Crises Fiscal And Financial

by hilzoy

Felix Salmon makes a point about the debate that I missed:

"The number of undecided voters who understand the difference between financial and fiscal is minuscule, and the number of those who think that the difference actually matters is probably zero. But from a technocratic standpoint, the fact that McCain twice referred to the financial crisis as a "fiscal crisis" is telling. It means (a) that he doesn't really understand it, and (b) that insofar as he does, he thinks that government is at least as much part of the problem as it is part of the solution."

He's right: I just checked the transcript. Possiby McCain just misspoke, although the fact that he said it twice argues against that. Possibly he just doesn't understand what "fiscal" means. But if he thinks this is a fiscal crisis, then he really, really doesn't understand it at all.

If McCain thinks we're in a fiscal crisis, that would explain why he keeps insisting that the solution involves cutting government spending. For instance:

"Lehrer: Are there fundamental differences between your approach and Senator Obama's approach to what you would do as president to lead this country out of the financial crisis?

McCain: Well, the first thing we have to do is get spending under control in Washington. It's completely out of control."

But that's really, deeply, totally wrong. When you're going into a recession, let alone a depression, you want to get more money into the hands of people who will spend it, lend it, or in some other way help the economy get back on its feet. It's the last time to be wondering how to cut spending.

I don't mean to say that there aren't programs that should be cut because (say) they are ineffective or counterproductive, or that we won't have to cut anything to compensate for the additional debt we seem to be about to take on. I do mean to say that cutting spending, per se, is not a solution to the problems we face; under the circumstances, it is at best an unfortunate necessity. That McCain thinks it is a solution is really worrisome.

Comments

[freelunch]

Republicans long ago decided that Keynes was good for them every year. If stimulus was good going into a recession, it must be better during the good times. Never mind the deficit, let's spend more.

Despite McCain's claims, he has never been much of a budget hawk and there is no reason to think he'd cut any spending (except for spending on those who are in need).

[Narc]

I just wanted to point out that, after making a big deal out of the difference between "financial" and "fiscal," the definition you linked to says that they're acceptable synonyms.

[hilzoy]

Narc: yeah, but in this context, 'fiscal crisis' pretty much always means 'the government's budget is way out of whack, and at a level that we really have to do something about now.'

[Sandwichman]

Maybe this is a case of "out of the mouths of babes." Whether McCain actually knows it or not, the crisis is simulaneously financial and fiscal because the government is being forced to borrow when it already has huge deficits.

[Terragone]

I also caught this during the debate. McCain in the past has not seemed to understand what a stimulus package is: something that purposely spends more government money than is taken in. I am reminded of the great British economist Joan Robinson, who, as a solution to the Great Depression said, "if you can't pay men to do something sensible, pay then to do something silly." She continued, "Paint the Black Forrest white." Just get money out there in circulation. Deficit spending, whether on the demand side (spending) or the supply side (tax cuts) does this. Balancing the budget does not.

McCain's utter lack of understanding this is troubling.

[John Cole]

More important to me is the fact that McCain demonstrated clearly that he simply does not understand the difference between tactics and strategy.

That was appalling last night. He had them bass-ackward, and this is the guy with national security as his strongpoint?

[John Thullen]

It's true.

McCain doesn't understand the difference and neither do the majority of the American people.

He's just as stupid and ill-informed as we and Sarah Palin are and that's the kind of person we want in the White House to lead us through the dark days.

No uppity, elitist quick studies can help us out here. In fact, the more a person knows, the more useless they become, especially the ones who traveled through Europe on a Eurorail pass gawking at the world's great art.

Pol Pot knew this instinctively. You won't find anyone in a McCain Administration wearing glasses, by cracky! Sarah Palin's having corrective eye surgery as we speak, because with an I.Q. below 100, you need 20/20 vision to see the future clearly.

