private and government sectors. There are only so many Chinese peasants to do all the real work.
posted by pompomtom at 2:16 AM on February 2, 2008

Not at all surprising. For a fiscal conservative, if you consider only viable candidates (better get the Paul-litia out of the way right now), it's the lesser of two evils: Multi-billion welfare, or multi-billion warfare. Given the "war on Iraq forever" view of the forerunner on the multi-billion warfare side, health-care-for-everyone-yay actually seems cheaper. Also, although in no way efficient, at least there's still a chance of some residual welfare money ending up helping the domestic economy. From the healthcare-for-everyone-yay plans, Obama's seem to be the cheaper (and even somewhat payable - and yeah, I'm reverting my previous opinion between him and Clinton on this issue). So, go Obama.

pompomtom: On the consumer side, hard money => less money supply inflation => less exponentially rampant credit => really having to earn that 500" plasma tv, instead of putting it on the card. On the government side, hard money => no deficit => really having to pay for that health-care-for-everyone-yay, instead of printing money to pay for it.
Seems to be a quite efficient way to enforce paying for what you consume, unless you consider the option of force-collecting everyone's debts and putting a moratorium on new credit.
posted by qvantamon at 2:59 AM on February 2, 2008

Also, the last two economic measures from the Republican side were the big mortgage bailout, and actual handouts of money. Safer to go for the side that doesn't manage to tax-and-spend all they promise during campaign, than the side that theoretically stands for fiscal responsibility, and manages to not-tax-and-spend way more than the former.
posted by qvantamon at 3:05 AM on February 2, 2008

As I've said before, the Republican Party is no place for a fiscal conservative or a foreign policy conservative. And providing health insurance is the exact sort of thing that past Republicans such as Eisenhower would have supported, if it were done in a cost-effective matter.

This kind of endorsement should be happening all over the place. But instead, people adhere to a political party the way I support to my favorite sports teams.
posted by ibmcginty at 3:20 AM on February 2, 2008 [1 favorite]

qvantamon: Yes, quite. Perhaps I should've said: the characterisation of 'paying for what you consume' as 'bitter medicine' seems a little odd. Especially now.
posted by pompomtom at 3:58 AM on February 2, 2008

In other news: Ann Coulter endorses Hillary. ;)
posted by caddis at 4:24 AM on February 2, 2008 [1 favorite]

The only comments or commentary we ever need to hear about Ann Coulter, is how she should be summarily ignored.
posted by parallax7d at 4:58 AM on February 2, 2008 [2 favorites]

The debate Thursday spent some time on the differing health care plans. Obama's *is* more 'conservative' - there's no mandate - and I wish he would try to sell it that way. Or at least to the population at large, if not the folks in LA. I think the distinction would play well "in Kansas" - make health insurance available for everyone but don't do it "at the end of a gun".

And the way I interpret Clinton's position as explained in that debate - "stake a claim with a universal mandate so I can give that up in negotiations" - is just depressingly realpolitik.

I'm still holding out for my Obama/Bloomberg dream ticket.
posted by These Premises Are Alarmed at 5:19 AM on February 2, 2008

"At the end of a gun"? Could you elaborate on that, because I'm not seeing what you're trying to say. I mean, trust me, no one would have to hold a gun to my head to give me free [1] health coverage, and I kinda doubt I'm in a minority here.

As for Obama, I think we're just seeing the inevitable success of Bush's economic plan. Its an article of faith among some conservatives that government spending on social programs is bad, and that leads naturally to the conclusion that if the government is bankrupted by spending on wars, corporate handouts, etc, that's a good thing in that it forces cuts in social programs. Any Democrat elected president is going to have to fix what Bush broke, which gives the appearance of what we laughingly call "economic conservativism". I say laughingly because during my entire life I've never yet seen a conservative politician propose or do anything remotely fiscally responsible. What I wanna know is how long do the Republicans get a free ride in the American mind as "the party of fiscal responsibility"?

