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Weissman writes: "Some people call him a sage or super-guru, others compare him to hemorrhoids. But, love him or loathe him, Paul Krugman has become a pivotal figure in our economic conversation."

Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)
Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)



Krugman and Keynes to Obama and Lagarde: Get Real!

By Steve Weissman, Reader Supported News

24 April 13

 

I read the New York Times, it's where I get the news. Paul Krugman's on the op-ed page, that's where I get the blues.
The Krugman Blues
Loudon Wainwright III

ome people call him a sage or super-guru, others compare him to hemorrhoids. But, love him or loathe him, Paul Krugman has become a pivotal figure in our economic conversation, both in the United States and in Europe.

Having a platform at the New York Times helps, though it has hardly kept his stable-mates Tom Friedman and David Brooks from regularly spouting nonsense, especially about the economy. Having a Nobel Prize in Economics adds credibility, though the Swedes gave the same award to Margaret Thatcher's Austrian guru, Friedrich Hayek, whom Krugman correctly called "a Zombie" and "not an important figure in the history of macroeconomics."

Krugman's place in the debate comes more from his ability to explain complex issues with clarity and wit, and from a way with words that many of his fellow economists - and journalists - envy in unseemly ways. More than most of his peers, he has also shown a moral sensibility that echoes the outrage of anti-austerity protesters on the streets of Athens and Madrid. Almost a year ago to the day, in Spain's "El Pais" as well as the NYT, he castigated the International Monetary Fund (IMF) and policy-makers of the European Union (EU) and the European Central Bank (ECB) for imposing "economic suicide" on so much of Europe. He called their actions "Eurodämmerung."

On British television last spring, he chided the country's coalition government for applying the same deadly poison to their own economy. "None of this is about fiscal responsibility," he told leading Tories. "It's not really the budget deficit that concerns you. You're looking for a way to exploit the deficit situation to pursue an [ideological] agenda."

In America, Krugman has repeatedly explained why the federal debt and deficits do not currently pose a pressing problem, especially not at a time when inflation is low, growth is weak, and interest rates are close to zero. His logic reached back to the British economist John Maynard Keynes, whose observations on how macro-economies work still have relevance for times like the present. But, before we consider his ideas, we need to clear away some mental cobwebs.

Contrary to the rumblings of the undead, Lord Keynes was never a raving lefty. He dismissed Karl Marx, had no time for the "labor theory of value," left plenty of room for "the market," and found the bourgeoisie far more enticing than the working class. Nor do his ideas necessarily lean to either right or left. Deficit financing, the major tool of Keynesian economics, has been used in the United States less to fund welfare programs than to pay for World War II, the military-industrial complex, and the wars in Vietnam and Iraq, while Hitler did not need Keynes to use deficits in Germany to grow the Third Reich out of the Great Depression. On its own, the approach does not solve structural problems in the economy, whether caused by business, labor, or misplaced regulators, and does not tell us how to create self-sustaining growth that will preserve the planet. All that said, Keynes and Krugman do point us toward the beginning of a rational economic policy. The rule of thumb is simple. When times are tough and the private sector pulls back, borrow or print money to stimulate demand. When growth returns, pay down the borrowing, an essential follow-through for both Keynes and Krugman. Timing is crucial, and now is the time to spend to promote growth, not to cut back in the name of austerity.

In a way, Krugman has already won the argument. Berkeley's Brad deLong and Harvard's Larry Summers, who was Obama's chief economic advisor, used mathematics to explain "Fiscal Policy in a Depressed Economy." Top economists at the IMF performed their own math exercise, which led managing director Christine Lagarde and European officials to begin moving to loosen fiscal targets for troubled economies and to give Portugal and Italy an additional seven years to pay back their bailout loans. The IMF has also warned British Chancellor George Osborne that he is "playing with fire" by pursuing austerity too aggressively. As for Obama, he has always understood the need for federal spending to stimulate the economy, even if he is now agreeing to cut Social Security and increase Medicare payments as part of "a grand bargain" to trim the deficit - or as Professor Bill Black calls it, "the grand betrayal."

