Opinion

Chrystia Freeland

Forget left and right. The real divide is technocrats versus populists.

By Chrystia Freeland
November 5, 2010

A favorite theme of American business and political elites at the moment is that authoritarian regimes—i.e., China—may be better at making hard, long-term economic decisions than are querulous democracies—i.e., the United States. There is plenty of academic research to suggest that, over the long term, this view is wrong. But in the shorter term—this week in fact—America itself offered a case study of this scary theory.

Consider: On Tuesday, Americans swung sharply to the right, giving their Democratic President a shellacking and handing control of the House of Representatives to the Republicans. The country’s most powerful elected Republican, John Boehner, who will be the new speaker, immediately declared it was a vote for “cutting spending” and “smaller, less costly government.” Most analysts, including happy ones on Wall Street, who are often most cheerful when the country’s elected officials are least active, decided it was a vote for gridlock, thanks to the Democrats’ continued control of both the Senate and the White House.

Then, on Wednesday, America’s most powerful unelected Republican, Ben Bernanke, the chairman of the Federal Reserve, swooped in with massive government action, announcing a plan to pump $600 billion dollars into the U.S. economy over the next two years. That is not much smaller than two of the big government interventions that earned the Democrats their shellacking—the $700 billion TARP program (never mind the pesky fact that it was actually a Republican Secretary of the Treasury who invented it) and the $787 billion stimulus.

The timing of the Fed’s move underlined one of the most important take-aways from the mid-term election campaign. Watch cable news or surf the web and you are likely to conclude that America is a deeply divided nation, split between fiercely partisan hardliners on the left and on the right. That’s one version of the political battle. But another one is that America is indeed divided, only, in this narrative, the division isn’t between liberals and conservatives, it is between the hoi polloi and the elite.

That split between the mandarins and the public is how you get a popular vote for government inaction the day before the bi-partisan, Republican-led technocrats at the Federal Reserve, with only one dissenting vote, endorse massive government intervention. The economic battle in America today isn’t just between the Republicans and the Democrats, it is between the technocrats and the populists, and in the later contest, the Bush-nominee who runs the Federal Reserve probably has more in common with the beaten up Democratic President than he does with the victorious leaders of his own party.

Of course, this sort of national divide is the main reason central banks are independent: rich western democracies decided some time ago that long-term objectives of monetary policy are best judged by a technocratic elite, not by elected politicians and the sometimes angry constituencies who choose them.

But turning over responsibility for pulling America out of its recession to the unelected chiefs of the Federal Reserve—which is likely to be the big practical result of this week’s vote—is not without some tricky consequences. For one thing, it is clear that America’s central bank would prefer that its monetary stimulus be accompanied by a fiscal one—a measure that seems almost impossible after this week’s vote. That means that the money Washington is pouring into the economy will go first to those who need it least—banks, businesses and families with strong-balance sheets are in the best position to take advantage of the cheap money flooding into America. The unemployed—who figured prominently in the Fed statement and were one of the direct targets of last year’s fiscal stimulus—far much further down the food-chain, as will the Americans grappling with foreclosure.

A second result is that punting the task of economic revival to the Fed may ultimately mean sending the bill to the rest of the world. Printing dollars is one way to make it easier for the American government to solve one of its looming, long-term problems—paying off its massive foreign debt. No one wants to admit to inflation as a policy solution, but that’s what political gridlock and an interventionist Fed could amount to—and that sleepwalking policy is Washington’s real ‘don’t ask, don’t tell’ secret.

Comments
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Chrystia,

Am looking at ways to stimulate not only demand, credit, but the economy, so TARP and many other initiatives will take centre stage, don’t you think it is obvious, if you think there are better avenues to invest which will trigger multiplier effect, let me know.

Besides you tell that, in an indian context we know the technocrats as executive – it is a house similar to that of legisture, so your statement is executive Vs legislature, practicially speaking the legislature wins, they are elected, technocrats advise congress with thier expertise, technocrats execute what conggress tells them to, only in Ben Bernanke’s case this theory is different, a choice based on popularity cannot run the fed reserve

Arvind Pereira
http://www.ArvindLeoPereira.co.nr

Posted by pereiraarvindin | Report as abusive
 

“…America is a deeply divided nation, split between fiercely partisan hardliners on the left and on the right”

I am puzzled where Chrystia Freeland sees any sort of “hardline left” in government or the media? Is that supposed to be Obama, Reid, Pelosi or Jon Stewart?

