Paul Krugman: bad guy
Surveying the dire economic landscape in this country and throughout the world from his ivy tower at Princeton, Paul Krugman informs us in today’s column that “fiscal policy is, indeed, a moral issue” and that the “deficit scolds” are “the bad guys in this story”. The implication, of course, is that he’s the good guy. Let’s examine the “story” and see where goodness and badness lie.
Krugman presents the story as having but a single simple theme but it’s more complicated than that – there are in fact two themes. One is whether or not society as a collectivity should guarantee everyone a living worthy of our productive capacity or at least assure there are enough decent jobs available for all who want one. The other is whether we should expand our debt to do so. In the public mind the two are tightly intertwined and it comes down to balancing between two offsetting desirable goals – higher living standards today versus keeping debt levels low.
Krugman presents the intertwined version as the complete story and ascribes goodness to those who favor more spending now and badness to those who worry (or profess to worry) about rising debt. This is nonsense as far as moral theory goes since reasonable people can disagree on the relative merits of the two. The critical divide is far more complex than Krugman allows – it’s the gaping chasm between those who insist that collective action must somehow be accompanied with rising debt versus those who see no basis for such a link. The former view enforces strict limits on the level of acceptable public spending and always sees a necessary tradeoff between the real economy and finance, while the later recognizes we have a fiat currency and can therefore soundly create whatever finance is needed to bring idle resources online. They see the reification of finance as an artificial weight to true prosperity.
Krugman completely ignores this chasm of views and positions himself firmly with the deficit scolds, proclaiming with them that collective action must be accompanied by rising debt. Krugman and the scolds are a family and differ only on the perceived relative merits of current spending versus future debt. In the truest of senses they are both “bad”.
It’s a frustrating feature of Krugman that he always seems to want to have it both ways – he seeks to be the “conscience of a liberal” while simultaneously remaining an orthodox neo-classical professor of economics. He often states the obvious but can never draw the “good” conclusions from it. In this article, he correctly notes that “debt doesn’t directly make our nation poorer; it’s essentially money we owe to ourselves.” It’s a wash in other words, a transfer from one group to another. It all nets out. Why then, damn it, don’t we just be done with it and print the money? We have the unused resources; why not just put them to work without all the fuss of borrowing from ourselves?
He also offers us this serving of economic junk: “Deficits would indirectly be making us poorer if they were either leading to big trade deficits, increasing our overseas borrowing, or crowding out investment, reducing future productive capacity.” But trade deficits and overseas borrowing are exactly the same story we’ve been talking about, only taken to the next higher level. Trade deficits and international debt don’t hurt “us” if “us” is considered to be global society. What is needed, simply, is a global monetary system which recognizes this truth and replaces the artificial financial impediments that enforce needless restrictions on prosperity. And to claim that public investment would make us poorer if it crowded out private investment is nothing but a value judgment having little or no empirical support. One could just as easily claim the opposite.
Paul Krugman in this “story” plays the part of a hypocrite, a charlatan. He does great harm by hiding the real storyline from a public who trusts him as having their interest at heart. He’s studied the economy all his adult life. He’s an expert, a Nobel Laureate. There can be no excuses here, he should be held to account.