Also Obama/Bloomberg dream ticket? Man, way to make me feel vastly less enthusiastic about Obama.....

[1] Well, tax paid.
posted by sotonohito at 5:53 AM on February 2, 2008

I have been reluctant to engage in political campaigns. The time has come to overcome that reluctance. However, it is not the current turmoil in markets or the economic uncertainties that have impelled my decision. Rather, it is the breadth and depth of challenges that face our nation at home and abroad. Those challenges demand a new leadership and a fresh approach. It is only Barack Obama, in his person, in his ideas, in his ability to understand and to articulate both our needs and our hopes that provide the potential for strong and fresh leadership.

That Volcker, appointed by Carter and praised by Reagan, weighs in at all is noteworthy. He seems, however, too timid to say that his support of Obama is a move against Her Highness. His hyperbole about Obama is frankly unsupported by the evidence. There is simply too little. Honestly spoken, who knows what President Obama can accomplish? I think most people have their doubts about him and what he has a chance to accomplish against the entrenched Washington interests. Jimmy Carter was "new leadership and a fresh approach" and look where that got him.

But there is one thing dead certain about Senator Obama: he's not Bill Clinton's wife. I wish Volcker would have just said it outright: I'm supporting Obama because we need change and NO CHANGE WHATSOEVER can come from Bush-Clinton-Bush-Clinton.

Under Queen Clinton's regime, the Fed will continue the same policy it has followed under much of Bush-Clinton-Bush-Clinton. For Christ's sake interest rates have a FULL three percent to move until they match what the Bank of Japan achieved in the 1990s.
posted by three blind mice at 5:59 AM on February 2, 2008

By "at the end of the gun" I'm talking about the idea held by many folks I know in my home state of Indiana, or former coworkers in Ohio and PA, that government-imposed ANYTHING is to be opposed. As I understand the Clinton plan (or at least the MA plan), failure to buy health insurance means you lose your personal tax deduction - ie, the IRS takes more money from you, and the IRS has the power of law ("the gun") behind it. Many of these folks pay exorbitantly out-of-pocket for their own health insurance, too.

My point is the semantic difference between affordable health insurance for all and imposed health insurance for all is important to some folks. How large that group is, I have no idea.

I like the Obama/Bloomberg idea in part because, when asked to cite a fault, Obama mentioned he can't keep an organized desk (me neither..). My impression of Bloomberg is hyper-organized data-driven technocrat. He could be the anti-Cheney.
posted by These Premises Are Alarmed at 6:03 AM on February 2, 2008

tbl Its probably a bad idea to use Republican originated memes against Clinton, regardless of your personal dislike for her. I'm not at all in favor of Clinton myself, but everytime I see stuff like what you just typed ("Queen Clinton", thanks Rush), it makes me want to vote for her.

These Premises Are Alarmed As far as Bloomberg goes, I figure we've had enough CEO presidents.
posted by sotonohito at 6:41 AM on February 2, 2008

As far as Bloomberg goes, I figure we've had enough CEO presidents.

Well, we've had one, and he was a bad CEO before he was a bad president. We haven't tried it with a CEO from a seriously successful company. But still, I think he'd be better as the 'details guy' with Obama as the 'ideas guy'.
posted by These Premises Are Alarmed at 6:49 AM on February 2, 2008

I have no dog in this race, as some politician once said famously, but Paul Krugman, a very distinguised economist, writer at NY Times and prof at Princeton, has shown a number of times where Barak is naive in some of his domestic planning. Let it be said though that he has not endorsed any candidate.
posted by Postroad at 6:58 AM on February 2, 2008

The debate Thursday spent some time on the differing health care plans. Obama's *is* more 'conservative' - there's no mandate - and I wish he would try to sell it that way. Or at least to the population at large, if not the folks in LA. I think the distinction would play well "in Kansas" - make health insurance available for everyone but don't do it "at the end of a gun".

