The New York Times presents us today with some friendly coverage of a recent paper written by Daron Acemoglu, economist at MIT, James Robinson of the Harvard Department of Government, and Thierry Vierdier, economist at the Paris School of Economics. The paper, “Can’t we all be Scandinavians?”, is one of the more outlandish propaganda pieces I’ve seen of late, and the fact that such nonsense can be produced in such prestigious universities and further broadcast to the wider world via the “paper of record”, is just one more reminder of the great institutional power of neoliberal capitalism.
The essential argument is that global technological progress requires at least one country, currently the United States, have a “cutthroat” socio-economic system of very lucrative rewards for entrepreneurs coupled with high poverty, inequality, and few social benefits for the average worker.
Without pointing to any developed theory of human motivation or the actual history of inventions and discoveries, the authors grandly assert that technological innovations require a “cutthroat reward structure with high-powered incentives for success” which “implies greater inequality and greater poverty (and a weaker safety net)”. In short, progress can only be achieved through greed.
It’s the “cutthroat American society that makes possible the more cuddly Scandinavian societies”. The richer developed world is living off of the “technology frontier” enabled and advanced through the cutthroat reward system of the Americans. Those with more equal societies are parasites who “free-ride on this frontier economy and choose a more egalitarian, cuddly, reward structure”.
We can’t all be Scandinavians they conclude because the world’s growth rate would decline without at least one country structured around cutthroat incentives. “(O)ne may claim (with all the usual caveats of course) that the more harmonious and egalitarian Scandinavian societies are made possible because they are able to benefit from and free ride on the knowledge externalities created by the cutthroat American equilibrium.”
Progress and prosperity require poverty and inequality. This has been the elite religion since the very beginnings of human civilization; there’s absolutely nothing original here. What’s a bit more recent though, is the couple hundred year history of trying to couple the defense of aristocracy with the allure and prestige of science. The authors, with the weighty institutional credentials of MIT, Harvard, and the Paris School of Economics, and with an absurd use of advanced mathematics, outlandishly expect the public to accept their piece of silly, simplistic propaganda as a hard scientific theory. In a just world, they’d receive a prompt cutthroat firing for writing such trash.
The oligarchy surely has no better friend than Paul Krugman, today’s intellectual leader of an ever so slightly moderated version of neo-liberalism that’s neatly packaged to the public as the “Keynesian left” alternative. Forget that there’s no resemblance to the views of the real John Maynard Keynes, himself no radical, or that the sole claim of expertise is rooted in an utterly disgraced profession, Krugman has nevertheless been anointed the critical role of sowing hope for alternatives while remaining firmly bounded within a socio-economic system in which there can be none. Ignoring the rhetoric, we find nothing truly antagonistic to Thatcher’s TINA.
This is the disgrace and hypocrisy of the so called “center-left”, an outrageously false designation given how very far it is from any reasonable notion of that true moral center we find rooted in almost all philosophical and religious traditions. We need look no further than the recent speeches of Pope Francis, who has offered views on our socio-economic system that are truly central in the moral sense and, needless to say, far to the left of today’s so-called “Keynesian center-leftists”,
Let’s look at Krugman today in a post entitled “Europe’s Keynesian Problem”. “Everyone with a bit of sense”, he informs us, knows the central problem in Europe. It has nothing to do with extreme inequality or the fact that just a handful of oligopolistic firms and banks control virtually the entire economic structure; no, it’s a far simpler case of accounting valuations. “(T)here was a sharp rise in relative costs and prices in the periphery during the boom years, and the process of correcting that overvaluation through “internal devaluation” is extremely difficult and painful.” The Krugmanian / “Keynesian” solution is for nothing beyond continued austerity in the “periphery” albeit not as extreme as today. Direct action to advance prosperity is simply not in the cards. “(N)obody is suggesting stimulus for, say, Portugal”, he asserts, bearing his neo-liberal teeth. Portugal has an unemployment rate of 17.5%, and an average wage half that of Germany coupled with longer work hours; yet while the so called “private sector” can’t come close to providing anywhere near the living standards our productive capacity clearly permits, Krugman cannot bring himself to support “stimulus”.
And what of the term “peripheral”, used here and throughout the neo-liberal world as if it were a basic, morally unobjectionable feature of nature? Should not any system of thought which accepts the notion that a group of people can be “peripheral”, i.e. not central, be branded as sitting on the extreme outer periphery of any true moral center?