Eliminating $18 billion in earmarks will balance the budget, enable taxes to be cut up to 70%, allow Vladimir Putin to look within his soul and catch a very small George W. Bush giving him the finger, and cause the confetti of funky paper issued by Wall Street over the past 10 years to land on McCain's desk rolled up in one piece and tied with a ribbon like a diploma from a mail order trade school.

The word "financial" is not in the Constitution. Neither is the word "fiscal". Neither is the word "sphincter". So, I can use any one of those words interchangably at any time and the spectacle-less American people will know exactly what I mean.

[Pithlord]

1.. Surely, it is a fiscal crisis if the USG adds $700 billion to its debt. True, if it doesn't do that, the type of crisis is different -- maybe a liquidity crisis in the financial system, maybe a solvency crisis.

2. Keynesian fiscal remedies may be appropriate, but you have to argue for that position, not just assume it.

The bailout isn't really a classic Keynesian remedy of boosting aggregate demand with borrowing. If what the financial system faces is actually just a liquidity crisis, then the USG's balance sheet could improve, although it is clearly taking on more risk.

[hilzoy]

Pithlord: the crisis we are in, the one the bailout package is designed to address, and the one Lehrer asked about, is not a fiscal crisis. Our response to it will cause major fiscal problems, but that's a different matter.

[john miller]

Pithlord, hilzoyis right. The crisis is financial, but if not handled correctly can become a major fiscal crisis. Also, since it appears the final package is not going to be a flat giving of $7billion, perhaps people can stop throwing that number around.
The difference last night in how the two tried to answer Lehrer's question about how the bailout might affect policies is that all Mcain could talk about is reducing spending, focusing primarily on earmarks whereas Obama tried to say, but could have been clearer, that certain programs ill remain priorities, but we cant really know until a0 the package is finalized and b0 what the effect of the finalized package will be.

John Cole. That is amazing isn't it? Not only is foreign policy supposed to be McCain's area of expertise, but he is supposed to have had excellent military experience, yet he still doesn't know the difference between strategy and tactic.

Oh well.

[bedtimeforbonzo]

"allow Vladimir Putin to look within his soul and catch a very small George W. Bush giving him the finger"

Wonder what Vlad thought about the debate.

[Hartmut]

The German government reacted to the World Economic Crisis that started in 1929 with extreme spending cuts sold as fiscal discipline. The results were catastrophic and are seen by historians as an important factor in Hitler's rise. Chancellor Brüning later* claimed that parts of the negative results were deliberate to "poorify" Germany enough to get rid of the WW1 reparations but critics see that as a defensive lie. To be nasty: Weimar left a balanced budget to the Nazis. One could see an analogy to Dem vs. GOP administrations.

*after WW2

[bedtimeforbonzo]

John Miller: "The difference last night in how the two tried to answer Lehrer's question about how the bailout might affect policies is that all Mcain could talk about is reducing spending, focusing primarily on earmarks whereas Obama tried to say, but could have been clearer, that certain programs ill remain priorities."

Election year politics -- Obama failed to cite a single program that could be put off or cut; McCain wondered out loud, "How about a spending freeze?" as if he were thinking about a topic for a blog, not running for President of the United States.

Fiscal, financial, f--k me, neither Obama nor McCain showed any degree of expertise on the economy.

They were much more comfortable talking about Spain, Kenya, Russia, Pakistan, Jupiter and Mars.

I suppose there's something to be said for why this is the first time we have two Senators -- without a tested governor -- on the top of the Democratic and Republican tickets. Having never met a payroll or state budget, McCain and Obama sounded like a pair of dithering Senators afraid to make a commitment or offend a voter on the economy.

[bedtimeforbonzo]

I just opened up the local newspaper and for the second straight Saturday the Help Wanted did not even take up a full page -- they used to occupy three pages.

I don't know if that's a fiscal or financial concern.

Did either candidate mention rising unemployment?

Four-dollar-a-gallon gasoline?