He has been selling that way jus tlook at this mailer that the Obama campaign sent out.

The Hillary plan doesn't give you free health insurance. Instead it makes everyone buy health insurance. If the government tells you that you can't afford to buy health insurance then you get a subsidy to buy it. However as we've seen in the SCHIP debate, what is considered affordable cost of living in rural Kentucky, isn't the same as in the New York City suburbs. So under Hiillary's plan if the government thinks you can afford health care, and you can't; you pay a fine.
posted by humanfont at 7:45 AM on February 2, 2008

Is now the time to point out that Republican admistrations have presided over all of the worst defecit increases for the last 30 years? "Republican" has not equaled "fiscally responsible" at any point in my lifetime. They talk the talk, but they don't actually watch the budget. Funny enough, same was true for the so-called "fiscally conservative" Conservatives in Ontario - they bankrupted the province, and wanted to be thanked for it.

It's not something you need economics to understand, just grade school level math. You can't cut taxes, and then spend heavily (whether on a war, or on Cold War posturing). "Tax and spend" liberals can add - you can raise taxes, and then spend the money. One might not agree with raising taxes for ideological reasons, but social democratic programs don't create deficits if the taxes are sufficient to support them.

But "taxes" has become a bad word, which is stupid. We've had taxes since the day dot, and, frankly, I'm quite happy that my taxes are spent on roads and schools and hospitals and other infrastructure that makes my society function. It's a balance between having enough taxes to keep this infrastructure going (infrastr, but not so many taxes that the economy has trouble supporting them.

But "deficit" that should definitely be the bad word. It's just a fancy word for DEBT, and long-term debt is a bad thing for a person or a government.
posted by jb at 8:06 AM on February 2, 2008

As for the Ontario Conservatives - it would be more described as "you can't cut taxes, and sell off provicial assets that are making money for the province for pennies to your friends, and then expect the province to keep functioning".

I think they thought one of them was going to strike oil while golfing.
posted by jb at 8:08 AM on February 2, 2008

Heh. Larry Kudlow is kind of a joke, at least in the liberal blog sphere.
posted by delmoi at 8:21 AM on February 2, 2008

But "deficit" that should definitely be the bad word. It's just a fancy word for DEBT, and long-term debt is a bad thing for a person or a government.

That's not true if the money is being invested in things that grow revenues. So if the government was investing in things that increased the tax base every year, and would forever, then it would make sense to run debts every year, as long as the interest on the debt would be less then the future tax input over time.
posted by delmoi at 8:26 AM on February 2, 2008 [1 favorite]

the idea held by many folks I know in my home state of Indiana, or former coworkers in Ohio and PA, that government-imposed ANYTHING is to be opposed

Last time I looked at a map that had these states on them, there were drawings on roads on them. I guess I must have been imagining them, as the alternative is that government-imposed things are sometimes actually good.
posted by DreamerFi at 8:28 AM on February 2, 2008

Larry Kudlow on blogspot? How low-rent. How like the guy.
posted by Ironmouth at 8:40 AM on February 2, 2008

How quickly we went from a projected surplus of two trillion dollars to a debt of nine trillion dollars is just abso-fucking-lutely amazing. Just one eight-year presidency to drain eleven trillion dollars away. I mean, figure half the population pays taxes, so 150 million taxpayers. So we went from those people getting a check *back* from the government of around $13,000 each (the projected two trillion dollar surplus during the Clinton boom years) to *owing* the government $60,000 each -- beyond the taxes they already pay!

