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Philosopher Kings and Fiscal Cliffs

Sunday 3 February 2013


The Stone is a forum for contemporary philosophers on issues both timely and timeless.

Plato had a famously dim view of democracy. He regarded politics as a craft, and thought that understanding the essence of a craft is to have expertise. Plato argues that we cannot hope the multitude to achieve expertise in the craft of governing. They are too easily misled by sophists. It followed, for Plato, that democracy must be rejected as a just system of governance. It is “probable that the origins of tyranny are found nowhere else than in the democratic regime.” (“The Republic”). A just system of government must have a philosopher king, who understands the essences of things. Translated into the modern context, Plato’s view is that the only just system of government is one that is run by one or several experts in economics and public policy. The multitude is too easily swayed by propaganda.

The words used to describe some of the most important concepts in economic policy are often misleading.

Plato was right to regard his views as inconsistent with democracy. His view that citizens are not competent to make judgments about public policy, that economics and policy are areas of expertise like the physician’s, is profoundly undemocratic.

So what is required for a democracy to avoid the threat of “ending in tyranny”? Many theorists have argued that democracy requires an informed citizenry that can engage in reasoned public debate about policy issues. That’s a high standard. A weaker view of the requirements of democracy is defensible, namely that citizens must have a reasonable expectation to recognize when a policy is in their own interests. Plato’s view is undemocratic, because he thinks that even this bar is too high. The multitude will always be tricked by propaganda and false rhetoric into voting against their interests.

In previous columns, I have explored how language is used to sway public opinion and evade reasoned debate. Naming a bill “The Patriot Act” is a simple example, the thought being that voters would want to re-elect politicians who supported a bill called “The Patriot Act,” even if it went against the public’s actual interests. This is a clear example in which we are confronted with Plato’s problem with democracy. Such uses of rhetoric pose clear dangers to our democracy that are not justified by the situation.

In the arena of contemporary fiscal policy, very much in the news now, Plato’s problem is particularly perplexing. Here, the analogy between someone competent to engage in decision making and a physician seems apt. It is natural to think that competent judgment about fiscal policy requires expert training in economics akin to a physician’s training in medicine. But if only experts can make the judgments here, it isn’t clear that democracy is possible.

Reasonable thought and discussion over fiscal policy faces an additional obstacle. The vocabulary to describe some of the most important notions is misleading. It follows that democratic decision making about fiscal policy faces additional hurdles over and above the complexity of the subject matter. As a result, it is much less clear whether it is wrong to mislead the public in a fiscal crisis. For these reasons, the recent debate about the “fiscal cliff” therefore raises a particular worrisome version of Plato’s problem.

The expression “the fiscal cliff,” though in use to some extent before, was introduced to the broader public by Ben Bernanke, the Chairman of the Federal Reserve, in February, 2012 to describe the threat to the recovering economy posed by the confluence of two events. First, Congress was again facing their repeated promise to restore income taxes to their levels during the Clinton presidency in order to reduce the deficit. Secondly, Congress was simultaneously facing large self-imposed spending cuts (the so-called “sequester”). Curiously, however, a recent poll found that 47 percent of the public thought that it was going over the “cliff” that would result in higher deficits. Only 14 percent understood that it would reduce deficits. (In fact, it would have reduced them drastically, effectively eliminating the deficit problem).

The poll suggests that the multitude was quite misled. If so, it is not unreasonable to pin the blame on the expression “fiscal cliff.” Going over cliffs is clearly a bad thing, possibly resulting in death. Also, the major parties seem to agree that deficits are a terrible thing. The Democrats invoke the awfulness of deficits when discussing additional tax cuts for the wealthy, and the Republicans invoke it when confronted with additional entitlement programs or additional spending on existing ones. A widening government deficit also seems similar to personal borrowing, an excess of which leads to reduced credit scores, calls from bill collectors, and possibly foreclosure. So it was natural to assume that a ‘fiscal cliff’ is simply a metaphorical warning of an especially threatening increase in the deficit.

