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Paul Krugman and fundamental values

November 18, 2011

Paul Krugman today correctly observes that the deficit debate “isn’t about accounting.  It’s about fundamental values”.  But as usual in Krugman’s writings, the scope of values that can actually be applied in the real world are extremely circumscribed.  It’s nice to hear Krugman say it’s values that count and not accounting, but it’s an extremely misleading statement for this top New Keynesian economist to make given that the fundamental economic laws in his universe are the cruelest form of accounting.

Krugman asks and then answers a key question which immediately serves to limit the range of values that can be expressed: “But don’t we eventually have to match spending and revenue? Yes, we do.”  His proposals reflect this constricted range and seem purely ad hoc for today’s specific crisis: somewhat higher taxes on the wealthy, increased spending today, cuts in future spending to reduce the deficit, and higher inflation to somehow spur investment.  It’s hard to find a fundamental value here.  Krugman’s claimed intellectual forefather, John Maynard Keynes, expressed the overriding fundamental value of eliminating unemployment.  While Krugman objects to the extremes of current inequality, his values are nowhere near as clear.  In fact, contra Keynes, he fully accepts the doctrine of a “natural rate of unemployment”.  What are the values of a New Keynesian economist?  They would seem little more than a vague support for social democracy strictly circumscribed by the “accounting” laws of neo-liberal laissez faire capitalism.

Krugman accepts the legitimacy of a supposed accounting law that spending must equal revenue.  But what if the current stagnation continues for decades and deficits endlessly mount?  At what time scale does the law necessarily kick in?  Must society drastically reduce living standards if sufficient revenue isn’t obtained by that time?

The whole thing is utter nonsense.  In the “real” world, we have it within our capacity to achieve excellent living standards for everyone.  The technology and resources are clearly available.  We can rephrase the Krugman question to bring it in line with the “real” world thus: But don’t we eventually have to match living standards and technological capacity? Yes, we do”.  This is the only important “real” equality and its very different from Krugman’s. Living standards can reasonably be associated with “spending” but what sense does it make to equate technological capacity with the accounting term “revenue”?  Revenue is an artificial accounting limitation and those who profess its fundamental nature are doing nothing other than expressing a value.  A very powerful and influential one at that, as societies everywhere are being forced by its logic into ever declining qualities of life.

Krugman is right to say it’s all about fundamental values, but what are his?  Are they to a process, perhaps a somewhat less brutal capitalism, or to an actual end state of widely shared prosperity?

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From → Economics

  1. Andrew permalink

    Money is an excuse to fail to recognize that the political economy is about making decisions about what should be produced, who does the producing and who consumes what is produced.

  2. I like that Andrew. It well summarizes what’s happening in the world today as we continue our march toward the Middle Ages.

  3. Max permalink

    In 2002 Krugman said, what the economy needs is a housing bubble.

    We got a housing bubble. Now we need another bubble.

    Bubbles, you see, are a sound means of propelling the economy, unlike deficits. Deficits are only a last resort if you can’t get a bubble going.

  4. Even those in the theoretical “center” are increasingly recognizing that capitalism can’t provide widespread prosperity except during bubbles. As seen from Adam Davidson’s callous yet true comment I wrote about a few days ago: “Without the distortion of a credit bubble, it is clear that far too many Americans don’t know how to do anything that the world is willing to pay them a living wage for.”

    I have a Wall Street ultra right wing uncle who believes the whole system is collapsing and of course we agree. The key difference is that he’s perfectly willing to see society collapse with it. He and his followers, which include the Davidson types, seem fully ok with seeing civilization retrogress through the 19th and 18th centuries rather than interfere with the religion of capitalism. Our roads and bridges will fall into complete disrepair and resemble Roman ruins all because we can’t afford to maintain them. Historians of the future will look back with amazement at the folly of this completely unnatural disaster.

  5. yeahwRight permalink

    I fear Jim is right about their willingness to “see civilization retrogress through the 19th and 18th centuries rather than interfere with the religion of capitalism”. Nicely put, btw. In Medieval times man was willing to accept widespread suffering to justify another type of religion, in India the caste system entailed too, widespread suffering. I guess the difference is, those peoples didn’t know any better. We have the stories and movies of the 50s and 60s AND the example of Japan, our forebear countries in Europe, but even worse, we have next-door-neighbor Canada, who show us on a daily basis that it isn’t really necessary to have all this widespread suffering for the sake of of capitalism.

    So, I don’t think it’s capitalism, it’s this unbridled form of this robber-baron capitalism, that isn’t reigned in by common sense and a long term vision.

  6. yeahwRight permalink

    See Richard Wilkinsons tED talk for an explaination of those areas’ market based democracies, which DO provide the best stuff for the largest number of people.

  7. Thanks yeahwRight for the interesting video. The key issue in all societies seems to be the level of inequality and of course the US turns out worse in every measure. It’s clear the system is broken and needs radical surgery. I think a system based on profit in which people are treated as commodities is fundamentally immoral and, being that we’ve solved the basic problem of production, isn’t needed. Why keep producing and manufacturing desires for endless commodities? Isn’t it way past time in our human development we move beyond this level?

    I have increasing hope for the global Occupy movement and within it there’s a great diversity of feelings about capitalism. I think many are uncomfortable saying they’re against capitalism because they were brought up within it and it’s kind of like a religious doubter being unwilling to openly declare he or she is no longer Christian. Sounds too strong to new ears. Regardless, I think we can all agree we need far more equality and should demand concrete policies that quickly move us to that point. There’s probably little sense getting bogged down in what we then call the system.

    Appreciate the feedback,


  8. yeahwRight permalink

    “While Krugman objects to the extremes of current inequality, his values are nowhere near as clear. In fact, contra Keynes, he fully accepts the doctrine of a “natural rate of unemployment”.

    1. If you don’t see clear values in what Krugman wants or says, it’s time to remove the ….. in your eyes
    2. Krugman is WITH Keynes in that, OF COURSE he accepts a rate of 3-4 percent of friction unemployment, there’s always the 1 in 25 person between jobs. Keynes even coined that concept, i think. It becomes a problem when this group doesn’t change in composition, that it’s always poor white trailer park trash, latino or urban blacks.
    I never heard Krugman say that anything above that rate is acceptable. It might be that he accepts this because of the high automatisation of society, but I’d like a link.

  9. Krugman’s support for the “natural rate of unemployment” is far more neo-classical than Keynes and looks very much like Marx’s reserve army to me. I’ve posted a number of times about Krugman and this post ( has some links.


  10. yeahwRight permalink

    But how big a rate does he accept? that’s the key point here.

  11. yeahwRight permalink

    PS plz go 2 ur other post.

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