Wednesday, June 20. 2012
The New York Times Sunday Book Review once again went out of its way to reestablish its centrist (conservative) credentials by recruiting Matthew Bishop to pan Paul Krugman's book, End This Depression Now! The key paragraph with his laundry list of objections:
Bowles-Simpson is "widely respected"? They were rejected out of hand by virtually all Republicans for even suggesting the need to raise taxes, and they fared little better among Democrats for their insistence on gutting what's left of the safety net. They're toxic enough that even the president who appointed them had had virtually nothing to do with them, although there's little reason to think that he wouldn't relish a "grand bargain" of the sort they imagine if indeed they enjoyed any respect at all.
The important thing to understand about any such "grand bargain" is that the context precludes any real compromise. If left and right were in some sort of equilibrium, some sort of tit-for-tat exchange could be negotiated and might prove advantageous. However, since the mid-70s we have been subjected to a systematic onslaught by moneyed interests which has materially damaged the working class, permitted the rentier class to greatly aggrandize its wealth, and undermined democracy here and abroad, and every time you compromise with this onslaught you give up ground, and hope.
At some level Krugman understands this. He does, after all, recall a time -- he calls it the Great Compression -- when income and wealth was much more equable in the U.S., and becoming more so, and he notes that even such conventional economic indicators as GDP growth were much stronger then than they've become under conservative hegemony. And he also understands, and cares, that high unemployment rates entail real human costs as well as economic ones. But Bishop's idea that Krugman "the gifted economist" gives way to Krugman "the populist polemicist" in this book is precisely wrong. Krugman focuses almost exclusively on basic macroeconomics here. The irritating stylistics is all Bishop's, as should be clear from the weasel-wording.
For instance, "the rise in unemployment may be largely the result of inadequate demand": not "largely," but as Krugman shows, plainly. The drop in demand is due to deleveraging, which is what happens when an asset bubble bursts and everyone invested in it suddenly has to retrench to recover solvency. Also, "the austerians may be excessively fearful of so-called 'bond vigilantes'": Krugman shows that during a liquidity trap -- the technical term for the desperate deleveraging we are still in -- there can be no "bond vigilantes" because during such times only government bonds are safe havens for investible cash. Nor is this just theory: Krugman repeatedly points to actual interest rates to show that there is no "bond vigilante" effect. (The Eurozone is somewhat different in this respect, which Krugman also explains at length.)
Krugman's assertion "that any extra government borrowing probably 'won't have to be paid off quickly, or indeed at all'" also isn't cavalier: he points to historical examples where even greater debt had little or no consequence. On the other hand, Bishop's insistence that present unemployment has a "structural" component is nothing but a hapless red herring. On the one hand, it's impossible to see how a structural flaw would have manifested itself so suddenly as the economy collapsed. On the other, such a problem could easily be remedied by public investment to provide the missing skills, but no one who talks about "structural" unemployment seems to want to fix that particular problem.
Indeed, that's true of a lot of the things that Krugman's "Very Serious People" say. Mike Konczal has done useful work in mapping out the various things all sides have to say about the current depression. He maps them out into two clusters, one called "demand-based solutions" -- the sorts of things Krugman favors doing -- and "supply-based explanations," which aren't solutions at all, just rationalizations for letting the depression run its course. Krugman, of course, points out the falsity of each of those arguments, but striking them down is a futile task, because the right is committed to repeating them endlessly -- whatever it takes to prevent politicians from trying to solve the crisis by shifting wealth and power from those who have too much to those who don't have nearly enough. And if that means perpetuating the depression indefinitely, that's a price the rich are fully prepared to let the poor pay.