Krugman then regurgitates a 21st century version of “trickle down”: “on any kind of rational pan-European basis, we should be seeing austerity in the periphery at least partly offset by stimulus in the core.” This is Krugman’s central dogma for Europe: austerity for the periphery, although less than today, coupled with inflationary spending in Germany. German spending will then trickle down to the peripheral Portuguese through the magic of the market. Yes, and we see the same market magic trickling between the United States and Mexico, do we not? The answer to the problems of the Mexicans then should be little more than a bit of stimulus in America! I wrote a post the other day on Krugman and Mexico, in fact, and his views are rooted in the same pitiful neo-liberalism as his ideas for Europe. Mexico, to Krugman, merely needs better child nutrition and education and should then wait a few decades for the medicine to work. TINA personified!
Our center-left intellectuals, almost all “economists”, are truly a disgrace. And it’s demonstrated almost daily. We need look no further today than Brad DeLong, who Krugman refers to in his post. It’s the standard left neo-liberalism that requires no further comment. What’s notable is that DeLong admits (correctly) of his own intellectual impotence, concluding that the disgraced right wing economist Kenneth Rogoff “is one of those people whose judgment is significantly more likely than not to be better than my own.”
It’s all one big joke, right?
Few orthodoxies are more harmful, I think, than the very old Ricardian principle enforcing a trade balance. The essential idea is that the market mechanism will automatically bring trade between countries into balance through the appreciation of the currency of the surplus nation and a corresponding depreciation of the deficit one. The ability to import or export will then be “naturally” checked, leaving the two nations in a roughly balanced position which for some odd reason is considered inherently good.
But why, in a world of specialized mass production, is balanced trade considered desirable? A great many people in poorer nations remain stuck in substandard living conditions because of the inability to import advanced goods while, at the very same time, the very workers producing them in the more technologically advanced countries suffer from high un/under employment. The prime mission, in fact, of governments and businesses throughout the world is to increase exports, yet we have an army of accountants enforcing the harshest of penalties on nations whose imports happen to be higher than their exports.
Paul Krugman, like all mainstream economists, kneels in reverence to this warped accounting logic and we see it today in his support for the idea that wages in Portugal are too high versus Germany and that the way out of the crisis for the European “peripheral” countries is through the devaluation of their wages against Germany via a wage boost in Germany. The goal is to reduce the ability of Portugal and the “peripherals” to import from both Germany and the rest of the world by reducing their relative wages and through a likely decline in the value of the euro versus the dollar and other currencies as German wages rise. But wait! Portugal is already a poor society having an average wage less than half that of the Germans coupled with much longer working hours. Krugman’s orthodoxy will only worsen living standards by forcing an increase in the cost of imports and a reorientation of the economy toward exports. This, despite the fact that the entire German economy is centered around mass production for export, the German worker is highly efficient at it, and he/she wishes nothing more than to maintain his/her employment doing precisely that.
One obvious objection would be that it’s unfair and unreasonable to expect the Germans to forever export to deficit countries without getting something in return. But that logic doesn’t apply to the average German worker who would be unemployed without the exports. We must remember it’s not the German worker who’s exporting; it’s the German based multinational firm. And if a re-alignment of the entire economy away from exports is actually desired, then why not bring in workers from the importing countries or outsource there to cover the difference? Regardless, what strange logic indeed that we should seek to cut German production and enforce substandard conditions on “peripheral” nations against the wishes of the German worker, all for the sake of maintaining an accounting balance.
The short term moral solution is to develop an international currency that would permit unrestricted imports with the goal being to guarantee expanded sustainable prosperity for all. How value-less and fundamentally immoral it is to proclaim that a poor country’s living standards are too high and a rich country’s too low! As with so much of the capitalist system, it’s way past time we move past the hugely harmful finance-based notions of balance.
The European Union’s statistical agency reported yesterday that the eurozone continues in “recession” for the sixth consecutive quarter and it’s top news throughout the mainstream and business press. That so many on the continent live increasingly insecure lives and that the officially measured unemployment rate has reached a stratospheric 12.1% is, of course, horrible news. But what importance should the average person place on the fact of “recession”? I think absolutely none, for the word has become an Orwellian term that serves to shift our focus away from reality and toward “solutions” that are in fact the problem. War is Peace, Freedom is Slavery, Ignorance is Strength, and now, Growth is Austerity and Competition.