If there were a hardline left there would be mainstream debates to have the DoD cut to 1% of GDP, ending of the many wars, withdrawals from the 700 overseas military bases, single-payer healthcare, card check for unions, low cost higher education, etc, etc. There is no hardline left in government and it is excluded from corporate media.

This is not true for “hardline right” — one need only look at Sarah Palin-types that control a large portion of the republican party and the mainstream media. There is nothing comparable to that on the left — stating otherwise is misleading.

One thing “hardline” left and right agrees upon is the private Federal Reserve system is the root of debasement of currency. Their mandate is to provide for a stable currency and employment and they have almost 100 years of failure to their credit.

Hopefully the tea party types will finally succeed in clipping the wings of the fed with a public audit (i.e., the emperor has no clothes), if not abolishing it outright.

Posted by upstater | Report as abusive
 

Freeland wrote: “the division isn’t between liberals and conservatives, it is between the hoi polloi and the elite”

I think this is a good point. I would not say there is no conflict between liberals and conservatives, e.g. liberals believe that immigration should have no limits according to some bubble-headed logic — or lack thereof — while conservatives like Tom Tancredo want to close the borders. But yes, many people are fed-up with a select group making all of the decisions, often in the wrong direction.

By the way, your PBS NewsHour appearance was really good. Your comment that Bernanke’s $600 billion money-printing exercise will only benefit the banks and people with sufficient money to take advantage of the situation was spot on. Bernanke proved that he is either clueless or a best buddy of Wall Street. I do not believe he is stupid, so the answer is clear.

On the NewsHour, David Wessel commented that printing money reduces the value of the dollar, improving exports in the bargain. However, Wessel forgot that we do not have many manufacturing exporters anymore. The main beneficiaries of a cheaper dollar will be large multinational corporations like Boeing and agricultural companies.

http://saucymugwump.blogspot.com/

Posted by saucymugwump | Report as abusive
 

“But another one is that America is indeed divided, only, in this narrative, the division isn’t between liberals and conservatives, it is between the hoi polloi and the elite.”

Only the ‘hoi polloi and the elite’…
At last someone is admitting that the American middle-class has finally been destroyed…. Thanks GOP and your CEO friends, for out-sourcing all our jobs to Asia.

Posted by edgyinchina | Report as abusive
 

The US has never had a leftwing, let alone far-left. Hilarious how some americans call a moderate rightwing president like Obama a communist… Miseducation + misinformation, and you have a whole country that believes it actually matters who they vote for!

Posted by Life1 | Report as abusive
 

Okay, I suppose I have to comment as a right winger.

The reason the ‘economy’ is growing right now is due to deficit spending via the government. The only problem is the theory behind Keynesian economics ( the only reason to have deficit spending ) is pretty much dead as manufacturing in the USA has moved offshore and that was one of the fundamental ways in which you could restart a sluggish economy. Now that money moves from our shore to manufactures in China and India, ergo direct stimulus has a limited halo effect that is only a temporary benefit ( in other words rather than the stimulus having a multiplying effect the immediate benefit is all we will see )

To those who get upset at companies off shoring jobs, and I have been the casualty of this so I am slightly bitter but I understand it, why would it not occur? What is to keep a company here? There is a higher healthcare cost, a higher social security wage, a higher standard of living, etc etc and so on. If presented with identical products would you purchase the $500.00 or the $250.00 one? So if they do not move and compete at the $250.00 price then ultimately the jobs move overseas and the cooperate executives lose their jobs rather than at least having some form of establishment in the USA. ( Not that the offshore price even needs to be that drastic typically a 10% difference is enough to sway buyers )

Ben Bernanke understands that rampant deflation will destroy the USA because we need to make it so our debt becomes worth less to other nations not worth more. We also need to make it so the trade imbalance and the reason people are off shoring diminishes. This however is a dangerous game without bringing Government Spending down ( notice I do not say balanced, only to bring it down ) The reason for this is that currently spending in the USA for 2009 was 45% of GDP, while this is line with most European nations it is far to high for amount of debt we are now carrying.

in the end we have a messed up economy on our hands that was hidden by the bubble and is now being hidden by increased debt spending and increased Fed action.

How do we fix it… I don’t know, here is the problem… If we reduce government spending then we get rid of the thing carrying the economy right now, however since the increase is not actually doing anything it would be better to stop doing it ( if you are not working does it help to spend more on credit cards to maintain your lifestyle? ).

