Standard & Poor’s downrated US bonds from AAA to AA+, the first time we have been rated so low. That is a purely financial assessment. But factors include our impotent government, our inability to raise revenue, and our vast and increasing national debt. How humiliating. Just how doomed are we? How can we become a first world nation again?
The stock market has nosedived 500 points and the economic indicators appear to be disastrous.
This, right after the debt ceiling agreement that supposedly allows the government to stay solvent by borrowing money while also cutting more than $2 trillion in government spending.
Could it be that Keynesian economics is right, that the government keeps the economy going through its spending and that cutting expenditures during a recession is exactly the wrong way to produce economic growth? Or are the free marketers right and that the trillions in new debt will mean less money for productive investment? Or, in the worst of all possible worlds, are both right?
Are there any policies the government should take that would actually help? Or do we just need to let the cycle play out, even at the cost of another recession, or worse?
Economics columnist Steven Pearlstein goes off on how super-thick clam chowder has replaced the thinner, more authentic version that is much tastier. In doing so, he makes some point about how markets actually work: not so much by fulfilling a consumer preference but by getting consumers to change their preferences. As when research showed that Americans like weak coffee, whereupon Starbucks–going in the opposite direction–taught Americans to like strong coffee.
My search for a decent bowl of clam chowder got me thinking about consumer preferences — how they are established, how they are reinforced by market competition and how they change over time.
One of my first calls was to Greg Carpenter, a marketing professor at Northwestern University’s Kellogg School of Management. Carpenter explained that the way most of us think and talk about market competition is based on something of a mythical model in which consumers know what they want in a product and companies engage in a continuous battle to satisfy those preferences with better and better offerings.
In fact, Carpenter says, most of our preferences are learned and largely formed by social norms and expectations that producers have a strong hand in shaping. Moreover, such preferences are anything but fixed, susceptible to changes in technology, culture, fads and the business strategies of companies competing in the marketplace.
Our notion of what a “family car” ought to be used to be a station wagon. Then it was the family van. Now it is an SUV.Or take coffee. For a long time, the market and all the consumer research suggested that Americans preferred weak coffee, and there were basically a handful of coffee companies, led by Folgers and Maxwell House, that offered products within a narrow range to provide it. Of course, that was until Starbucks came along and demonstrated that maybe our preference for weak coffee wasn’t as fixed as everyone thought.
Our wine preferences have also developed along lines that have caught the industry by surprise. According to Alexander Chernev, another Kellogg marketing professor, the conventional wisdom was that wine was an “aspirational” product that allowed people to see themselves as worldly and sophisticated. In that context, people tended to prefer wines produced in good years from small vineyards in France or the Napa Valley, where everyone knew the best wines were made.
At some point, however, Yellowtail and a few other Australian wines entered the market not only with new products but with a new social context for thinking about wine. Their idea was to relieve consumers of what for many was really the burden of having to know more about vintages and vineyards and grapes than they really did, or really wanted to, and then going through the hassle of wrestling the cork out of the bottle. Instead, they offered a standard chardonnay or pinot in screw-top bottles. What was once a wine negative — commonness, ubiquity — suddenly became a positive.
What lesson could the church growth movement–which uses marketing research and marketing techniques to try to appeal to more religious consumers and to get them to come to a particular church–learn from this principle?
George Will reviews The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America by Nick Gillespie and Matt Welch. They argue that, what with our new technology and all, libertarianism will inevitably become the dominant political and economic ideology:
“Confirmation bias” is the propensity to believe news that confirms our beliefs. Gillespie and Welch say that “existence bias” disposes us to believe that things that exist always will. The authors say that the most ossified, sclerotic sectors of American life — politics and government — are about to be blown up by new capabilities, especially the Internet, and the public’s wholesome impatience that is encouraged by them.
“Think of any customer experience that has made you wince or kick the cat. What jumps to mind? Waiting in multiple lines at the Department of Motor Vehicles. Observing the bureaucratic sloth and lowest-common-denominator performance of public schools, especially in big cities. Getting ritually humiliated going through airport security. Trying desperately to understand your doctor bills. Navigating the permitting process at your local city hall. Wasting a day at home while the gas man fails to show up. Whatever you come up with, chances are good that the culprit is either a direct government monopoly (as in the providers of K-12 education) or a heavily regulated industry or utility where the government is the largest player (as in health care).” . . .
A generation that has grown up with the Internet “has essentially been raised libertarian,” swimming in markets, which are choices among competing alternatives.