“Recession”, in official use, means that the total monetary value of goods and services sold in a period has declined. It tells us nothing about what types of goods and services these may have been or what group or class may have suffered as a result. But this is critical information we need to know in order to judge the significance of “recession”. What’s important to the vast majority is the widespread availability of such critical goods and services as housing, healthcare, quality food, decent clothes, leisure time for friends and family, clean environment, security, retirement, and so on. The only important meaning of “recession”, one would think, would be a decline in the availability of these truly important things. And it’s perfectly reasonable to think that, with our amazing level of productive capacity, we should have long ago conquered “recessions” so defined.
The sad and incredible fact of the matter, though, is that we have lived in a recession of the important kind for quite some time. Real wages have been down throughout Europe and the “developed” world for decades now, as has been the various collective benefits of education, retirement, health care, income security, and so on. We find everywhere that worker shares of what’s produced are at record lows.
The full power of the orthodox meaning of “recession” is exposed when we hear the orthodox solutions. The straightforward honest solution would logically be to simply devote more resources and technology toward the things we want. But not so in our Orwellian universe – we find in fact the exact opposite! The solution to the problem of reduced living standards is to reduce them even more! The solution to recession is recession.
The story that’s told in support of this fantastical idea is necessarily nonsensical for the goal is the maintenance of power, not the improvement of general living standards. The central character in the tale is “competition”, an interesting fiction given our world of oligopoly. Competition doesn’t apply to oligopolistic firms though; it applies solely to workers and nations and requires of them an unending downward spiral in wages and collective welfare. It’s the very nature of the capitalist system and, as European Commission head Barroso told French President Hollande yesterday, “To be against globalization is like spitting in the wind”. Now spitting in the wind is never a very wise idea, but isn’t it an incredible feature of our world that the wind always seems to blow towards the general population? And that supposedly democratically elected leaders are so ready, willing, and able to spit on them?
So the downward spiral of true recession continues with no end in sight. Hollande, not one to spit in the wind, continues on the recessionary path with no helpful ideas in sight, proposing just today to increase the retirement age. “People live longer, they should work longer”, he says. While this may on its surface seem reasonable, it neglects our vast growth in productivity and technology, the reality of huge numbers of unemployed people both in France and globally that could be brought online, and the huge misallocation of resources towards purposes having no bearing on general well being. We see this very well reflected in OECD statistics. While life expectancy in France has risen 6.2% since 1990, labor productivity has climbed 35.9%, offset by a 10.2% decline in average hours worked. These improvements in overall productive output, though, aren’t being shared as median household income growth has been just 52.9% of per capita GDP growth during this period. To even suggest that living standards should decline in the face of these facts is truly outrageous.
The world’s population has been in a real recession for decades and the mainstream economists and politicians tell us the answer to recession is nothing but more recession. The real solution, however, is quite straightforward; we simply need to assure that sufficient resources for the quality things we want are always employed. A recession in luxury yachts, mansions, or military spending is fully acceptable, even desirable. But a recession in general prosperity is not. By getting specific about the meaning of recession, we can more easily differentiate between real and phony solutions and begin to see the gaping chasm that exists between capitalism and true prosperity.
Wall Street financier and former Clinton Treasury official Roger Altman steps forth today to yet again inform us that we’re ruled by the bond market and not democratically elected leaders. Few with a reasonably sound grasp of events would disagree with his assessment, but it’s always grating hearing it from one who so clearly glories in it all. He penned a similar article a year and a half ago in which he praisingly identified the “markets” as the second most powerful force on earth behind nuclear weapons. I was motivated then to write a post comparing this adulation of power to that of Wagner’s gods as they entered Valhalla in Das Rheingold.
In the current article, he now tells us quite rightly that “It was not Angela Merkel, chancellor of Germany, or other political leaders who pushed austerity on to Italy, Spain, Greece and others”, “it was private lenders”. “Markets triggered the Eurozone crisis, not politicians” and “21st century markets are much more powerful than any government leader”.
The terms he uses here, “private lenders” and especially “markets” need to be quickly branded as mere euphemisms, though, for the harsh underlying reality that hovers over us. National governments are mere small town functionaries compared to this larger force; real power isn’t in their hands, and it’s not in the hands of a neutered faceless invisible creature of implied fairness called “markets”. True power rests with an extraordinarily tiny gang having immense power assembled through their tight grip on corporate ownership, wealth, and banking. In short, they rule by the concentrated ownership of money. The traditional term for this form of rule, going all the way back to Aristotle, is oligarchy.
