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Monday, April 11, 2011

Why did Obama Cave

Inspired by Kevin Drum this time.

I'm going to try to keep this brief (that is warning I will fail and go on and on).

First, I'd like to stress that if Obama meant what he said celebrating the continuing resolution then he is confused. Kevin Drum guesses he thinks "You need some way of signalling the market that you're serious about long-term deficit reduction". This makes no sense. The reason such a signal would be useful is that it would reduce long term real interest rates. They are miniscule right now. A benefit from deficit credibility would work through interest rates, but interest rates have a low effect on fixed capital investment when the economy has spare capacity and a miniscule effect on housing investment when the economy has surplus houses and people are sure, just sure, that houses are a bad investment the same way they were sure they were a good investment. Basically, if Obama thinks what you think he things, then he is seeing invisible bond vigilantes -- delusional, hallucinating, out of it.

So I hope that Drum miss-read his mind. I guess (because I want to guess) that he is not stupid so I guess he is lying. Uh I mean "his [speech] was not intended to be a factual statement," It isn't a plain lie, since I claim he is lying about what he believes is good policy. He can be caught only by a mind reader. I'd say he is being intellectually dishonest but not plainly lying in the ordinary sense of the word*.

My guess is that he is influenced not by Austerian economic models but by polls. He knows that the vast majority of people in the US support spending cuts, not because they reject Keynes but because they haven't understood what Keynes said. Now he is willing to go against public opinion in really important matters (see health care reform) but he isn't willing to go against public opinion over 38 billion. He knows what people want to hear and he told us what most of us want to hear. There isn't any reason to think he believes it -- he's a competent politician -- he isn't George McGovern or Barry Goldwater or Jimmy Carter.

* see Yglesias's efforts to understand why people think the "intellectually" isn't redundant -- my view is that lying about what seems most plausible to oneself is a special very common never punished for of dishonesty called "intellectual dishonesty"). Very very often, intellectual honesty is of the form of claiming to agree with a strongly held belief of a powerful group (here a solid majority of the US public) then trying to get from that concession back to the conclusion you wanted. Another form is refusing to admit that the other side has a point. I think that, in the real world, we basically have to choose one of the two forms of intellectual dishonesty -- we are not capable of being fair and objective because we have emotions -- fear and pride -- which pull us to one or the other.

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