The American Jobs Act: A Lesson in 4-Quadrant Economics?

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Well, right—but not totally. You see, this idea that there are “laws of economics” out there to be discovered and applied like the laws of physics is a tricky one. Suppose the Act gets passed, and then the jobs aren’t forthcoming. It’s a real possibility. No one can be certain. Then what would be the conclusion? That Obama’s administration is incapable of managing the US economy? That’s surely what the Republican presidential candidate would be hammering—and he or she would have an audience ready to believe it. Except it isn’t true. For all his assertiveness, the President can’t be certain his proposed measures will work. Nor can his opponents be certain that, if these measures fail, it’s because they were the “wrong” ones. There are such a lot of factors involved in an economy creating more jobs than it destroys (an ongoing, almost organic process, by the way—regardless of your politics) that any set of measures one proposes can only be an arguable conjecture based on a view of the world one earnestly believes in. The economy is an immensely complex system whose inner mechanisms constantly change through both external influences and internal alchemy.

Postwar Keynesian demand management policies seemed to work well for decades, at least until the mid-1970s. It’s probably their very success in generating collective wealth through growth and redistribution, combined with the two oil shocks (among many other influences), that led to the rise of supply-side policies and Reaganomics in the 1980s—growth based on financial liberalization, rapid globalization, massive tax cuts, and on a pseudo-Keynesian State oriented towards the rich and the military complex—which then led right into the fateful decade Joseph Stiglitz has called the “roaring nineties”: years of financial profitability the likes of which had rarely, if ever, been witnessed before, going hand in hand with rising inequality and with soaring—though at the time still largely invisible—levels of household, corporate, and public debt. After the Clinton administration endeavored to keep down budget deficits (which are, remember, the annual contribution to the public debt), the Bush administration up and undid all that within a few years, sparking several wars and channeling the world’s savings in part towards private armament and construction companies. Some have claimed, not without reason, that ironically Clinton was a supply-side Democrat while George Bush Jr. ran the economy as a demand-side Republican.

Worldviews—which include options as to which categories of Americans you’ll be most loyal to: workers, industry, the poor, big business, the rich, etc.—play a crucial part not so much in how “well” you will run the economy, but in what parts of the economy you’re going to be looking to as you try to run it. The economy is a mind-bogglingly complex machine—actually, an organism rather than a machine. Complexity science and behavioral psychology are being used today by frontline economists in order to try to understand how the economy works, quite independently of political party lines. It has been said that about 70 percent of America’s academic economists are Democrats; still, they don’t use fundamentally different tools and techniques from the 30 percent who are of a Republican persuasion. The difference lies in whom they apply these tools and techniques to and in what sorts of policy measures they come up with—and that depends largely on their worldview, not on their technical competence in the use of systems science or of behavioral methods.

President Obama claims that “If we provide the right incentives and support (…) we can be the ones to build everything from fuel-efficient cars to advanced biofuels to semiconductors that are sold all over the world.” In saying this, he is not distinguishing himself from the Republicans—in fact, he is following the non-partisan stance that people respond to incentives. No one in the economics profession disputes that. An immensely complex organism such as the US economy can only be steered, so to speak, and nudged along by general measures that act as incentives on the behavior of hundreds of millions of individuals. It’s all about channeling “herd behavior” into results that are considered collectively beneficial. The science of designing and implementing incentives is a right-hand quadrants affair: it deals with the upper-right quadrant of people’s behaviors and reactions to stimuli, and with the lower-right quadrant of how the overall system coordinates these behaviors and produces aggregate results with them.

The question is, What incentives? Whether the proposed tax credits to households and businesses, and the public spending hikes on infrastructure and education, will succeed in massively creating jobs—I mean net, not just gross job creation: the economy creating many more jobs than it destroys—is simply an open issue. It can’t be resolved at this stage. Economists can run simulation after simulation on their computers, but there’s simply no way to get a univocal answer “for” or “against” the policy package. So many factors are out of Obama’s hands. Will the sovereign debt and euro crisis cause a recession in Europe, curtailing US exports? Will there be a new worldwide banking crisis, implying another credit crunch, hence additional bankruptcies and job losses in America? Will emerging countries be hit hard by the aftermath of the financial crisis, as the World Bank’s president Robert Zoellick recently predicted, so that again the US economy could get damaged indirectly? The list is almost endless.