Altman is telling us nothing less than that we don’t have agency over our lives, that we don’t live in democracies, and that we live instead under the tyrannical rule of an oligarchy, albeit he understandably prefers the term “markets”. It’s not necessarily too smart for the oligarchs and assorted mercenaries to emphasize this hard political fact as it risks waking up a confused and dozing population who still tend to see their real rulers as elected through some type of however imperfect democratic process.
Altman’s a bit too confident for his own good it seems; he’s dazzled by the radiance of his gods, and assumes way too easily that the “political” can forever be safely segregated from material well being, i.e. the “economic” and that “markets” will always be identified with the fairness of, say, the local farmer’s market. He tells us that “History is not likely to view these austerity trends in political or moral terms. Rather, the context will probably be a financial one”. As if overruling popularly elected governments and forcing hundreds of millions into destitution isn’t the very purest example of what politics and morality actually are; and as if “finance” somehow exists in some strange dimension of the universe completely disconnected from politics and morality.
The immoral, fully political system for which Altman speaks is a brutal tyranny that will begin its final collapse when majorities start realizing its true nature; when they stop blaming the Merkels of the world and see the oligarchy for what it truly is. We should thank Altman for aiding in this great educational process.
Poor Mexico, so far from God and so close to the United States! Or to paraphrase this well known quote: So far from social justice and so dominated by neoliberalism. Either way, the fundamental cause of the misery, poverty, and insecurity in Mexico should seem clear to even the most casual observer – it’s not a lack of natural resources or the ability of the nation to provide for itself agriculturally, Mexico is fundamentally rich; the core problem, plain and simple, is inequality.
Mexico is one of the most unequal nations on earth, second only to Chile in all of Latin America. The OECD reports that the top 10% grab a massive 36% of total income while the bottom 10% somehow subsist on but 1.3%. The wealthiest tycoon on the planet, Carlos Slim, is Mexican and his estimated net worth is $78,000,000,000, 16.6 million times the median household income of $4,689. The Mexican agency CONEVAL reports that 46.2% of the population is poor, and an additional 34.7% is vulnerable due to either social deprivation or low income. Only one in five Mexicans, they show, has enough income to satisfy basic needs and live without social deprivation.
The elites of this feudal system have no modesty in the degree of their parasitic extractions and the Bank of Mexico plays its part by maintaining an extraordinarily high rate of interest for a nation on a fiat currency. The current short term riskless benchmark rate is a whopping 4%, a transfer of purchasing power to the most powerful of $40,000 per million of wealth, 8.5 times the median income.
While unreported in the American press, I noted today that our very own Paul Krugman visited Mexico the other day and delivered an address to the annual convention of the Aseguradores (insurers) de México in Mexico City. He was one of the three headline speakers, along with, get this, Spain’s former right wing president José Maria Aznar and Rudolph Giuliani.
So, what did the world’s premier conscience of a liberal tell this illustrious, socially undeprived audience about their country?
Well, here’s a few excerpts on Krugman’s presentation via the Mexican paper La Jornada (translated from Spanish here and here). No hint of the inequality problem for this well heeled audience, everything’s essentially ok in fact, let’s wait a few decades and see if better education and a bit of child nutrition bear fruit.
Mexico seems to be a happy story in the context of the international economic crisis. Everything functions very well except the rate of growth, which doesn’t correspond to the policies adopted, suggested Paul Krugman, winner of the 2008 Nobel Prize in Economic Sciences.
Krugman indicated that “there is constant growth, but there is something that doesn’t click” and suggested as an hypothesis that although Mexcio has improved its social policies in support of the most poor, there are tasks, like the quality of basic education and child nutrition, that will take time to bear fruit.
“We don’t understand at what mysterious point in time that Mexico lost its capacity to grow at a faster rate while other countries, equally unregulated, were able to increase their growth in a sustainable way”, he said.
He recommended to have patience in order to permit the changes in the system of basic education to begin to show results, after emphasizing that investments in human capital tend to take 15 or 20 years to impact growth rates.
“I feel optimistic over the long term for Mexico. There are those who think it will be around 2030 when higher rates of growth will arrive and that seems about right”, he said.
What vacuous nonsense! Adam Smith hit the nail on the head on these types of feudal societies back in the 18th century:
Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.
Comparing Krugman’s words to this icon of the right is quite a depressing exercise. But such is the state of 21st century “Keynesianism”.
