Paul Krugman: Psychological Roots of Austerity:
Simon Wren-Lewis has a thoughtful post on the reasons for austerity mania, in which he accepts the role of special interests but argues that there are also psychological roots. Specifically, he suggests that politicians know that they are often irresponsible, and:
when the market starts to punish fiscal profligacy, it is as if a parent has discovered the child’s guilty secret. (The market is seen by many as a mysterious deity.) The politician wants to repent (or at least be seen to repent), and atone for past sins. After eating too many pastries, we go on a crash diet. After deficit bias, we have austerity.
His analysis had me thinking about President Obama’s first inaugural, and my (lonely) upset reaction:
In response to an unprecedented economic crisis — or, more accurately, a crisis whose only real precedent is the Great Depression — Mr. Obama did what people in Washington do when they want to sound serious: he spoke, more or less in the abstract, of the need to make hard choices and stand up to special interests. That’s not enough. In fact, it’s not even right.
Looking back, I think we can see the austerian temptation even there, literally in the first hour of the new administration. Since then Obama has veered back and forth between reasonable Keynesianism and acceptance of deficit fetishism, but if even he, even then, was pulled in by the emotional tug of austerity, you can see why good macroeconomics has had so little impact on policy.
Simon Wren-Lewis http://mainlymacro.blogspot.com/2013/03/the-power-of-austerity-over-politicians.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MainlyMacro+%28mainly+macro%29 The Power of Austerity over Politicians:
In an earlier post, I reported some speculation by Coen Teulings on why politicians seem to ignore the majority of economists when it comes to austerity. (On the minority of economists that do support austerity, see here.) Mark Thoma responded that it was because austerity gave politicians the chance to pursue ideological goals, and of course he is right for some…. Yet… even where the strong austerity proposed by the right is opposed by the left, in both the UK and US for example, the opposition could be fairly described as tepid…. I think there is more to this than just an excuse for some to whittle down the size of the state. Or to put it another way, we need to explain the weakness of the opposition to austerity from those who do not have this ideological goal. This is not to underestimate the influence that those with an ulterior motive and lots of money can have. I used to think that the idea that the Great Depression was a liquidity trap that expansionary fiscal policy rescued us from was received wisdom both among economists and politicians. But I should have known better from my own experience. Duncan Weldon reminds us of how the disaster that was Margaret Thatcher’s adoption of monetarism in the early 1980s has been turned into a myth of her triumph over those foolish economists….
I also agree with Henry Farrell and Mark Blyth (the former reviewing the latter’s new book ‘Austerity: The History of a Dangerous Idea’ here) that its wrong to try and find a motive for everything in terms of interests groups. Ideas have a power of their own. But for ideas to have power they need to resonate….
The electorate… empathise[s] with political 'self restraint' and reward apparent virtue. So here are we Keynesians, telling politicians that they don’t need to go on that diet just yet - they can put it off until times are good. Indeed, now is just the time to eat more pastries - it will make you feel better, they are very cheap at the moment, and you might even lose weight in the long run! It sounds too good to be true, and just the kind of tale the devil might spin. Give in, and the all seeing parent/god that is the market will find you out again. So the politician ignores these siren voices, and buckles down to austerity.