And just this week, one of the leading arguments for austerity and against stimulus - Carmen Reinhart and Kenneth Rogoff's "Growth in a Time of Debt" - was found to have a major spreadsheet error and some questionable statistical techniques.

Intellectually, this is where the great debate now stands, especially in Europe. As London's "Financial Times" editorialized last week, "It is increasingly clear to the Eurozone core that there is only so much left to squeeze from the periphery." But politically, no one with any power - not even French President François Hollande, who taught economics at his country's top graduate schools - has stepped forward to carry Krugman's winning argument to its obvious conclusion. Why not join together in all of the troubled economies to throw off the suicidal austerity and move stimulus into high gear? Why not indeed?

I can think of at least a dozen answers, from Obama caving in to deficit hawks, many of them on Wall Street, to the influence in Europe of German Chancellor Angela Merkel and the die-hards at the Bundesbank. But, if Obama, Lagarde, and Company fail to use available Keynesian tools to promote growth, the Krugman Blues could change radically. As economic conditions continue to worsen in Europe and disintegration becomes more likely, new forces from the right or left will try to take matters into their own hands. And as Obama continues to betray the New Deal traditions of the Democratic Party, who knows how the Congressional elections of 2014 will impact Keynesian prospects, be they civilian or military?

 

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+103 # phrixus 2013-04-24 16:29
"'None of this is about fiscal responsibility, ' he told leading Tories. 'It's not really the budget deficit that concerns you. You're looking for a way to exploit the deficit situation to pursue an [ideological] agenda.'"

It makes for interesting reading as the NYT's readers respond to PK's call for increased spending in view of our weak economy and high unemployment. Even though austerity measures are proving to be real-time failures the deficit hawks still spout their fantasies concerning debt reduction. It's quite a fascinating exhibition of denial in action. The bottom line is that austerity is EXACTLY the wrong direction to take during a recession. But don't take my word for it - just look at the real-world results.
 
 
+13 # economicminor 2013-04-25 06:54
There are different ways of spending borrowed money. Spending for consumption isn't the answer. Spending on advanced infrastructure projects would benefit us all and have a return on invested money.

The current problem is that most all borrowing is for consumptive purposes and does not contribute to our well being except in the very short term. Once the money is spent, it gives no future benefit yet leaves a debt to be repaid. Thus the arguments of the deficit hawks is valid currently. These deficit hawks also do not want to invest so we have a stupid grid lock and we just slide backwards.

They have also gerrymandered the districts so this grid lock will probably stay in place for a long time. And all this discussion of what could be or should be is pretty much a waste of time. We are on the road of austerity so get ready.
 
 
+23 # dkonstruction 2013-04-25 08:47
Quoting economicminor:
There are different ways of spending borrowed money. Spending for consumption isn't the answer. Spending on advanced infrastructure projects would benefit us all and have a return on invested money.

The current problem is that most all borrowing is for consumptive purposes and does not contribute to our well being except in the very short term. Once the money is spent, it gives no future benefit yet leaves a debt to be repaid. Thus the arguments of the deficit hawks is valid currently. These deficit hawks also do not want to invest so we have a stupid grid lock and we just slide backwards.


Great points economicminor! I agree completely. The problem with the "stimulus" (in addition to not being big enough) was that most of it was just given to the banks in the hopes they would lend it out. Instead, as you suggest, this money should have been invested in Infrastructure projects including building a national high speed rail system; a national smart grid as well as an energy efficiency retrofit program for every (to start with) public building in the country. This in addition to a permanent, federal jobs program that provides a real, living wage job to anyone who cannot find one in the private job market is what's truly needed.
 
 
+2 # BradFromSalem 2013-04-25 11:53
whoops
 
 
+3 # engelbach 2013-04-25 12:27
The goal, though, is not necessarily to create permanent government jobs, but to stimulate the economy into creating more private-sector jobs.
 
 
+5 # engelbach 2013-04-25 12:26
Spending to encourage consumption is what drives demand, which is what impels businesses to hire.