No one's really talking about it, but that is one ginormous debt to deal with. The only way to deal with debt is to pay it down. The quicker you do it, the less interest you pay, but the more painful it is. The only way that debt is going to be dented is by raising taxes. Getting rid of those Bush tax breaks for the wealthy is just a start. Gonna need a lot more than that, and it's gonna be painful. I guess that's why nobody talks about it. Who wants to be the harbinger of bad news? But not talking about it doesn't make the problem disappear, just like throwing away your Mastercard bill doesn't make you debt-free.
posted by jamstigator at 8:42 AM on February 2, 2008

delmoi: "That's not true if the money is being invested in things that grow revenues. So if the government was investing in things that increased the tax base every year, and would forever, then it would make sense to run debts every year, as long as the interest on the debt would be less then the future tax input over time."

This is true, and historically big infrastructure projects have a high rate of return on the capital invested (cf. the Erie Canal, or the Interstate System). But you could pay for projects on an individual basis, through use-specific bond issues, without having a "national debt" that seems like it's just too tempting and dangerous on the whole.

It's the difference between going out and taking out a well-considered loan for a major purchase, and having a credit card with no limit and no minimum payments. I'd love to see the government have to issue separate bonds for various debt-funded programs, with interest rates set by the market, without the possibility of running a general deficit.

I think it would become immediately and brutally clear which programs pay themselves back and are truly investments, and which (e.g., wars) are just perpetuating the broken-window fallacy.

As to Hillary and Volcker, I wonder whether there's a hefty dose of realpolitik in there. An inexperienced Obama would give him -- an old hand at finances -- much more power and authority than a Clinton presidency (which would arrive with a long line of Clinton I advisers and camp followers) presumably would. In short, it's the administration that's more likely to leave him the hell alone and let him run things the way he sees fit.
posted by Kadin2048 at 8:52 AM on February 2, 2008

Instead it makes everyone buy health insurance. If the government tells you that you can't afford to buy health insurance then you get a subsidy to buy it. However as we've seen in the SCHIP debate, what is considered affordable cost of living in rural Kentucky, isn't the same as in the New York City suburbs. So under Hiillary's plan if the government thinks you can afford health care, and you can't; you pay a fine.

The operating assumptions for the above Clinton plan is that health care insurance run by private industry doesn't work if the youngest and most productive healthiest people opt out, for obvious reasons. Now, that probably means that the private approach is stupid and full of contradictions (I would agree), but its obvious that the profit dollar runs politics in America and we have a primitive and weak election system under the winner-take-all-two-party-only, so there is no alternative until a major disaster mandates it. Hillary figured this out apparently without letting go of universal coverage. Obama thinks that healthy people opting out of the system is fine, therefore he's too inexperienced to know it won't work within the for-profit industry that pays for healthcare.
posted by Brian B. at 8:58 AM on February 2, 2008

Hey, I told you that an Eisenhower Republican should support Clinton or Obama! Ike's granddaughter Susan Eisenhower just endorsed Obama.
posted by ibmcginty at 9:18 AM on February 2, 2008

That's not true if the money is being invested in things that grow revenues. So if the government was investing in things that increased the tax base every year, and would forever, then it would make sense to run debts every year, as long as the interest on the debt would be less then the future tax input over time.
posted by delmoi 2 ¾ hours ago [1 favorite +]

That's why I changed my original comment from "debt" to "long-term debt". I agree that debt to make an investment can pay off in the long-run.

But every bit of debt still means interest payments, and interest payments are a use of either government or personal money that can't be used for something else.

If your investement is such a good one that the payback well exceeds interest payments, then it makes sense. But if you actually have enough revenue to pay for straight out for your investment in the first place, this is better.

So I'm on the raise taxes already and spend wisely side.
posted by jb at 11:18 AM on February 2, 2008

For a fiscal conservative, if you consider only viable candidates (better get the Paul-litia out of the way right now), it's the lesser of two evils: Multi-billion welfare, or multi-billion warfare. Given the "war on Iraq forever" view of the forerunner on the multi-billion warfare side, health-care-for-everyone-yay actually seems cheaper.

Ha. It's worse than that.

The pre-2003 baseline spending on the Iraq war is pretty close to nothing, right? On the other hand, we're already hemorrhaging an obscene percentage of the GDP on health care.