Let’s assume (speculatively but not unreasonably) that Bernanke’s introduction of this expression to steer the debate about this issue was intentional. If so, then it was the first manufactured and linguistically misrepresented fiscal crisis of the year. It will not be the last. Soon we’ll see the “sequester” crisis, which is to spending what “the fiscal cliff” was to taxation. Congress has agreed to large cuts in both defense and domestic (non-entitlement) spending in order to reduce the deficit, but is now in a frantic effort to undo those promises so spending can continue. We can also expect an upcoming “crisis” about passing a budget (featuring the threat of a government shutdown), and despite the recent three-month extension the so-called “debt limit” still lurks in the background.

All of these exercises have at their core the problem of speaking clearly about deficits. Passing a coherent budget is difficult because it requires politicians to explicitly vote for deficit spending, and of course the “debt limit” is about refusing to borrow to pay for spending that you’ve already committed to do and have refused to fund by any other means.

One reason speaking clearly about deficits is hard is because of the entrenched language that is used to speak about the process by which a government funds its activities, a process which is described as “borrowing.” A second reason is that both major parties are invested in using deficit fear strategically.

Describing the process by which the United States government funds its activities as involving “borrowing” suggests a false analogy between government borrowing and the borrowing an individual or a family does. The analogy makes some sense for a public entity that does not print its own currency — for example, the state of California, or (the Euro-employing) country of Greece. And the analogy also made much more sense during the true gold standard era in this country. For these reasons, and because the government does issue bonds that look like corporate bonds, the vocabulary is entrenched. But a government borrowing in a currency it controls (and can print) has little in common with the borrowing we experience as ordinary citizens. Its benefits — creating jobs and income that prevent a self-perpetuating downward spiral in a slack economy — are not benefits associated with private borrowing. Likewise, its risks — the possibility of inflation, “crowding out” private investment in capital markets, or changing exchange rates — are not factors any individual has experience with through their private borrowing.

Sadly even many experts do not precisely understand the benefits and risks of government financing through deficits. The short-term benefits in terms of jobs and income are clear (just ask any lobbyist who wants to maintain spending on their priorities, or avoid taxation of their clients). But while there are certainly risks to excessive government debt, controversy continues to rage about when or how these risks would occur, or what level of debt will create them.

Politicians understand this well, and that’s why for decades both parties have subordinated deficit reduction to short-term policy goals. Republicans are willing to put deficit reduction second to tax reduction, and Democrats are willing to prioritize preserving key entitlements or reducing unemployment. Behind the scenes, we have Dick Cheney’s famous comment that “Reagan proved deficits don’t matter.” But in front of the camera, both parties cooperate in generating periodic deficit “crises” to cudgel their opponents and get them to give way on their more central priorities.

A great deal of maneuvering on domestic policy can be understood as the strategic deployment of the “deficit” charge against your opponent while working behind the scenes to keep the debt machine going for your own purposes.

Deciding on the right economic course is already difficult. What will happen in an economy is affected very deeply by widely-held beliefs about what will happen, to such a degree that philosophical notions of objective reality do not smoothly apply to the domain of economics. We can add to that complexity the fact that there is entrenched vocabulary that has proven to be misleading, as well as strategic pretense by both major parties to exploit the resulting false beliefs. The fact that our experts may need to rely on intentionally misleading vocabulary to sway us to act in an emergency is understandable.

There are nevertheless clear dangers in continuing to exploit the public’s confusion about fiscal policy when it is useful, and using rhetoric and propaganda to steer public opinion when it is not.

First, there are dangers to the economy. The 2011 debt limit showdown almost resulted in a totally unnecessary default on government debt, something that could significantly increase government borrowing costs and trigger a real crisis to replace the fake one. Secondly, there are risks to our democracy. A “tyrant” may lead the public to vote for him, making up for obvious flaws by playing up the risks of an already exaggerated threat. Perhaps even in difficult situations, avoiding the risks of democracy that were clear even to the ancients requires us to discourage politicians from treating the multitude as fools.

(NOTE: I received much help in the writing of this piece from my brother Marcus Stanley, an economist based in Washington DC.)

Jason Stanley is a professor of philosophy at Rutgers University. He is the author of “Knowledge and Practical Interests,” “Language in Context” and “Know How.”

See online: Philosopher Kings and Fiscal Cliffs