Is lack of trust a fundamental macro problem?

by on June 19, 2012 at 6:14 am in Uncategorized | Permalink

Ezra responds to my column of Sunday with this post.  Excerpt:

…Tyler Cowen attributes the decline in public-sector employment to “a collapse of trust in politics.” In fact, he says, “the reason that we aren’t getting more expansionary macro policy is fundamental: a lack of trust.”

I don’t buy it. I think the reason we aren’t getting more expansionary macro policy is a polarized political system oriented toward gridlock.

If there’s been a decline in trust toward state and local governments, it’s hard to find it in the polling. State and local governments rank as highly trusted. In a March 2011 poll — so, the period when state and local cutbacks were at their worst — Gallup found that most Americans thought state and local governments had “about the right” amount of power. Only 34 percent wanted state governments to have less power, and only 22 percent wanted local governments to have less power. They outpolled banks, corporations, the federal government and the courts. Local government outpolled churches.

I view political polarization as another manifestation of lack of trust.  For instance the core voters behind the two major parties do not trust each other in power.  In addition Republicans, many independents, and also many Democrats do not trust that tax hikes or rising deficits actually will be used to provide useful public services.  (Ezra himself has stressed in the past how far to the right the Democrats have moved on taxes.)  They still like their local school teachers, but they also do not trust “Federal-state/local coordinated fiscal stimulus.”  Obama stopped boasting about the first round of stimulus some time ago, correctly or not.

I would add that gridlock is endogenous; for instance the Democrats, when they possibly had a chance, did not make hard moves to try to abolish the filibuster and these days they are not keen to present and vote on federal budgets.  Politicians do not have enough trust that voters will reward them for being courageous, if that is the right word, and voters do not have enough trust that the political act is in fact one of courage.  Yet I doubt if we’ll see gridlock on the Medicare doc fix or the AMT patch, as most people still trust direct cash or in kind benefits to themselves.

On another of Ezra’s points, I don’t think trust has fallen because voters are not getting what they want, but rather because the economy has turned down and they feel less wealthy and face higher risk.  (Not getting what you want is more likely to explain trust levels rather than changes.)  Here is plenty of evidence that trust in institutions falls cyclically.  Although the study does not measure trust in local government, the effect appears to be fairly general.

It’s also not electoral gridlock which stops the Fed from doing more.  One major obstacle is simply that voters and many interest groups, rightly or wrongly, view additional inflation as a major vehicle for wealth redistribution and they do not trust that they “will get their money back” through other means.

Addendum: Catherine Rampell adds comment.

Ac June 19, 2012 at 7:41 am

This also ties into David Brooks’ op-ed about the decline of just authority. The Internet and the 60s have translated into a reflexive anti-authoratarianism in multiple realms. Even as a political libertarian, I find that this is not always a welcome development when it translates into people being unable to coordinate around good ideas.

Andrew' June 19, 2012 at 7:54 am

What are the good ideas, will the Journ-o-list tell us what to think?

How can one not be snarkily inclined in the age of the shining light?

Gabe June 19, 2012 at 12:27 pm

I am a libertarian anarcho-capitalist. I approve massive monetary easing…or just printing money and having it delivered to JP Morgna and Goldman Sachs…whatever the authorities prefer. Please do it. I am tired of the game.

Andrew' June 19, 2012 at 7:52 am

By “expansionary macro policy” I assume he means “policies we assume are implemented, that if implemented, we assume properly, we assume would produce expansion, that we assume has no negative tradeoffs, and we assume to be pareto improving.”

Andrew' June 19, 2012 at 8:29 am

To myself, since it’s to noone and everyone.

Lack of trust is mostly a result. Our current situation is de facto PROOF that all the “investments” of the past did not pay off. Now we have people claiming that ANY current government investments are no-brainers (no brainer, that’s for sure) BECAUSE we are in such crappy shape (interest rates are low). They don’t even hint that they get the irony of their position.

Doc Merlin June 19, 2012 at 8:36 am

+1
Then when their programs fail, they blame the populace for being “low trust” or “ungovernable” instead of blaming their own bad ideas.

Andrew' June 19, 2012 at 8:50 am

They don’t even have to “fail” they just are what they are. You spend the entire government budget on cash transfers you get a low ROI. So, maybe you shouldn’t do that.

