Denial on Two Fronts, Climate and Keynes

This morning’s New York Times, without any apparent irony, gives us two front page stories in which science and empiricism are rejected in the name of political ideology. One, the refusal of Tea Partiers to accept climate change, is treated with humor and a whiff of incredulity; the other, the rejection of any coherent macroeconomics on the part euro-austerians, is offered with more respect.

Take the first case. Candidates and activists marching under the Tea Party flag are quoted as saying that climate change is unproved, a hoax perpetrated by those who want to impose global socialism. The religious angle is played up:

“It’s a flat-out lie,” Mr. Dennison [a Tea Party activist in Indiana] said in an interview after the debate, adding that he had based his view on the preaching of Rush Limbaugh and the teaching of Scripture.

The final word is given to another founder of a local Tea Party organization:

“Being a strong Christian,” she added, “I cannot help but believe the Lord placed a lot of minerals in our country and it’s not there to destroy us.”

Yes, God is like the tooth fairy, leaving oil and coal under our pillow as an expression of pure love. God especially loves the Saudis. (I’ll bet that, if this woman ever gets cancer, she will say that God is testing her. Maybe God is testing the human race by giving us an environmental “disease” that can be cured only by self-restraint. Don’t quote me on this.)

Meanwhile, a few inches north in column five, we are told about the wholesale rejection of Keynesian demand management by European political leaders. For them, the problem is budget deficits, not unemployment or stagnant economies. England’s budget, due to be slashed by almost 20% by the new ToryLib government, is described as “bloated”. A few “liberal” economists, like Brad DeLong and Joe Stiglitz, are left to wail in the wilderness.

What is missing from the economic story, however, is any recognition that there are accounting identities that define reality for all economies, whatever their political leaders may want to believe. The one that matters right now is that the change in net private debt plus the change in public debt plus the surplus on the current account must sum to zero. Austerians who are keen to reduce fiscal deficits must believe that this will be counterbalanced by either less deficit reduction by the private sector or by a big increase in net exports by everyone, all at once (in our trade with Mars, I guess). In other words, holding the trade balance constant, you can’t get net debt reduction in one part of the economy (banks and households) without permitting more debt somewhere else (government). This isn’t about Keynes, it’s about the iron grip of arithmetic on the realm of the possible.

Which means that the fiscal Kool-Aid conservative governments in Europe are gulping down these days has a lot of tea mixed in.