Projected skyrocketing heating oil prices for this winter?

How ordinary people grimace and about the cost of a gallon of milk? Eggs? Cheese?

Neighborhoods overrun with FOR SALE signs?

[redwood]

hilzoy: Pithlord: the crisis we are in, the one the bailout package is designed to address, and the one Lehrer asked about, is not a fiscal crisis. Our response to it will cause major fiscal problems, but that's a different matter.

I'm still not convinced as you, hilzoy, and Salmon are that McCain doesn't know the difference between a fiscal crisis and a financial crisis, fiscal being a government's budget crisis.

it could be that, like me, McCain was jumping ahead, assuming that Congress coughs up the $700 and assuming that doing so would create a fiscal crisis.

indeed, I'd guess most Americans are more worried about how Congress is going to pay for bailout, which seems to be a foregone conclusion.

separately, I hope we see a lot more of Goolsbee.

he's been great! Finally, toughness on our side.

[hilzoy]

"Wonder what Vlad thought about the debate."

He was undoubtedly too busy rearing his head and entering Alaskan airspace to watch.

[hilzoy]

redwood: my second point is, I think, the more important one: McCain thinks that spending cuts are the solution. Spending cuts (along with tax increases) would be the solution to a fiscal crisis. But they are not just a non-solution to the crisis we're in; they are actually counterproductive.

It's like recommending a diet to someone with anorexia. It really is that bad.

[John Thullen]

Michael Gerson's latest Newsweek column lifting Sarah Palin into the pantheon beside William Jennings Bryan is in my morning paper.

The words "elite" and "elitists" are used 13 times. Bryan and Palin are the salt of the Earth while H.L Mencken, an idiot on lots of issues who nevertheless could turn a pretty phrase, is compared obliquely to Obama, an overeducated skinny black man.

I'll remind Gerson that Bryan used synomyms for elitists that were code words for international Jewry. He was an anti-Semite and when he talked about elites being the crown of thorns on the head of Jesus' rural American values, he was talking about the JEW.

Remember, too, how Bryan derided monkeys at the Scopes trial. Talk about elitism.

Let me get this right. Gerson has degrees from elite universities, has worked in the White house, the crowning achievement for your average elitist, and professes elite opinions on elite editorial pages accusing me and Obama of being elites.

I'll remind him I own a pitchfork and if his scurvy elite self wants to present its anti-Semitic self on my front lawn, I'll be happy to plunge it through his heart and then descend on his home in an elite neighborhood and torch it.

If Bryan meant Jew, I suspect Gerson means Streisand, the f--k.

[ThatLeftTurnInABQ]

Projected skyrocketing heating oil prices for this winter?

Yes, Obama mentioned heating oil specifically. Not at length or in detail, but he did mention it.

I can't recall McCain mentioning any bread and butter issues at all, at any point in the whole debate. He was too busy getting worked up about going all Torquemada over earmarks. At one point it sounded like he was on the verge of describing what sort of tortures he would use to scourge the corrupt puss from the flesh of the unclean who have been seduced by fiscal succubi.

[bedtimeforbonzo]

"He was undoubtedly too busy rearing his head and entering Alaskan airspace to watch."

No worries.

Palin is all over that.

[MeDrewNotYou]

He was too busy getting worked up about going all Torquemada over earmarks.

In History of the World: Part 1, Mel Brooks plays Torquemada. His brilliant performance reveals the solution to any fiscal problem we may or may not have.

1. Hold an Inquisition
2. Put a bunch of Muslims and Jews on a giant slot machine wheel.
3. ???
4. PROFIT!!!

(My theory for step 3 is that as the wheel spins, loose change falls out of pockets. This could perhaps be simplified to shaking down everyone for change when they go to the DMV)

[Michael Drake]

This distinction seems like pretty weak beer. See, e.g., this recent headline from the New York Times: "New Investment Strategies Compound a Fiscal Crisis."

