Sunday, July 18, 2010

FLG's Time Horizons Theory Keeps Getting Reaffirmed

Reihan's post about this Chris Hayes piece falls almost precisely along the lines of liberals care more about and consequently analyze events with more emphasis on the present and short-term, while conservatives care more about the long run. Moreover, liberals couch themselves in the language of empiricism and facts, but ignore that the meaning and relevance of facts are separate from the facts themselves.

Reihan pulls this passage from the Hayes piece:
First, the facts. Nearly the entire deficit for this year and those projected into the near and medium terms are the result of three things: the ongoing wars in Afghanistan and Iraq, the Bush tax cuts and the recession. The solution to our fiscal situation is: end the wars, allow the tax cuts to expire and restore robust growth. Our long-term structural deficits will require us to control healthcare inflation the way countries with single-payer systems do.

So, here we have almost the stereotypical liberal argument based upon FLG's time horizon theory. "First, the facts" couches the entire thing in an empirical basis that presumably is impossible to refute. Then, a short-term analysis on the proximate causes of the problem. So, it's two on-going wars (both of which FLG figures Hayes would portray as Bush's wars), the Bush taxes cuts, and a recession (FLG assumes Hayes attributes to mismanagement and deregulation under the Bush administration). What's interesting though, is these short-term deficits wouldn't be an issue, meaning the bond market* and the population wouldn't worry, if the long-term fiscal health was in order. Temporary deficit spending isn't normally a problem for the bond market; it's the idea that looking forward nobody sees an end to the red ink. As Reihan states specifically, "one could just as easily say that the entire deficit for this year would vanish if we sharply decreased federal entitlement spending."

And then comes the conservative response from Reihan:
Yet it’s not clear that sharply increasing taxes is an effective strategy for restoring robust growth. Indeed, we have good theoretical and empirical evidence that, as Arpit Gupta recently observed, that the tax increases will hinder growth over the long term

The liberal offers short-term analysis of causes and consequences and costs and benefits all couched in the language of facts and empiricism. While the conservative argues based upon the long-term effects that incentives and theories indicate will happen with less eye toward the contemporary specifics and facts. Obviously, FLG is biased and thinks the conservative argument is superior, but again reasonable people can disagree about how to value the present versus the future.

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* In fairness, it doesn't seem as if the bond market is terribly worried right now about US solvency.

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