Maybe rather than wrangling over which group gets its status checks from the pockets of which other groups, we should work on thinking hard about “general welfare” type projects that seek to benefit a large majority of the people.

Give me anti-aging and I’ll give them their silly light rail. Let’s just keep track of the results so we know who gets the proper credit.

superdestroyer June 19, 2012 at 8:12 am

Since snark and status seeking have become major motivators in politics, it makes sense that people do not trust the government or authority.
There is also the issue that we know much more about leaders (elected or self-proclaimed) than we used to and that knowledge creates distrust.

Doc Merlin June 19, 2012 at 8:34 am

“Since snark and status seeking have become major motivators in politics”

Have become? Politics is largely about seeking status and power, and has always been.

John Thacker June 19, 2012 at 8:20 am

how far to the right the Democrats have moved on taxes.

You mean from the ’90s, when Clinton endorsed and signed lower tax rates on capital gains, instead of attacking them as a bad idea in general? Or from the ’80s, when half the Democrats in the Senate signed on to Reagan’s tax cuts, and endorsed the idea that low marginal tax rates are okay as long as we eliminated deductions?

I view the problem that the Republicans moved left on spending, but not on taxes, while the Democrats moved left on spending and taxes.

aaron June 19, 2012 at 11:13 am

+10

Ricardo June 19, 2012 at 11:12 pm

Cherry-picking.

Reagan’s 1986 tax reform flattened tax rates but also greatly expanded the Alternative Minimum Tax (which is still with us today and has to be periodically “patched” to prevent it from hitting more and more upper middle class people) and also raised capital gains taxes. When Clinton lowered capital gains taxes, he was repealing the Reagan/1980s Democrat legacy. Clinton also raised the top marginal rate to 39.6% which is the rate it will reset to if the Bush tax cuts expire and what currently Republicans are fighting tooth and nail to prevent.

In other words, these were all compromises: Democrats and Republicans worked together to raise some taxes and lower others in a political bargaining process. The Simpson-Bowles plan was in this general spirit but, if you actually read the thing, it calls for raising capital gains taxes and few Republicans will vote for such a proposal. What we seem to have today is Grover Norquist-style rejection of any increase in any tax rate at all coupled with a selective and highly misleading history of past tax policies.

Doc Merlin June 19, 2012 at 8:33 am

“I view political polarization as another manifestation of lack of trust.”

Again, Tyler, has things fundamentally backwards.
The US is one of the least polarized countries in the world. Most of the countries that he supports as being more trusting are /far/ more polarized and partisan. If the problem is not enough trust then more, not less partisanship is what is needed.

In many high trust countries, because parties are so partisan, people don’t trust the other party, but at least they trust their own. Here they know their party will compromise on values and issues that are core to themselves, so they don’t trust their own parties.

MikeDC June 20, 2012 at 1:38 am

Yes. Although it’s tricky, because traditionally the US system works best where the party in power compromises on issues strongly felt by its own base. Our “successes” very much come from in the vein that “Only Nixon Could Go to China”. He could make peace because Republicans trusted him to. Clinton likewise was trusted by Democrats (not all of them) to give ground on taxes and welfare reform.

A lot of it just comes down to competence. Both Obama and Bush, I think, offered what they believed to be compromises that would appeal to members of the other party and still be acceptible to their own party. I think they just offered shitty compromises and policies that no one would be wise to trust.

Also, eliminating the filibuster would be a further trust eroding action, not the other way around. Trust is rarely built by making it easy for the majority to ram unpopular policies down the minority’s throat.

Benny Lava June 19, 2012 at 8:39 am

Sounds like mood affiliation to me.

Mark June 19, 2012 at 9:01 am

Tyler mixes up cause and effect.

Ezra has data backing up his point while it seems Tyler presents some stylized ideas (that aren’t that well thought out) as a rebuttal. Come on.

Ray Lopez June 19, 2012 at 12:01 pm

C’mon, you a fan of Better Than Ezra or not? I’m with T.C. on this one!

Richard Fazzone June 19, 2012 at 9:18 am

This or any discussion of trust in government is incomplete without considering it’s relationship to political consensus. For example, both increased during World Wars I and II, the Great Depression, the struggle for civil rights, and the Cold War. The reason was that those problems and their solutions were existential and common to virtually all Americans. In this new political era, no major problem or solution affects a majority of Americans in the same galvanizing way. Whatever one’s interest or position on a political issue, it’s in the minority,* and both trust in government and political consensus suffer.