Trying to see through all these myriad causal mechanisms within the lower-right system, with the help of important psychological insights from the upper-right quadrant, is the main business of economists today. It’s important. It’s crucial. It’s damn difficult. And it’s basically hopeless. Why did the Federal Reserve’s stimulus policy of easing the conditions for mortgage access turn against its initial intentions and lead up to the 2008 banking crash? Why did the Obama administration’s 2008 stimulus package, putting roughly $200,000 per job created on the table, not have the expected effect? There will always be the odd economist who will claim that she had predicted the crash, or foreseen the failure of the stimulus plan. But let’s be candid: Creating and implementing incentives in a hugely complex system is no mean feat; failing in the attempt is no sign of economic incompetence. What is true, however, is that your economic worldview can lead you to blind yourself to glaring weaknesses in your proposed incentive plan. Fed Chairman Greenspan pushed for easing subprime loans because he staunchly believed—and still does now—that home ownership is one of the main factors through which people end up adhering to the capitalist mindset, and he thinks the culture of capitalism (whose potentially “irrational exuberance” he is, of course, well aware of) is the very best thing for America and for the world. As he pursued this worldview at a time when debt finance and financial deregulation had pushed the whole American economy close to the brink, he catered to the banking sector, the financial trading industry, the building industry, and to a category of poor households aspiring to own their home after having been hit hard by two decades of rising income inequality—and that cocktail of a worldview (some would say, a quasi-religious faith) applied under adverse systemic circumstances is probably what led to the meltdown. Greenspan’s worldview, which is shared by a great many economists and citizens in the US, isn’t “wrong” in any essential sense. After all, his recipes seemed to work amazingly well during the roaring nineties. But when things shift around too much in the lower-right quadrant, even a good knowledge of upper-right behavioral and psychological aspects won’t protect you from your economic worldview generating catastrophic consequences.

This is, of course, exactly what many Republican congresspeople, as well as many professional economists (not all of them arch-conservative), are now saying about the American Jobs Act stimulus plan. Obama’s speech sets out his own worldview pretty clearly: He is a Keynesian, basically demand-side Democrat who believes the capitalist economy can be helped by budget policy to grow and to create many more jobs than it destroys; he is an egalitarian liberal, meaning a liberal who thinks equality shouldn’t be total (you need a significant degree of income inequality to keep incentives active and to keep people innovative and entrepreneurial) but who believes that America should embody the ideal of equal opportunity to the fullest and that public policy can be active in providing the conditions for this to be the case; he thinks that earning your income through a job—rather than through either unemployment insurance extended too long, or financial speculation made too easy—is an expression of personal responsibility, and that endeavoring to provide jobs for everyone is an expression of collective responsibility. Obama’s economic worldview, in terms of spiral dynamics, is orange-going-on-green. He is facing a Republican party—as well as a contingent of economists—who are predominantly blue-harking-back-to-red, and who staunchly believe that with people, especially the rich, behaving as they do (as described by the upper-right quadrant) and with capitalism, globalized and financialized, operating as it does (as taught by the lower-right quadrant), providing tax breaks in the middle income brackets and requiring “millionaires and billionaires” to step up and accept higher taxes will be self-defeating: It will, so the story runs, cause closedowns and capital flights so that there will be a net destruction of jobs.

The whole debate—which, if there weren’t such a dire need for urgent cures and solutions, would be downright fascinating—is whether, and how, the right-hand quadrants (which describe the economic system as complex organism within which complex human brains and bodies interact) can be made to espouse and verify a given worldview coming from the lower-left quadrant. Can the capitalist market economy be compatible with a liberal-egalitarian Democratic set of values? It has in the past. It may no longer today. Not because that worldview has become “wrong,” but because both (a) the system’s inner workings have been modified over the past three decades through reform after reform going in the direction of more liberalization and more privatization and (b) the system’s “inhabitants,” we as citizens, have changed on average (in the upper-left quadrant) in a direction that may make this worldview less workable. The period from 1979 to 2008—with Reagan, Bush Sr., Clinton, and Bush, Jr. officiating as successive presidents—has been one in which a fully-fledged “spirituality of economic individualism” has made its way into US citizens’ consciousness, mostly under the pressure of a globalized economy put together by red-to-blue decision-makers. Not that the regression from orange-green to red-blue occurred in every individual citizen to the same extent, but on average the end of the 1970s ushered in a period of memetic regression that is only now starting to get reversed.

Reversed it will be, for sure—witness the multitude of new economic initiatives being taken all over the country by managers, bankers, workers, farmers, and consumers. But Barack Obama’s election is only the first stage in the reclaiming of America’s evolutionary potential. I am not sure, though, that he will succeed in the throes of the multidimensional, and frankly quite scary, financial, monetary, and economic crisis the world is going through. I am not convinced that his orange-to-green policy of tax incentives and public spending to spur American job creation will work within an economic environment shaped by, and still built for, red-to-blue mentalities. But that just goes to show that no evolutionary journey is ever linear—which is a staple of lucid Integral thought, anyhow. And President Obama’s almost desperate effort to end his speech by uniting red, blue, and orange mentalities from his own green perspective (see the end of my previous post) shows that he is quite aware of the immense challenge he is having to face.