Is deficit fetishism innate or contextual?

In a couple of interesting posts, Jonathan Hopkin and Ben Rosamond, political scientists from the LSE and Copenhagen respectively, talk about ‘political bullshit’. They use ‘bullshit’ as a technical term due to Princeton philosopher Harry Frankfurt. Unlike lying, bullshit tells false stories that pay no heed to the truth. Their appeal is more to common sense, or what Tyler Cowen calls common sense morality. At a primitive level it is the stuff of political sound bites, but at a slightly more detailed level it is the language of what Krugman ironically calls ‘Very Serious People’.

The implication which can then be drawn is that because bullshit does not reside in the “court of truth”, trying to combat it with facts, knowledge or expertise may have limited effectiveness. The conditions under which this might be true, and the extent to which information technology impacts on this, are fascinating issues which the authors briefly discuss. But what makes their discussion even more interesting for me is that they use what they call ‘deficit fetishism’, and in particular the stories that the UK government told before the last election, as their subject matter.

In the case of fiscal policy, deficit fetishism as bullshit involves appeals to ‘common sense’ by invoking simple analogies with households, often coupled with an element of morality - it is responsible to pay down debts. The point in calling it bullshit (in this technical sense) is that attempts to counter it by appeals to facts or knowledge (e.g. the government is not like a household, as every economist knows) may have limited effectiveness. Instead it might be better to fight bullshit with bullshit, by talking about the need to borrow to invest, or even that it is best to ‘grow your way out of debt’. (If you think the latter is nonsense, you are still in the wrong court: the court of truth rather than bullshit. As long as the phrase contains what I have sometimes called a ‘half-truth’, it has the potential to be effective bullshit.)

If for the sake of argument we accept all this, I want to ask whether deficit fetishism will always be powerful bullshit, or whether its force is a symptom of a particular time, and what is more a time that may by now have passed. This, rather than discussions of the technical merits of particular fiscal policies, may be the crucial political discussion that needs to take place right now for all those in Europe that want to put an end to needless austerity. (In the US deficit fetishism, and also austerity itself, seems to be taking a breather or having a prolonged rest: which may depend on the forthcoming elections.) Just to be clear, I’m not discussing bullshit more generally, but just the appeal of the particular example of deficit fetishism.

At first sight deficit fetishism seems to be innate, because it appeals to the basic intuition of the household and the morality of good housekeeping. However households also borrow to invest (such as in a house), and most people understand that this is what firms also do. The reason why the bullshit involving paying back borrowing may have been particularly powerful over the last five years is that this is exactly what many households have also been doing.

Although the Great Recession may have started with a financial crisis, its persistence despite low real interest rates is often put down to what many economists call a balance sheet recession: individuals and firms cutting back on borrowing (or saving more) over a number of years. That process has been particularly evident in the US and UK, with sustained increases in the aggregate savings ratio. However that process now appears to have come to an end. As individuals start to borrowing again (or at least stop running down their debt), perhaps they will become more tolerant of governments doing the same.

To this we could add an obvious external factor. In 2010 and the following two years, deficit fetishism seemed to be validated by a superficial view of external events. The difficulties that some countries were getting into because their governments had ‘borrowed too much’ was top of the news night after night. In that context, is it any wonder that most people believed the bullshit?

One final indication that the power of deficit fetishism is contextual is what economists call deficit bias. Before the Great Recession, there was a tendency in many countries for government debt as a share of GDP to rise over time for no justifiable reason. Fiscal rules and then fiscal councils were created largely to prevent this. It is difficult to square this phenomenon with the idea that deficit fetishism is always powerful.

Many political parties on the centre left in Europe (such as the UK) currently seemed resigned to deficit fetishism remaining a powerful force that can sway elections. So, if you cannot beat them, join them (and never mind what is good macroeconomics). This assumption at the very least seems debatable.