Right now the Fed is walking a dangerous line, promising results to US creditors while at the same time having no real way to boost US economic indicators because they have no control over 1) the purse strings, 2 ) a method of wealth creation, other than loose objectives to get investment started.

The truth is the mess was years in the making, in my opinion it was mostly brought about by attempts to increase the standard of living in the US through Government action without understanding the long term consequences associated with it in a globalized economy with a loss of manufacturing, and with an extreme increase in longevity over the past half century.

Posted by Innocentious | Report as abusive
 

I feel like some of you may be missing part of the point here, judging by your indictments of the Fed’s actions. It seems to me that Ms. Freeland was making the point that Congress’ presumed refusal to pass accompanying fiscal policy legislation will be what causes most of the new stimulus money to go to the wrong people.

It’s not just the Fed’s fault, its the fact that Congress won’t do what is necessary to work with the Fed and help the people who need it in America.

Of course, I may be the one who’s missing something…

Posted by shawngrggs | Report as abusive
 

I’m sorry Ms. Freeland, the fact that you are saying that Bernanke is a Republican and that Tim Geithner (also former Fed officer) is, is completely irrelevant. I’ll prove my point with this quote.
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” -Napoleon

Posted by bryanborenstein | Report as abusive
 

@Innocentious “What is to keep a company here?”
Access to our courts, that’s what the U.S. offers that others do not. Dollar amounts are not the sole bottom-line. That and the predictability that comes with a politically neutered society.

Let’s get one simple fact straight, the Gramm–Leach–Bliley Act which repealed Glass-Steagall protections is to blame for banking collapse. We need to name that fact every day. Deregulation starting with Clinton has crippled the multiplier effect by choking cash flows at the macro level of multi-national corporations (abetted by industrialized lobbying).

A true left in U.S. would run on plain issues such as “If capital can cross borders, why can’t labor?” Current efforts to crank up inflation only proves we’ve reached the effective limits of macro economics. Today’s call for a return to pseudo gold standards is the psychotic writing on the wall. In truth, restoration of Glass-Steagall, legal immigration and campaign finance reform must become top priorities for Obama.

Posted by resipiscent | Report as abusive
 

It is shocking to see how ‘centered’ liberals seem to think they are.

@Life1,
Do you seriously think Obama is a right wing president? Do you not understand basic politics? He correctly ran as a Democrat which is by definition LEFT. He worked with the most LEFT leaders this country had to offer, Pelosi and Reid and they all desired to lean further left. If these people are so centered why did they just lose the elections?

Liberals might think that from 2008 you were more center than left but you would be incorrect to make that assumption based on Nov 2.

Honestly, if you think Obama is right wing there is not much sense in debating anything with you – all hope is surely lost…

To the article,
I believe there is a divide between all people who share certain beliefs. In heated times this is called many different things like elitism and even racism but the simple fact is people like those who are similar to themselves. Wealthy, poor, athletic, intellectuals, black, white, hispanic…

However, there is a problem with our country when business (mostly right) and unions (mostly left) [as examples] play a huge part in our political process.

While I believe business play a much more important part in our nation than unions, both clearly have reasons for existence. However, both of these immensely powerful instituions are in the pocket of the government and the government has become self serving.

There are no term limits.

Politicans are exempt from certain laws that existed and new laws that they themselves place on the people.

They do not need to save for retirement.

When they are in office they do not travel with their constituents, they travel via private jet.

Regardless of who’s side you are on (lib or conserv) you also have to agree that those in power (businesses and unions) control so much. Were the doctors not able to amend the healthcare bill? YES! Were unions members not able to be exempt from taxation on their HC benefits? YES!

These people are connected politically and serve each others interest.

Businesses help politicians and politicans help business. Why did GM and Chrysler need a bailout? National pride and jobs? Or because they are some of the last big businesses to be controlled by the auto unions? If you believe jobs were such a concern, why did we (the gov) waste months and months and months on a healthcare debate and attempted cap & tax hmmm?

Jobs were not the focus, unions power was in jeopardy. The same can be said for wars and the Aerospace companies (i know you libs believe that!) The Oil industry, airlines, auto makers, wall street (the true WS, not Obama’s code word for banks – there are thousands of banks unrelated to WS) and healthcare.

This nation is controlled by those in power and they all look out for themselves – most of them achieved their positions that way.

Think about it. Good article…surprisingly bold…

Posted by BHOlied | Report as abusive
 

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