Will this change? Yes, if problems and solutions should ever again become existential and common to virtually all Americans , or, more hopefully, if to most Americans, they become relatively meaningless (which, my guess is, will happen in the very long term).

*See, also, http://www.washingtonpost.com/opinions/seems-like-no-one-can-seal-the-deal/2011/07/01/AGvSYuwH_story.html

NAME REDACTED June 19, 2012 at 9:54 am

She says: “Trust in government declining with cuts.”

What cuts? We haven’t seen cuts. The rate of increase has slowed, but the only way it makes sense to talk about them being cuts is if the inflation rate is much, much later than the official figures.

The real question:
She is a liar or merely ignorant?

Rob June 19, 2012 at 10:27 am

First, Ezra is cherry picking the data when he says that people have trust in their local governments since Americans are very mobile compared to people in other countries. If they do not trust their local governments, they move. For example, in my home town of Rochester, trust in the city government has decreased so people have moved out of the city, except those who are the receive the benefits. Now, people are moving out of the county and away from the city for the same reasons. I think Wisc. is a pretty good counter factual.

Second, I believe it is terrible that economists complete disregard micro when discussing macro. Over and over again, I hear about the AD formula showing cause and effect. It is an explanatory formula, not a cause and effect formula. Increasing government spending increases demand the same way that increasing the amount of water on the ground increases rain. Yes there is a correlation, but it ignores the relation to the other independent variables. Poorly spent money decreases the overall wealth of a country over the long run, and the long run is a lot shorter than most economists are willing to admit. As far as the inflation targeting, it only hides the underlying distortions in the capital allocation process. The reform should have focused on that capital allocation, but it probably would have brought out too many skeletons, so better to distort. The reason for the lack of trust is that the people in power and the people advising them have made really poor decisions, and it certainly seems that the decisions have been made to help themselves or subgroups instead of the country as a whole. It is better for them to do nothing than to have more Solyndras, cash for cluckers, more people paid not work, increases to the minimum wage or people living in houses they have not made mortgage or tax payments in years. Once real reform is implement instead of charging one person to pay for goods for another is implemented, trust will return. It is the actions not the media, the internet or anything else. In fact, the new media is great. I am much more informed than I ever was before. Thanks,

aaron June 19, 2012 at 11:24 am

I think another problem is that government spending bloat comes with bureaucratic and regulatory bloat. When spending cuts come, the bureaucratic bloat and over regulation remain. The actual value added services are cut, but the admin and compliance work remains so we lose a lot of efficiency.

On top of this, the institutions are bitter about the cuts. They tend to cut where it is most visible and hurts most to provide better argument to reinstate funds.

Andrew' June 19, 2012 at 11:42 am

EK has to dig pretty deep into a survey to make his point. But if you take his point and look at it that trust increases the closer you get to local government the data seems to contradict the point he’s trying to make with it.

Mark June 19, 2012 at 11:45 am

As a former city councilmember, I can testify that public mistrust of local government is deep and corrosive. If it doesn’t show up in the polling data, then the survey instruments need to be improved.

Seth June 19, 2012 at 12:20 pm

A couple thoughts:

Lack of trust could be a result of ‘lesser of two evils’ voting.

I believe that there is also a lack of trust in the people you vote for. Which might again be the lesser of two evils problem. When the center votes Democrat, they do so b/c they don’t like the Republican option, but like the Democrat option only slightly better — and usually for bad reasons (better looking, better speaker, can’t just do nothing). But, in reality, they don’t trust the Democrat politician.

When they vote Republican, it’s usually b/c Democrats have loused things up so clearly that they just feel they have to try something else, but they still don’t trust them.

Though, I’m still not sure it matters that much. Or, maybe it does now b/c gov’t is bigger and involved in a greater portion of our lives. “In the old days”, few people trusted government, but it didn’t really matter because it was smaller.

So, the real root here seems to be the growth of government and the changing more of our lives from individual and small group decision-making to broader public choice where trust can and should be an impediment.

Max June 19, 2012 at 12:52 pm

The size and power of the state governments would be about right if there was no federal government.

IVV June 19, 2012 at 4:11 pm

For me, it’s a lack of trust in power.

