The Misinformation That Matters

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Evan Bayh thinks “Democrats should support a freeze on federal hiring and pay increases. Government isn’t a privileged class and cannot be immune to the times.”

Steve Benen asked a good question about this:

Reading this, I’m wondering, “How would that help the economy?” Bayh is arguing that we’d be better off if fewer unemployed workers get jobs and federal workers have less money. I’m sure he can explain why this would help the economy — and I’m sure it’s very “moderate” — but I have no idea what that explanation might be.

I think that Bayh is probably operating with an explicit model of the economy as a closed zero-sum system. A recession is a negative shock leading to bad times. Policymakers then have the opportunity to influence the course of the recession by allocating the badness around. Failure to cut public sector compensation creates a “privileged class” and increases the quantity of pain felt by people outside that class, whereas ensuring that members of that class experience pain reduces the pain felt by others.

My view is that the Bayh Model is mistaken. Of course the primary losers in Bayh’s plan will be those whose incomes are directly reduced. But individuals will respond to reduced income by reducing spending, and those reductions in spending will reduce everyone else’s income. My model of the economy isn’t a zero sum system. In my version, a typical recession is a needless waste of resources—unemployed workers, vacant storefronts, empty offices, idled factories—and public policy actually impacts the extent to which resources are wasted and the pace at which they’re put back into use.

I think the primary political problem progressives have had over the past two years stems from the fact that our accurate account of the recession is less believed than Bayh’s inaccurate model. I think virtually all Republican members of congress and many Democratic members of congress embrace the Bayh Model. And I think this is how it goes throughout the ranks. From ordinary citizens to campaign operatives to Hill staff to reporters etc. The Bayh Model had common sense on its side, most people are not specialists in the subject, and I think most non-specialists believe in it. They think that being hit by a recession is like being hit by a hurricane or a drought. It’s something that causes a temporary period of intense suffering that can be managed well or poorly but primarily has to be endured. Common sense views “fiscal stimulus” (whether for good or for ill) as a form of humanitarian disaster relief, and common sense views Bayh’s pain-sharing proposal as reasonable, and common sense doesn’t think about monetary policy at all.

I think all this is mistaken and recessions are quite different from hurricanes. But I think that progressives have tended to focus too much on “crazy person misinformation” (Obama is a secret Muslim, Obama spent nine trillion dollars on a trip to India, Obama is from Kenya) and not enough on “common sense misinformation” of the sort Bayh is expressing. The widespread nature of common sense misinformation about the nature of recessions—not just among low-information voters but even among political professionals and policy elites—has been a huge drag on macroeconomic performance and that in turn has dragged down the entire progressive agenda.