Certainly, the spending should be for directly creating jobs that benefit society, such as on the infrastructure. But the long-term benefit will be the private sector jobs created, whether by increased hiring for existing businesses or investment in new businesses.
 
 
+1 # dkonstruction 2013-04-26 08:20
Quoting engelbach:
Spending to encourage consumption is what drives demand, which is what impels businesses to hire.

Certainly, the spending should be for directly creating jobs that benefit society, such as on the infrastructure. But the long-term benefit will be the private sector jobs created, whether by increased hiring for existing businesses or investment in new businesses.


I agree that the goal is to create permanent, living wage jobs, and that these do not have to be "government jobs" but they can be created and "stimulated" by government spending (which is "consumption" of a sort). The Government war effort during the World War II was essentially the New Deal on steroids and was accomplished in large part via government contracts with private industry.

At the same time, the fed could become the "employer of last resort" so that we do not have to accept say the 5% "structural unemployment" that people like Krugman seem to simply accept as something that will always be with us and thus there isn't anything to be done about it.
 
 
+21 # Michael Lee Bugg 2013-04-25 10:08
Phrixus, you have selected the most important aspect of this story! On behalf of their wealthy benefactors and their corporate sponsors the Republicans have fought any and all social welfare programs from sometime after Abe Lincoln till now, on the grounds that worker protections and taxes were a burden to the wealthy, and because public aid to the poor would at least make them unwilling to work for almost nothing or because welfare would enable them to avoid work completely! They fought everything that FDR and LBJ did for the poor and the middle class. Fortunately they failed. When W was elected they figured out two new ways to get what they wanted. First, simply deprive established programs of needed funding. Second, create deficits so large that they could force drastic cuts in everything except defense spending. When Bush took the White House, Grover Norquist said they were going to shrink the federal government till it would fit in a bathtub, and then drown it. Hence the three tax cuts for the wealthy and their corporations, increased defense spending, and two costly wars to boot! They did not count on killing the economy in the process but that helped make the deficits much worse. Dick Cheney then flatly announced on a Sunday morning talk program that "deficits don't matter"! They got the deficits they wanted and then some. Now they are diligently working to kill or shrink as many social programs as they can. Mission Accomplished!
 
 
+108 # ganymede 2013-04-24 19:50
The situation with Krugman is amazing. While he's not right 100% of the time, he's more perceptive and knowledgeable than all the other mainstream and rightwing economists. I don't think that most of the excitable, know it all rightwingers who attack Krugman on various blogs have even taken the time to read what Krugman has to say. He spells out very clearly where we've gone wrong and what must be done to get us out of this mess caused by our corporate masters. History will be very kind to Krugman, and it's a shame that he's not taken more seriously.
 
 
+33 # tm7devils 2013-04-24 21:15
It won't be a shame...it will be our ruination.
 
 
+2 # engelbach 2013-04-25 12:30
And none of them have read Keynes. Keynes is actually fairly easy reading, if one bothers to take the time.
 
 
-15 # wherefore 2013-04-24 20:52
Obama has not betrayed the New Deal and has not cut social security and medicare. They will not be reduced; there will be no shift to chained CPI. He has only put cheese in the mousetrap.
 
 
+10 # Trueblue Democrat 2013-04-25 05:33
Little boy whistling loudly -- though way off key -- as he hurries past the graveyard.
 
 
+3 # engelbach 2013-04-25 12:29
You coulda fooled me.

So raising the new tax limit to $400,000 instead of $200,000 and restoring the Payroll taxes — those are just in my imagination, Obama's "bluff"?
 
 
+1 # grandma lynn 2013-04-28 03:24
I agree with "he has only" in most cases. In most responses, he does the only little possible little thing he can, so he can make little jokes after, and be a little popular.
 
