Through a Glass, Smugly

A Critique of Pure Yglesias

Over the past couple of years, I’ve written a few criticisms of the technocratic-positivist approach to American politics that I believe seriously distorts political reasoning and judgment, especially on the center-left. Now I think I’m ready to take on the final boss of political positivism—Dr. Robotnik himself—Matt Yglesias.

I’ve given Yglesias somewhat of a hard time, and he has chosen to interpret my peevishness as a strategy to signal in-group belonging to my fellow lefties, which, of course, only further irritated me. But I assure you, my objections to Yglesias are primarily about ideas—I really don't like how he thinks and argues.

Let’s look at his recent piece in the New York Times for an example—“Voters Say It Is Their Top Concern. Why Aren’t Politicians Acting on It?” He begins with a paradox: Although voters have made it abundantly clear that affordability is their foremost political concern, neither party has adopted an economic program seriously directed toward reducing the cost of living. Instead, both parties remain beholden to the ideological priorities of their respective core constituencies. Republicans want to cut, while Democrats want to spend. The real problem, according to Yglesias, is that the federal government continues to run enormous budget deficits despite relatively low unemployment. This fiscal bloat contributes to inflation and forces the Federal Reserve to maintain high interest rates, making mortgages and consumer credit more expensive. His solution, then, is a return to fiscal discipline, combined with a systematic effort to eliminate regulations that supposedly artificially raise consumer prices. This would also mean higher taxes on the wealthy—fine by me—reductions in wasteful spending, deregulation, freer trade, and immigration policies designed to increase the supply of labor. Such measures are politically difficult because they offend organized interest groups, but that is precisely why Yglesias says politicians must empower technocrats who can identify the most effective means of achieving the outcomes voters really desire. Yglesias presents the Clinton administration as the historical demonstration of this approach: Clinton’s willingness to prioritize deficit reduction over the objections of his own coalition helped produce the extraordinary prosperity of the 1990s, which voters duly rewarded. What American politics needs, then, is a revival of the Clinton-era combination of fiscal prudence, market liberalization, expert administration, and political moderation: a governing philosophy that puts measurable economic results ahead of “ideological” commitments.

Now, I can count about a dozen unexamined premises here, which points to the characteristic Yglesian mode of argumentation: smuggling controversial theses in under the guise of common sense and then declaring that the answer is obvious and “simple.” Rather than enumerate all of the suppressed premises that hold up this Potemkin Village of an argument, I’ll concentrate on the area I happen to know a little bit about: the history of the 1990s.

Yglesias writes, “Bill Clinton’s decision to prioritize macroeconomic prudence irritated many people in his coalition, but it helped produce a very strong economy.” First of all, that decision was not exactly made willingly. Clinton had campaigned on an ambitious reconstruction of the American economy as well as deficit reduction, but the circumstances at the beginning of his presidency forced him to choose between competing priorities. There was a fierce internal fight over whether to prioritize deficit reduction or public investment and stimulus. Eventually, the pro-finance wing of his administration persuaded him that the interest-rate problem was paramount. But he wasn’t particularly thrilled about abandoning much of his investment agenda. According to Bob Woodward, Clinton complained, “You mean to tell me that the success of my program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?” To understand a political decision, we have to reconstruct the circumstances in which it was made, the alternatives available to the actors, and the constraints and contingencies they understood themselves to be facing. Clinton didn’t simply consider the merits of competing policies in the abstract and select the superior one. At the time, he experienced it as a painful compromise and, in hindsight, when the results worked out, believed it vindicated his judgment. The problem with the abstract empiricism Yglesias practices is that it tells us almost nothing about what really happened. The actual history has disappeared, leaving behind a tidy little morality play about the virtues of technocratic judgment. Clinton chose the good policy, which produced the good economy, which proves that the policy was good. Good things lead to good things. Q.E.D.

Another little complication for this good things lead to good things lead to good things, Q.E.D. method of reasoning: in 1994, despite Clinton’s fiscal discipline, Greenspan’s Federal Reserve began raising interest rates, doubling the federal funds rate from 3 to 6 percent by early 1995. Long-term bond yields rose substantially, too. Clinton was extremely pissed with Alan Greenspan at the time. In retrospect, Greenspan managed to engineer a “soft landing,” which saved the economy from recession. But, again, all this high-wire drama where things could have gone very wrong gets smoothed over in Yglesias’s account.

Yglesias is also putting an awful lot of weight on the word “helped.” How much did fiscal discipline really help produce the prosperity of the 1990s? Well, it’s not that clear. I want to point out right away that the sources I’m going to use to dispute his account at the beginning are neither Marxian nor heterodox; so hopefully they aren’t “ideological” in Yglesias’s opinion—instead, they share his “priors,” as these people like to say.

