Paul Krugman and fundamental values
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?