 
+30 # Shorey13 2013-04-24 21:40
Krugman's prescience goes back a long way. In 2004, in "The Great Unraveling," he warned of a Reactionary Revolution, spelled out the historic inability of "Liberals" to recognize these revolutions when they occur, and even provided a step-by-step instruction for dealing with it. Worth looking up. Nine years later, the Reactionaries have even co-opted our supposedly Democratic President. And there is still no plan to defeat the revolution. Even Krugman makes the classic "Liberal" error: assuming that WORDS will somehow turn the tide. Enough of pundits' criticism. We need a plan of action to confront and defeat this enemy.
 
 
+24 # jky1291 2013-04-24 22:16
Equitable and Logical Program Reform

The majority of working taxpayers in this nation pay Social Security and Medicare taxes on 100% of their income their entire lives to earn the modest benefits of these programs that sustain them when they are no longer able to work. The 2% vigorously resisting paying less than 7 cents per dollar above $250,000.00 pay these taxes on less than 45% of their income, while those receiving $1,000,000.00 pay on barely more than 11%, and those collecting 10,000,000.00 are taxed on only 1.1% of their income for Social Security and Medicare. To address entitlement reform, eliminating the 99%+ tax break received by the wealthiest 1%er's would essentially eliminate the unfunded liabilities in Social Security and reduce the federal deficit and national debt substantially by equitably funding Medicare. (Social Security and Medicare taxes applied to approximately 1/2 of 1% of Mitt Romney's income.)

The SignOn.org petition below might suggest the solution to many of these problems by providing the greatest detriment to the Republican obstructionists talking points: TRUTH!!!

http://signon.org/sign/equitable-and-logical?source=c.url&r_by=1279693

Add your support to the petition if you agree this is the appropriate means to frame the debate and redirect the discussion.
 
 
+8 # jky1291 2013-04-25 06:36
Equitable and Logical Program Reform

To President Barack Obama, House Representatives , and Senators,

Whereas there is great concern for the sustainability of Social Security and Medicare due to unfunded liabilities, and in consideration of demands for reform to strengthen those programs for future generations, and in consideration of the burden on our budget deficit and national debt due to persistent high unemployment:

Be it proposed that all exemptions of income subject to Social Security and Medicare taxation be immediately eliminated and the $110,100.00 cap on income subject to such taxes be permanently removed, thus equalizing the percentage of income upon which all income brackets are fairly paying to support these programs that benefit all the citizens of our nation.

Furthermore, be it proposed that the Social Security retirement age be returned to 65 years for 2 years in order to simultaneously reduce both the deficit and unemployment through eligibility of more than 2% of the workforce to voluntarily relinquish their jobs to be filled by the unemployed, while massively increasing the economic impact of their Social Security benefits spending from the increased funding resulting from taxing all income brackets equally.

http://signon.org/sign/equitable-and-logical?source=c.url&r_by=1279693
 
 
-10 # coberly 2013-04-25 08:08
jky1291

sorry, you are exactly wrong. workers can pay for their own Social Security as they always have just by raising their own tax one tenth of one percent per year, while their wages are going up over one full percent per year, to pay for their longer life expectancy. that's 80 cents per week per year.

raising the cap would turn SS into welfare as we knew it. when the rich pay for it they will own it, and then they will kill it at leisure.

FDR knew this, that's why he insisted SS be "worker pays," "so no damn politician can take it away from them."

80 cents per week to avoid going on welfare for the last 20 years of your life. try to think about it.
 
 
+9 # engelbach 2013-04-25 12:35
Social Security is not and never will be "welfare." The working class will always have the majority vote.
 
 
+1 # grandma lynn 2013-04-28 03:26
Along the way, where has "majority vote" become so warped that it means very much less than it should?
 
 
-3 # mh1224jst 2013-04-25 01:41
I'm sorry:
The "rule of thumb" you mention is wrong. And Krugman, who is right about almost everything else, is wrong about that: Inequality is not a "political" problem, it's a real macro. problem. Wealth transfers to the top, constantly, and the $16 trillion of debt helped finance inequality. All income growth is now high in the top 1%. More deficit spending can't help - it will mostly just create more wealth for the richest to suck up. Stiglitz and Reich are on the right track here -- not Krugman. Krugman is hurting the cause of recovery with his incomplete, mainstream ideas that this author repeats as gospel.
 