[felix culpa]

I think we need to see a lot more of this kind of critique: "There Is No Crisis, Says Top Economist, and Former IMF/Fed Reserve Official".
A representative point: the liquidity crisis is a creation - an illusion of a crisis actually CAUSED by the prospect of a $700 billion bailout proposal, rather than a bailout proposal being proposed in response to a natural emergency.
And: if the absence of money is not the problem, then throwing money at the problem won't solve it.

The sideshow of McCain’s crazy flailing, if there’s any justice, ought to torpedo any lingering fantasy of his being suited and competent to lead. ‘Running to Washington’ (actually from Letterman’s studio to Couric’s) to save the bill, Once he gets there (Washington) sabotaging negotiations, and then 9:10: McCain apparently commits to voting for the plan. (hilzoy in her live blog).

[redwood]

hilzoy redwood: my second point is, I think, the more important one: McCain thinks that spending cuts are the solution. Spending cuts (along with tax increases) would be the solution to a fiscal crisis. But they are not just a non-solution to the crisis we're in; they are actually counterproductive.

I thought that credible economists still argue about that.

I understand (and support) Barak's position that we need to rebuild the infrastructure, etc. with federal dollars.

but in the absence of a costly war, the Bush tax cuts seemed to have won the day, evidenced if only by the fact that Barack is promising not to raise taxes on individuals (if not households) earning less than 250/year.

I don't remember Democrats in the past conceding the tax issue so quickly.

my problem with McCain here is that his strategy for winning these wars--i.e. the strategy whereby we somehow police the streets of Western Pakistan--is exceedingly expensive.

but in an economy that thrives on consumer spending it is hard to argue against putting money in consumers's pocket.

[Robert M.]

hilzoy: "McCain thinks that spending cuts are the solution. Spending cuts (along with tax increases) would be the solution to a fiscal crisis."

redwood: "but in an economy that thrives on consumer spending it is hard to argue against putting money in consumers's pocket."

To address the first point, I'd go even further: the modern conservative base accepts without proof that government spending is always bad unless it's on defense, and McCain is speaking to that bias.

Discussing a fiscal crisis rather than a financial one may or may not be telling, but it certainly fits the narrative. All that's needed to fix the crisis, McCain is saying, is to send someone to Washington who we can trust to be tough on frivolous spending. You know, a maverick, not another tax-and-spend liberal.

As to redwood's point, the flaw is that tax dollars don't disappear once they reach the government. The portion that's spent domestically doesn't vanish: entitlements come straight back, government projects create (or maintain) jobs, and even a healthy portion of defense spending generally stays within the US.

[felix culpa]

This">http://thinkprogress.org/2008/09/25/palin-bailout-healthcare/">This definitive word on the bailout.
It oughta go viral.
Just about the very last person you’d want sitting behind the Executive Desk.
(h/t Think Progress)

[Nell]

btfb: Did either candidate mention rising unemployment?
Four-dollar-a-gallon gasoline?
Projected skyrocketing heating oil prices for this winter?
How ordinary people grimace and about the cost of a gallon of milk? Eggs? Cheese?
Neighborhoods overrun with FOR SALE signs?

Are those rhetorical questions, btfb? I gathered from the comments of the live blog thread that you were actually watching most of the debate, but maybe you wandered away at just those moments.

As it happened, I had the opposite experience, only watching two brief passages when I went into the kitchen -- but in both of those Obama specifically mentioned the economic pain that many Americans are experiencing:

In the context of the need to put some money into average citizens' hands, the high price of gasoline:

So my attitude is, we've got to grow the economy from the bottom up. What I've called for is a tax cut for 95 percent of working families, 95 percent.

And that means that the ordinary American out there who's collecting a paycheck every day, they've got a little extra money to be able to buy a computer for their kid, to fill up on this gas that is killing them.