The point is that socialized medicine would certainly cost money, but it would also save a lot of money. The Iraq war nominally costs even more, and I don't see that it saves much of anything. In my estimation, the Iraq war costs proportionally far more than a simple comparison of direct outlays would indicate.
posted by Mr. President Dr. Steve Elvis America at 11:21 AM on February 2, 2008

If your investement is such a good one that the payback well exceeds interest payments, then it makes sense. But if you actually have enough revenue to pay for straight out for your investment in the first place, this is better.

That's a misleading way to put it. It really comes down to how much you can invest at a return greater than your cost of funds.
posted by Mr. President Dr. Steve Elvis America at 11:37 AM on February 2, 2008

socialized medicine would certainly cost money

No one's proposing that, though.
posted by ibmcginty at 1:25 PM on February 2, 2008

No one's proposing that, though.

I was responding to "health-care-for-everyone-yay." I realize that the actual plans of the candidates are pretty weak.
posted by Mr. President Dr. Steve Elvis America at 1:42 PM on February 2, 2008

Socialized medicine costs money, but it also saves you money.

Recent comparisons between the United States and Canada have found that Canadians don't pay significantly more tax than Americans, and it works out about the same when you factor in the costs of private health care in the United States.

But, of course, in exchange for this Canadians have universal health care and better health care outcomes (longer life-expectency, lower infant mortality). Also, they have a more efficient system - study in NEJM a couple of years ago found that the the Canadian single-payer system spent a much lower proportion of health care money on overhead than the American privatized system.
posted by jb at 3:37 PM on February 2, 2008

That's a misleading way to put it. It really comes down to how much you can invest at a return greater than your cost of funds.
posted by Mr. President Dr. Steve Elvis America at 2:37 PM on February 2 [+] [!]

In which case your income (aka payback) exceeds your interest payments.

But that's not true for most people in debt, or for the American government. They are not investing at a return greater than their cost of funds - they are just going deeper into debt. And this means a bigger deficit, more revenue that must be spent on interest and not useful things, and this is bad.

My point is not that it's a bad idea to have a morgage or a student loan - it's clearly a good idea to have either of these. They are investments that pay back with time.

My point was that it's a bad idea for expenditure to exceed income. And this is what "cut taxes" conservative governments have been doing for the last 30 years. "Tax and Spend" works, "Not Tax and really Not Spend" also works, though it's unpleasant for the society, but the "Cut taxes and then spend lots of money overseas or give away our few money making things to our cronies while trying to maintain even the barebones of a system we can no longer afford because our income is way down" -- this does not work.
posted by jb at 3:47 PM on February 2, 2008

The reason why I don't support Obama is because he represents the old way of thinking in a newer package. Previously, most people thought that conservatives had a point about the economy, but that emotions led us to help those who struggle (and who often work the hardest). This basically divided the right from the left since the New Deal, during the cold war. Now we know the activist right is dead wrong about almost everything economic. They exposed their plans as supply-side disasters: they believe that healthcare is only for very sick people, not for prevention and lowering costs; they give money to unaccountable religious programs instead of directly to the needy; they tax the poor and young families who spend all of their income, ruining the demand economy in the long run; they ban abortions and the welfare incentives that prevent it; they build border fences instead of checking documentation at work sites. These all show that conservatives really know nothing of governing economics, and instead play dumb about their mismanagement because their corporate goals are not the goals of the electorate. So, back to the point, Obama and his supporters are those who are of a conservative mind and liberal emotions, when it should be the other way around. Wealth is created with public money so that we can tax it wisely, not to make kings and to beg it back from them with liberal sentimentalism. Americans have strayed so far off the map of civil progress under the old way of thinking that we have assumed the internal contradiction of using our equal rights to vote in favor of planned inequality.
posted by Brian B. at 11:40 AM on February 3, 2008 [2 favorites]