Obama health care advisor Ezekiel Emanuel’s article today in the Wall Street Journal is an excellent example of how the discourse of finance so easily trumps the real world. Fearing that health insurance premiums will be too high if not enough healthy young people sign up for Obamacare, he calls for a marketing campaign to get the youngsters to sign up and pay up.
While I suppose this could make sense in the warped regime of finance, it’s quite twisted in the realm of the real. Real health care resources, after all, are available and they’re standing by eager to provide their services. In fact, the Journal had an article the other day showing there’s actually an oversupply of nurses. So, given this availability in the real world, why do we need to worry about finance? Why do we need to take money away from the average person in order to have a health care industry?
We need to look at this within the broader context of a thoroughly abused population that’s seen its median income as a share of total national income drop an incredible 40% since the 1970’s. This is robbery, pure and simple; and it’s become a stable fixture of our world given the neoliberal dynamics of ever intensified global labor competition and ever advancing labor saving technologies. Few things in life are more certain: left to themselves, incomes and general living standards will continue to decline. Unions helped retard the power dynamics inherent in capitalism during the first seven decades of the 20th century but they’re now gone. Collective democratic action is the only remaining recourse.
I think the most effective immediate means to improve general prosperity is to fund via direct monetary creation those programs that benefit everyone. This would include health care, retirement, and other public services. Providing these for free would be far more effective at achieving a just society than the assorted road, airport, and infrastructure projects funded by debt that are so adored by the center-left but would do little for median incomes. Not that we shouldn’t also do some of those projects as well, but I think we need to first begin to correct the robbery of living standards that’s occurred for decades now.
It’s highly doubtful that direct monetary creation would be inflationary given humanity’s enormous productive capacity. Perhaps some of the oligopolistic firms would seek to increase their profit margins in the face of higher purchasing power, but the straightforward solution is price regulation, the obvious requirement for any monopoly-like industry.
Finance isn’t the solution, it’s the problem and basic programs that serve everyone shouldn’t be financed. They shouldn’t be because, in a world of vast productivity, they don’t have a cost. Only in the strange world of orthodox finance is a cost created, as if by magic. The global problem is a lack of employment and purchasing power and not remotely one of real costs needing financing.
The average person won’t see an improvement until the entire foundation of orthodox finance collapses.
Krugman tells us today that “One dead giveaway that someone pretending to be an authority on economics is in fact faking it is misuse of the famous Keynes line about the long run”. He often likes to use this particular quote but I wonder if it’s perhaps the only one he’s ever read of Keynes given that so much of his economics violates the spirit and very words of Keynes. He then goes on to provide an excellent example of this Keynesian fakery by asserting that we must recognize “that the boom, not the slump, is the time for austerity”. What!? Just a cursory look at the entire history of capitalism’s unending boom / bust cycles should dispel the myth that there’s ever an appropriate time for austerity. Keynes saw this very clearly and the very idea of instituting austerity in boom times violates many of Keynes’s famous lines as we can see:
Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.
Furthermore, even if we were to suppose that contemporary booms are apt to be associated with a momentary condition of full investment or over-investment in the strict sense, it would still be absurd to regard a higher rate of interest as the appropriate remedy. For in this event the case of those who attribute the disease to under-consumption would be wholly established. The remedy would lie in various measures designed to increase the propensity to consume by the redistribution of incomes or otherwise; so that a given level of employment would require a smaller volume of current investment to support it.
I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.
Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.
See any Krugman in these words? Of course not. While we can agree with some of his moral points regarding social policy, we must recognize they aren’t grounded in anything like a sane or progressive view of economics. I don’t think it’s possible to have a socially useful economic theory that’s to the right of Keynes.
I liked yesterday’s post along these lines, by the way, by economist Matias Vernengo on his blog Naked Keynesianism.
Paul Krugman rather disingenuously tells us the other day that “there won’t and can’t be any current-events test of MMT until we get out of the slump, because standard IS-LM and MMT are indistinguishable when you’re in a liquidity trap”. This theorem of untestability is a pretty broad claim by the professor, one that not only lacks imagination but also fails to stand up to the light of the real world.