And the left weeps. Preaching what has been called nostalgianomics, liberals mourn the passing of the days when there was one phone company, three car companies, three television networks, and an airline cartel, and big labor and big business were cozy with big government.
I tend to be suspicious of claims that the triumph of a certain ideology is inevitable. The communists tried that. But it does seem like libertarianism will have a shot, once it disentangles itself from the other parties. Democrats tend to be libertarian when it comes to moral issues, but traditionalist big government advocates when it comes to economics. Republicans tend to be libertarian when it comes to economics but traditionalists when it comes to moral issues. A winning ticket in this culture would probably be libertarian when it comes to government, economics AND morality. Not that I’m for that. I’m waiting for a political movement to be traditional in government (that is, one with strength and authority but that knows its limits, like the traditional conservatives were always working for), economics (some attention to national interests) AND morality. But I wouldn’t count on that being ascendant any time soon.
I know some of you are libertarians, but Christian libertarians. Does your Christianity keep you from believing in the progress towards a utopia that this book seems to herald?
If the book is right, what would a libertarian society and political order look like? And what problems would it introduce?
The debt compromise had two groups of people who are normally polar opposites agreeing with each other at long last. The measure was opposed by both those who are really conservative and those who are really liberal. Here is what the latter are saying (lover of colorful metaphors that I am, I have to salute the imagery of “Satan sandwich”):
Dispirited liberals fumed Monday over the deal to raise the debt ceiling that would cut deeply across the government, include no new tax revenue from wealthy Americans and would not provide any additional stimulus for a lagging economy.
Most of all, they lamented President Obama’s failure to anticipate and overcome the leverage exerted by House Republicans who threatened to force a national default.
“It’s a surrender to Republican extortion,” said Rep. Jerrold Nadler (D-N.Y.), who voted against the deal. “It’s one thing to say we want this, we don’t want that as part of negotiations. It’s another to say we will destroy the country and the economy if you don’t do what we want.”
Rep. Elijah E. Cummings (D-Md.) said he, too, was voting no because of the “dangerous precedent” by Republican demands. But most offensive, he said, were the cuts unmatched by any new revenue. “My constituents are suffering; they’ve lost their jobs and their homes, and now to cut the very programs that could have provided them with support while the rich are given a pass — it’s ridiculous.”
The ire burned hottest online, where liberal groups such as MoveOn.org mobilized opposition and Rep. Emanuel Cleaver II (D-Mo.) tweeted that the deal was “a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see.”
The White House dispatched Vice President Biden to lobby congressional liberals, and by day’s end some were reluctantly coming round. House Minority Leader Nancy Pelosi (D-Calif.) led the way, telling ABC’s Diane Sawyer that she would support the deal despite it being a Satan sandwich “with some Satan fries on the side.”
Democratic and Republican leaders came to an agreement on raising the debt limit, looking to forestall the government from going into default on Tuesday. But first both sides have to sell the agreement to their Congressmen and to their base. Basically, the Republicans gave in to the Democrats’ desire for a two year provision, while Democrats gave in to the Republican’s desire for spending cuts without tax increases. Here are some more details from the Associated Press story:
Details apparently included in the agreement provide that the federal debt limit would rise in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.
Big cuts in government spending would be phased in over a decade. Thousands of programs – the Park Service, Labor Department and housing among them – could be trimmed to levels last seen years ago.
No Social Security or Medicare benefits would be cut, but the programs could be scoured for other savings. Taxes would be unlikely to rise.
Without legislation in place by Tuesday, the Treasury will not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.
If approved, though, a compromise would presumably preserve America’s sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.
Officials familiar with the negotiations said that McConnell had been in frequent contact with Vice President Joe Biden, who has played an influential role across months of negotiations.
In the first stage under the agreement, the nation’s debt limit would rise immediately by nearly $1 trillion and spending would be cut by a slightly larger amount over a decade.
That would be followed by creation of the new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit.
If the committee failed to reach its $1.8 trillion target, or Congress failed to approve its recommendations by the end of 2011, lawmakers would then have to vote on a proposed constitutional balanced-budget amendment.
If that failed to pass, automatic spending cuts totaling $1.2 trillion would automatically take effect, and the debt limit would rise by an identical amount.
Social Security, Medicaid and food stamps would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.
Both tea party Republicans and leftist Democrats are howling, for different reasons. Do you think this deal should be approved? Who do you think got the better of the negotiations?