What Are Conservatives Getting Wrong About the Economy? (Douthat Reply Edition)

By Mike Konczal |

Ross Douthat argues in his recent New York Times editorial, The Liberal Gloat, that the coalition that elected President Obama was “created by social disintegration and unified by economic fear.” Douthat argues that “single life is generally more insecure and chaotic than married life, and single life with children.” The implicit argument is that marriage is an important part of handling the economic fears of the business cycle, and if there were more married couples there’d be less call for economic policy. Krugman notes that “insecurity is on the rise for everyone, driven by changes in the economy” and that “[y]our church and your traditional marriage won’t guarantee the value of your 401(k).”

For fun, how well has the income of couples with children held up in the Great Recession when compared to single households with children? Let’s look at the Federal Reserve’s recent Survey of Consumer Finance. This comes out every three years, with the last version covering 2010. Here’s net income for single households with a child versus couple households (“families in which the family head was either married or living with a partner”) with a child:

In the Great Recession, single households with a child lost 2.3 percent of their income, while couple households with a child lost 9.4 percent of their income. Now obviously having $67K is better than having $29K. And the 2.3 percent loss of income for people with less could sting a lot harder than the 9.4 percent loss for those with more.

But what is important to emphasize is that having a couple raising kids, whatever its other virtues, is not a good form of insurance against the business cycle. The Great Recession has hit married households with larger drops in income. This is probably driven by having two people working in the household, which, as Senator (!) Elizabeth Warren emphasized years ago, doubles the chance that someone might lose their job. So even if the number of children being raised in single households dropped suddenly, that’s no replacement for an aggressively liberal, Keynesian welfare-state approach to driving the macroeconomy to full employment.

This isn’t just conservatives, as education-obsessed centrists and liberals have a blind-spot here as well. I recently wrote a piece for The American Prospect about young people graduating into the recession. The focus was how the average college graduate is likely to have a permanent loss to their income, compared to the more temporary income loss for those who attend elite colleges or don’t go to college at all. I mentioned it in passing at the end, but this technically means that the college premium, especially at the margins, drops in a recession. Therefore getting more education is a poor form of insurance from the business cycle compared to, once again, Keynesian welfare-state full employment.

Paradigm Down

I have no interest in seeing a resurgent conservative movement in this country. One reason I was worried about Romney winning the 2012 election and passing the Ryan Plan in January 2013 and Lochnerizing the Supreme Court is because an animal is most dangerous when it is dying and knows it. But it might be helpful for those on the right to get an outsider’s perspective.

Douthat argues that conservatives focused too much on those getting “gifts” and other free-loader metaphors. But the most sustained conservative economic arguments of the Great Recession have been reviving the liquidationist, Mellonite approach to the business cycle. I think that’s one important reason Romney and conservatives were unable to put real pressure to President Obama’s vulnerability on the economy. They believe the recession is purging the weakness in the economy, doing healthy work, and to the extent the recovery is sluggish it is the fault of activist government and policy attempting to address unemployment.

The House GOP, in particular, has pushed the Mellon-wing, calling for austerity to promote growth, while also pulling back on monetary policy to stimulate the economy. Understanding the “47 percent” and “free stuff” comments benefit from the context of conservative arguments that government policy is the primary reason that unemployment remains high, as all the free stuff allows the unemployed to stay on vacation. If conservatives want to build a new economic paradigm that works for working people, they should probably have some idea on getting unemployment down sometime in the next decade.

Another important conservative focus is running everything the government does through private hands. The conservative movement is not about small government, it is about privatized government. From Bush and Ryan’s attempts to privatize Social Security, to turning Medicare into a Groupon, to bringing private industry into the military, every step involves introducing market agents into government processes and pushing market risk to individuals. This continued under Mitt Romney’s big policy ideas. He had an idea for taking our system of unemployment insurance and turning it into a system of private unemployment savings accounts. He wanted to fix higher education costs by expanding the for-profit industry, which would “hold down the cost of education,” even though they are far more expensive than their non-profit equivalents.

The conservative idea that citizens don’t have enough undiversifiable exposure to the risks of the new economy – long-term unemployment, low wages, risks of a large drop in income, globalization, automation etc. – is not one that is going to work going forward. The economic voters Douthat wants to win over see the cronyism of funneling money through private agents, and they think of the market with far more dread and anxiety than entrepreneurial glee. Though they may be ambivalent about more liberal solutions, they certainly don’t like the perpetual conservative project of making all of government’s functions look more and more like their empty 401(k)s. That might be another place to start for conservatives who want to rebuild their economic ideas.

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Mike Konczal is a Fellow with the Roosevelt Institute, where he works on financial reform, unemployment, inequality, and a progressive vision of the economy. His blog, Rortybomb, was named one of the 25 Best Financial Blogs by Time magazine. Follow him on Twitter @rortybomb.