First, let’s get it straight from the horse’s mouth: the Clinton administration’s final retrospective look at the “New Economy” of the 1990s, the 2001 Economic Report to the President. Fiscal discipline is the last of three qualities that the report says contributed to the booming economy:

Three interrelated factors lie behind these extraordinary economic
gains: technological innovation, organizational changes in businesses,
and public policy. Information technology has long been important to the
economy. But in the early 1990s a number of simultaneous advances in
information technology--computer hardware, software, and
telecommunications--allowed these new technologies to be combined in
ways that sharply increased their economic potential.

The report makes the case that the fiscal picture was improved by the growth, which then allowed a favorable set of policies that contributed to a “virtuous cycle.” — “The increased growth prompted by the new technologies helped the Federal Government restrain its spending growth and boosted its revenue.” So, even if we accept the Clinton administration’s own favorable account of its fiscal policies, one thing is already clear: fiscal discipline can’t be unproblematically abstracted from the larger economic history of the decade. The administration’s own economists understood it much more holistically than Yglesias does, as one element in a complex and mutually reinforcing process involving technological innovation, rising productivity, private investment, and economic growth.

You also can’t ignore the enormous “peace dividend” that followed the end of the Cold War. According to the Congressional Budget Office, between 1988 and 1997, inflation-adjusted defense spending fell by approximately 30 percent. Clinton’s fiscal consolidation was helped along by a specific historical conjuncture where the country at large felt it could cut military spending safely.

It’s difficult to overstate the importance of tech in the conventional account. For instance, Federal Reserve economists Stephen Oliner and Daniel Sichel—the latter a former Clinton Treasury official—estimated in their 2000 paper “The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?” that IT accounted for roughly two-thirds of the acceleration in labor productivity growth during the late 1990s.

Next, let’s look at the very famous book The Fabulous Decade: Macroeconomic Lessons from the 1990s, published in 2001 by Alan Blinder and Janet Yellen, both of whom held senior economic positions in the Clinton administration. Blinder and Yellen were, understandably, enthusiastic defenders of Clinton’s fiscal policies, but even they attributed the performance of the economy to a combination of sound macroeconomic policy and exceptionally favorable circumstances—in other words, luck. What’s interesting about reading the book is that the authors really want to say that fiscal policy was essential, but their intellectual honesty as economists repeatedly prevents them from making that case too strongly. They keep coming back to positive supply shocks, the stock market, and a cooperative Fed, which they can’t even definitively establish was in a generous mood because it wanted to reward fiscal discipline. If you flip to the back of the book, this is their first lesson of the “fabulous decade:”

Lesson 1 is the well-known point about the monetary-fiscal policy mix that we have made several times: tight government budgets and (relatively) easy monetary policy can create a pro-investment macroeconomic climate by holding down real interest rates. The resulting high rates of investment should then push up productivity and real wages. Economists have been preaching this gospel for decades. And it all seemed to work out according to Hoyle (actually, quite a bit better) in the United States in the 1990s, when the 1980s mix of tax cuts and tight money was finally and decisively reversed.

But did the policy mix really drive the investment boom of the 1990s? Our two macroeconometric models are doubtful. One major reason is a channel that textbook presentations often leave out: while lower interest rates stimulate investment spending, they also boost stock market values—which in turn spur consumption (via the wealth effect) more than investment. Specifically, when we simulated the effects of tighter budgets—balanced by easier money to hold the time path of unemployment constant—most of the rise in government saving was cancelled out by lower personal saving, leaving the investment share of GDP up only slightly. The main impetus to investment, it appears, came from the surge in productivity.

To translate this a little bit: even the economists who participated in Clinton's policymaking couldn’t confidently establish how much of the expansion was attributable to fiscal discipline alone. And I think this conclusion of theirs is particularly deadly for Yglesias blithe “let’s copy Clinton” argument: “Successful fine-tuning requires a blend of skill and luck that may well be rare.” Indeed.

But perhaps the most devastating objection comes from Joseph Stiglitz, who served as chairman of Clinton’s Council of Economic Advisers. In February 2004, he published an essay in The American Prospect entitled “That Was Then.” Its subtitle might as well have been written expressly for Yglesias: “Deficit reduction worked for Clinton, but circumstances were different in 1993. Today’s Democrats mustn’t think they can merely mimic him.” Like his fellow economists, Stiglitz explained that Clinton’s fiscal consolidation succeeded because of a peculiar conjunction of circumstances involving the condition of the banking system, the timing of spending reductions, and the distribution of the tax burden. Under other circumstances, the same policy could produce quite different—read “bad”—results. That was then. This is now. Not for nothing, in his 2003 book, The Roaring Nineties, Stiglitz also wrote, “…interest rates would have fallen anyway. They were falling even before Clinton took office.”

