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Paul Krugman: a liberal proposal for the wrong game

November 28, 2011

Paul Krugman presents liberal proposals for reducing the budget deficit today, calling for significantly higher taxes on those making over $2m per year and a financial transactions tax.  While both ideas have great merit within the confines of the existing game, they don’t move us one bit “outside the box” to a place where we can begin to question the game itself.  Krugman fully accepts our imprisonment within the accounting cage, proclaiming in his second sentence that “at some point we’ll have to rein in budget deficits”.  He concludes that his tax proposals “wouldn’t be enough, by themselves, to fix our deficit…. The point I’m making here isn’t that taxes are all we need; it is that they could and should be a significant part of the solution”.

All solutions for deficit reduction, though, lead to reduced economic activity and higher unemployment and insecurity.   The only hope to the contrary is that lower deficits would be offset by a privately led investment boom or bubble.  That’s a real long shot in today’s globalized, increasingly automated world and there’s little possibility it would be long term sustainable.  By offering liberal ideas on how to play the game, Krugman is locating himself well within the broader status-quo.

A truly progressive answer must begin with rejecting the game itself and specifying core values that, at minimum, include the environmentally sustainable elimination of economic insecurity.  Economists could then prove their value to society by coming up with ideas for how the goals of this new game could best be accomplished.

The deficit reduction game, though, is quite different.  It’s a sub-contest within the larger game of capital accumulation through commodity production and financial speculation.  Mass living standards and the environment are mere inputs in this game which are adjusted as needed to meet the ultimate goal of profit.

The focus of progressives shouldn’t be on deficit reduction but on the game itself.  I’d feel much better about Krugman if he started from a clear fundamental value and followed with realistic proposals on how to achieve it.  Reducing the deficit isn’t a fundamental value.

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From → Economics

3 Comments
  1. Krugman points to Iceland, where two years ago the government got out from under its loans by defaulting and whose economy is now going strong, as a possible model for “bankrupting yourself to recovery.” Argentina is another example: it defaulted ten years ago and after a year or two to regroup it has built one of the most robust economies in the world, including a vibrant public sector, with an economic growth rate last year second only to China’s. If Krugman proposed extending the bankrupt-to-recovery model to the US it might make a game-changer out of him.

  2. Hello John (ktismatics),

    An easy way to “default” would be to tax at 100% all portions of debt that consist of the risk-free component, institute a 100% inheritance tax above a certain limit, no longer issue federal debt but simply offer a zero rate facility to “park” excessive funds. Better yet, charge a negative interest rate for such a service. Gold and other such commodities could be prohibited just as it was back in the 70’s. Outright default seems needlessly messy when the gifts to capital can be taken away in a far more “civilized” manner.

    The key is to remember that any debt repayable in your own currency isn’t really debt. It all comes under the heading “monetary policy”.

  3. yeahwRight permalink

    “bankrupting yourself to recovery.”
    How would that work, and isn’t it different for America, since it has a huge piece of the pie?
    Does krugman advocate this for America?

    There is a huge difference between Icelanders and Americans: Icelanders have a BIG sense of solidarity toward each other, and they expect their government to take care of stuff. It always has, up until recently.

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