In the context of energy independence, where Obama actually reached to bring that point in:

we've got to walk the walk and not just talk the talk when it comes to energy independence, because this is probably going to be just as vital for our economy and the pain that people are feeling at the pump -- and, you know, winter's coming and home heating oil -- as it is our national security and the issue of climate change that's so important.

Since Hilzoy and Gary have both provided links to transcripts, I've been able to find several other examples that I didn't see:

people who are really struggling right now (in the context of McCain's tax proposals neglecting them)

our health care system, which is putting an enormous burden on families. Just -- a report just came out that the average deductible went up 30 percent on American families.

They are getting crushed, and many of them are going bankrupt as a consequence of health care.

we are still spending $10 billion a month [on Iraq... when they have a $79 billion surplus, at a time when we are in great distress here at home

I wasn't able to find a single reference by McCain in the whole debate to the economic concerns people and families face; only corporate tax rates.

So it's not a real shocker that viewers polled strongly favored Obama on the question of "shares the concerns of people like me".

[Gary Farber]

Hey, BedtimeForBonzo.

[Gary Farber]

Also.

[Gary Farber]

McCain's fine contribution at the White House meeting.

[Gary Farber]

I feel a need to point out that newspapers and publications always use a shorter word in a headline than a longer word, so of course they'll always use "fiscal" instead of "financial" if they can remotely get away with it.

John McCain doesn't have that excuse, but his defenders could claim that he picked up the usage from newspapers.

[Gary Farber]

"I wasn't able to find a single reference by McCain in the whole debate to the economic concerns people and families face; only corporate tax rates."

See the video ad currently here.

[Anthony Damiani]

I've seen fiscal used as a synonym for 'financial' often enough that this bothers me not.

[Monte Davis]

FWIW, in exchanges about taxes McCain also twice used "dividend" when he meant "deduction."

Or at least I think that's what happened -- it could have been a stealth tax reform proposal.

[roger]

McCain is going by a very old GOP playbook. The constituency wants to hear that the tax cuts they clamor for will be paid for by budget cuts. They also want to swim in government gravy, produced by such thing as a hypertrophied Defense budget that, not coincidentally, is heavy into hiring the core constituency of the GOP - middle aged white males working for tech, engineering, consulting and other firms that fatten on defense contracts. As long as they can swim in that gravy, they are happy. And so GOP presidents invariably, without exception, raise government spending to fantastic heights while cutting or promising to cut taxes. It is their favorite thing to do, down to the State level - it was the first move Schwarzenegger made when he became governor. That this happens every time should point to the fact that the GOP complex is on that borderline between hypocrisy and pathological addiction. The base, which is used to their preachers railing against gays and being caught with male prostitutes, or their leaders talking tough about terrorists and showing a startling indifference when a terrorist leader destroys skyscrapers and part of the Pentagon ("sure, I know who Bin Laden is") are well numbed to their own intellectual schizophrenia. They are basically free riders, with the free riders mentality. Good people, and dangerous as hell.

This is why it surprises me that Bush, trying to get through his bailout bill, didn't attach it to any bloodshed. This would have automatically garnered GOP support. If Bush had coupled together the 700 billion dollar bailout and invading, say, Yemen, you know the Red State zombies would have been for it in a heartbeat. They love the idea of spilling foreign blood. It is woodies all around when that is mentioned.

[Jesurgislac]

And as a coda to this thread: here's the kind of voter who would think McCain/Palin are the perfect duo to deal with the crisis (via) - because, just as Pat Robertson and Jerry Falwell pointed out seven years ago, the "cause" isn't anything as mundane as we like to think: the financial system has gone into meltdown because of abortion, contraception/family planning, same-sex marriage, same-sex registered domestic partnerships, a leashed private sector (whatever that means), and state educational standards that discriminate against Christian homeschooling, and an unsmiling God, who apparently will only crack a grin if the state of Maine is mean to all pregnant women and any out GLBT people.

[iso 17025]

Nice site..