Okay, so much for orthodoxy and insiders; let’s quickly run down how some of the heterodox have treated the era. Dean Baker has argued that the boom was substantially dependent on speculative stock-market appreciation, which sustained consumption and generated extraordinary tax revenues. Robert Pollin, writing in New Left Review in 2000—before both the dot-com collapse and the financial crisis of 2008!—identified the financial fragility of the expansion and examined changing relations between labor, capital, and profitability. More recently, Nelson Lichtenstein and Judith Stein, in A Fabulous Failure, argued that the Clinton presidency represented a missed opportunity to undertake a more fundamental reconstruction of American capitalism. The extraordinary prosperity of the late 1990s—all the good luck—helped legitimate a political-economic settlement whose underlying structural weaknesses remained largely unaddressed. (As it happens, this is similar to what I argue in my own book, When the Clock Broke.)

(It remains an open question whether Clinton’s fiscal restraint was even benign, let alone beneficial. As early as 1999, the Cambridge economist Wynne Godley warned that federal budget surpluses, combined with growing trade deficits, were making the expansion dangerously dependent on private borrowing and rising asset prices. One would have to say his warnings were at least partly vindicated by the collapse of the dot-com bubble and the subsequent recession.)

But I’m not attempting an empirical refutation of Yglesias argument. Again, what I object to is his method—not what he thinks, but how he thinks. These facts do not float freely in space. They are selected, organized, and connected by a pretty thick set of theoretical assumptions, which are suppressed from view. The facts are then presented as though they speak for themselves, and the conclusions as though they follow necessarily from the evidence. The ideological commitments that structure the argument thus disappear beneath an appearance of empirical objectivity. Ironically, Yglesias charges his opponents with “ideology,” because, from my perspective, that’s what exactly he’s doing! What looks like the absence of ideology is precisely ideology itself: a body of ideas that reproduces the authority of some political or social group and, to perform that function, relies on its presuppositions going unexamined. It denies that there is any symmetry between its own substantive political commitments and those of its opponents.

This mode of argument doesn’t say, “Here are my preferred policies, and here are the reasons I believe they are superior.” It says, in effect, “Here is what sound policy requires; everything else is mere ideology.” I am reasonable. Everyone else is motivated or ignorant. If only they would stop being so silly. There is a self-confirming circularity to the whole business: the premises determine what counts as reasonable, and what counts as reasonable is then offered as proof of the premises. You can call it reasnonableness—ness. And this is what I find provocative—nay, infuriating: the self-satisfied monopolization of reasoning itself, even when not even practicing reason very well! Note that I don’t even need an account of motivation here either: Yglesias and his ilk may have perfectly benevolent motives—as far as they understand them— but the problem is in the structure of their discourse itself.

I’ve pointed out that there is a circular and almost tautological form here: good things are good, therefore let’s do good things. The appearance of universal agreement about ends conceals controversial assumptions about means. Of course, the Clinton era was prosperous and secure, but it doesn’t follow that we can just unproblematically reproduce that prosperity—in whole or part—by abstractly copying its policies absent their historical conditions. In strict historical perspective, all of the problems—including the political perspectives that Yglesias calls “ideological”—that we live with now are just as much products of the 1990s and its policy regime as the brief period of prosperity.

But let’s return to the question Yglesias supposedly set out to answer: affordability. What exactly does this retrospective celebration of Clinton-era fiscal discipline tell us about why housing, health care, education, and other necessities have become so expensive relative to household incomes? Of course, lower interest rates would make borrowing cheaper. But interest rates are only one component of the cost of living, and a theory of fiscal discipline is not yet a theory of affordability. To understand the latter requires a very complex account of how the present structure of prices, wages, markets, and institutions came into being. Instead, we are offered a familiar set of policy preferences, now presented as the obvious answer to a problem whose real historical formation has scarcely been investigated. To have an honest discussion about this, you have to admit, at least in principle, that you could cut costs, prices would remain high, and you’d still be fucked. Or prices could fall, and you'd still be fucked because you couldn't afford anything anyway. And for that matter, many people in the technocratic-liberal orbit believe that AI will cause mass unemployment, so why are we evn talking about deficits now anyway?

Another practitioner of technocratic-positivism, the pollster David Shor, does something very similar to Yglesias. He once said to Ezra Klein, that he was “rediscovering the ancient political wisdom of the past.” In essence, he makes the discoveries of Dick Morris the Summa Theologica of all political practice just as Yglesias makes Clintonomics the holy grail of political economy. They are doing some kind of cargo cult of the 1990s, where they behave as if you can pluck some fact out of the history of an era and treat it as a magical talisman to bring back political success or prosperity. As someone with an interest in that history, I find this particularly irksome because it misses what’s actually interesting and potentially instructive for the present. It doesn’t help us judge our present world accurately. Instead, it makes that judgment cloudier with the illusion of simple clarity.