 
+17 # mh1224jst 2013-04-25 01:47
separate in your mind the "austerity" BS, and other supply-side nonsense, from the economics of inequality. Krugman is doing a great job fighting austerity, and he's about the only one.
But the real serious, continuing damage to our economy (and around the world) is done by incomes and wealth being redistributed to the top. Keynes ignored that problem, and that flaw sent us spiraling down the wrong track. We need to fix inequality, with much more progressive taxation at a minimum, not add fuel to the fire with more borrowing.
Tax the rich.
 
 
+7 # engelbach 2013-04-25 12:40
Keynes didn't ignore it.

He wrote quite strongly about the health of an economy being dependent upon a more equitable distribution of income.
 
 
+22 # turtleislander 2013-04-25 04:21
Steve Weissman in this article is the first writer I have read who correctly notes that Keynes was not a right-or-left economist. In dumb-dumber-dum best US culture, those who even know the name Keynes will often associate it with "bad" or "debt" or even "communist". I tell people to think of Keynes as someone describing the physics of macroeconomics. Think of him as a Newton. Gravity isn't a theory...there theories about gravity, but gravity exists. So do macroeconomic dynamics. Keynes explained it. Now we get to see how wrong actions function and confirm Keynes' view of economics. That's why I take comfort in knowing, since I have read Keynes as well as some of the austerity dunderheads, that the plutocrats will ultimately regret further pursuance of "austerity" economics to cure depression. Their greed will likely and hopefully prevent the masters from bringing total ruin upon us all.
 
 
+21 # Texas Aggie 2013-04-25 06:35
I just read a review of work on the concept of stupid. It seems that stupid is not the opposite of intelligent, but rather is the inability to think rationally using facts and data. Instead, a stupid person, who may be quite intelligent in the sense that they can understand concepts and have a good memory and score well on an IQ test, guides his behavior based on his preconceptions, his prejudices, and his "gut feeling" rather than on a rational analysis of the problem at hand.

These studies go a long way in explaining why economists and politicians are pushing austerity rather than Keynesian policies that have been shown to work both theoretically and practically. As Dr. Krugman said, they are pushing their ideology, not anything that would help the economy function better.
 
 
-7 # coberly 2013-04-25 07:32
jky1291

sorry, you are exactly wrong. workers can pay for their own Social Security as they always have just by raising their own tax one tenth of one percent per year, while their wages are going up over one full percent per year, to pay for their longer life expectancy. that's 80 cents per week per year.

raising the cap would turn SS into welfare as we knew it. when the rich pay for it they will own it, and then they will kill it at leisure.

FDR knew this, that's why he insisted SS be "worker pays," "so no damn politician can take it away from them."

80 cents per week to avoid going on welfare for the last 20 years of your life. try to think about it.
 
 
+5 # Michael_K 2013-04-25 07:59
Obama's abysmal incompetence in economics matters is illustrated by his selection of Larry Suumers and Timmy Twithead as "advisors"

He is an idiot driven by cash contributions and country be damned.
 
 
+11 # MichaelArchAngel 2013-04-25 09:07
I was a volunteer lawyer for President Obama's first election. I was surprised and disappointed when the President did not make Mr. Krugman part of the administration. I'm afraid that error was a harbinger of errors to come.
 
 
+3 # Ma Tsu 2013-04-26 19:21
There is no financial crisis. It's all legerdemain, prestidigitatio n, the old hocus pocus. In fact, it is entirely possible for the nation to retire its debts. All that needs to be done is to come up with something or things worth that debt. Our government's investment in decoding the human genome paid many, many dollars for every dollar invested. The same would be true for sustainable energy, environmental restoration and the furtherance of nanotechnology. As long as the printing presses are running full speed anyway, let's spend our way forward, for heaven's sake...and by heaven's sake, I mean consider the alternative, the mightily hellish alternative.
Prosperity, not austerity.
 

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