Whether it’s centralized power in government or the boardroom, we have seen a great increase in the concentration of power over the past decade, and both parties are doing what they can to concentrate that power even further. All I see is a hardscrabble free-for-all for every last shred of self-reliance possible. It’s much like all those extra little fees that suddenly appeared everywhere in the wake of Lehman’s fall–it’s not so much inflation as much as a grab for any liquidity possible, but it ends up hitting the common consumer like inflation without concomitant wage increases.

Not only income inequality and economic inequality, but power inequality is a very real and palpable problem, and it must be flattened.

Roping Down June 19, 2012 at 5:29 pm

Economists have become much like politicians, haven’t they? They specialize in telling us how our money should be spent by someone else, while being unwilling to spend a reasonable amount of their public time criticizing the bad habits of crony capitalists and of individuals who create their own illnesses or who refuse to spend as much time on self-improving study as they do on sports-viewing and reality TV. Public debt has grown by staggering amounts and yet economists nearly all say we need to spend much more because all that matters is goosing the economy. Cutting the transfer payments to fake “disability” cases and rich farmers might be a better use of their time. Discouraging illegal immigrant workers while at the same time encouraging poor citizens to work for a market-clearing wage while studying useful skills in their spare time might be a start. Instead we have just added “anchor babies lite” to the already silly “anchor baby” reality. We have a vast number of unskilled workers. We produce more each year. Yet both economists and politicians are unwilling to attack that problem by insisting that one culture, that of self-responsibility for learning, health, and personal expenses, is simply in fact ‘better’ than a culture of dependence, fat, non-exercise, non-reading, unaffordable claims of entitlement, and guild-based rent-seeking from the public trough.

The Anti-Gnostic June 19, 2012 at 7:58 pm

If I can’t t trust a central committee to manage the supply of styrofoam cups (and I can’t), why should I trust a central committee to intervene in the bond market, or cartelize the banking industry, or fiddle with the purchasing power of currency, or determine who gets rescued from poor business decisions? Yet somehow the root of the problem is the damned hoi polloi just don’t trust the wise and good economists.

Joe June 20, 2012 at 10:02 am

I took a look at the Gallup poll Ezra cites in his response. Perhaps I’m missing it, but I could not find any demographic information on the poll’s participants.

On the basis of a sufficient representative sample, the poll may be considered legitimate evidence to support Ezra’s claim. Without any demographic analysis of the poll’s findings, however, it is hard for me to accept the generalization of “most Americans.” I could not find any demographics regarding ethinicity, age, gender, religion, politicial persuasion, etc.

I would be very interested to see the major demograpic groups that took the survey and how they voted. The minority, majority, plurality, or whatever percentage of Americans who have lost trust in their government very likely may have also reached a point of apathetic inaction. If this were true, it would follow then that “most Americans,” to which the poll refers, is a majority within the context of a larger silently indifferent public.

How could a political system destined for bipartisan gridlock not logically result in a loss of public trust in its effectiveness to govern?

Jameson June 20, 2012 at 10:24 am

Clearly the fundamental problem is lack of trust in economic bloggers.

Nb June 20, 2012 at 4:13 pm

Ezra may be misinterpreting the poll about trust in local government.

Saying that people trust local gov and don’t think it should have any less power can sound like the conventional arguments from conservatives for federalism. it doesn’t seem to necessarily be an argument for more gov jobs at the local level.

Alec June 21, 2012 at 6:02 pm

Government jobs are overhead!
Clearly governments are trying to do far too much and is far too intrusive on the lives of individuals. Remember with government dependence comes government control.

Alec June 21, 2012 at 6:07 pm

Want real change? Pay all government jobs minimum wage, or make them volunteer positions. Imagine the mass exodus of Congress to go do real jobs, ending the era of career politicians.

zoidberg June 22, 2012 at 12:50 pm

Maybe no one trusts Republicans because they lie about everything all the time: facts about global warming, about economic growth and taxation, modern history, words of opponents, etc, etc, etc. How can you trust someone who values their words so little that they’re willing to completely lie to your face about things that are very quickly proven false? How can you trust the actions of a party that says one thing (about the environment, jobs, etc.) that will say one thing and do the opposite? The lack of trust didn’t just happen magically, it happened because Republicans spent the last decade lying about everything and proved over and over again that they could not and should not be trusted.

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