It’s true that both positions call for increased deficit spending to counter today’s misery, but there’s a fundamental difference: Krugman’s generic center-left school claims the spending must be accompanied by higher public debt while the “Modern Monetary Theory types”, in contrast, see no reason to necessarily link the two. Krugman does sometimes subtly hint that direct monetary creation may be ok, but he never comes close to proclaiming it in a straightforward and obvious way. In the public mind, the center-left platform is quite clear: spending should be increased today but, critically, it should be accompanied by a rise in public debt. This should actually be seen as a quite shocking, even radical, proposition: even though there is massive un/under employment and no identifiable real cost to bringing people into the economy, society must still pay a cost to the “financial markets” in the form of higher indebtedness.
Linking public spending at a time of unemployment to expanded public indebtedness is so embedded in our collective common sense that we’ve become unable to see how absurd it truly is. Suppose Krugman asserted there couldn’t be a “current-events test” between his theory that, say, linked public spending with the sacrifice of a family’s first born son to another that allowed for spending but without the sacrifice. The “current-events test” would then be quite easy would it not? The public would simply not support the former, while it would be expected to support the later.
And that’s the way it is in our real world where the public’s sacrificial offering is rising debt. We find a public that’s confused and powerless. Debt has such hugely negative connotations that no politician can realistically support it for very long. The center-right will be condemned and kicked out of office for failing to provide prosperity, only to be replaced by the center-left which will do about the same, only to be then kicked out in turn and replaced by the center-right, ad infinitum. All populations support public spending, we know this from polls and from common sense; the issue is debt. A perfectly reasonable “current-events test” clearly shows that Krugman’s proposition is completely nonviable and won’t ever be tried; while the MMT position would be highly popular if presented as an option.
Financial Times writer Tony Barber gives us a few independent words on this general subject today. Speaking of Europe, but the same applies everywhere, Barber notes that “a collective howl of protest and despair” is on the streets this May Day and “for the first time in generations, parents fear the future living standards of their children will be lower than their own.” Clearly there’s massive support for a public spending solution, but he rightly observes there’s little action from the center-left parties who “no longer appear capable of fulfilling their historical mission as protectors of jobs, welfare and social cohesion.” It’s an endless circle: “the shortcomings of centre-right governments guarantees that the centre-left will one day return to power” but the center-left’s “fatal” problem is that it presents itself as “an engine of high public expenditure”, violating the central tenant that “responsible nations keep public debts and budget deficits under control”. “Winning a reputation for sound management of the public finances”, Barber correctly tells us, “is essential for the left’s long-term success”.
This is the on the ground reality, the “current-events test” – spending will not occur if it’s to be tied with rising debt. Ignoring this, Krugman marches forever onward as the proud leader of a school of thought that can’t possibly garner widespread support. The real world gives us exactly the “current-events test” we need, and nothing can be clearer – Krugman’s position is politically and morally bankrupt. The link between spending and debt must be severed.
There’s a great deal of jubilation among center-left economists these days ever since the demolishing of the Reinhart – Rogoff proposition that horrible things happen when public debt exceeds 90% of GDP. And, of course, I’m quite pleased whenever a hack for oligarchy is cut down to proper size.
But the conclusion being drawn – that yes, we can now expand our debt to well over 90% and we have no reason to fear it – is completely off kilter and assuredly destined to fail as long as we remain stuck in the current paradigm. Reinhart – Rogoff were wrong on the details but they’re living comfortably in the orthodoxy that permeates our world.
Those of us who aren’t wedded to the individualist liberal / neoliberal cannons of orthodoxy take comfort in the insights of Abba Lerner, the MMT economists, and simple common sense that there truly can’t be such a thing as public debt, in the way we normally understand debt, in a fiat currency regime. But we need to remember this is true only in a universe in which a collectivist paradigm rules. In the actual paradigm that’s existed since the beginnings of the industrial age through to today, though, public debt is quite definitely debt and has a positive interest cost attached to it. And its level is clearly a cause for concern because it will require future interest transfers between the average citizen and wealthy bond holders. Interest rates are low today, but let’s not forget that our central bankers are firmly cemented into orthodoxy and are chomping at the bit to raise rates as soon as conditions allow. Deep down, they’re all German, and all this money printing will stop dead in its tracks as soon as things look less dire.
Only in a collectivist paradigm are we assuredly correct that debt fears are nonsense. The main center-leftists, though, are falsely assuring us that we can comfortably fit collectivist ideas into the orthodox paradigm. It’s completely irrational to claim debt shouldn’t be feared in our current state, and it’s highly unlikely any majority would ever support them. It fails on the merits and it fails on the politics. And we see it demonstrated today.
Without a much wider critique, completely absent from our mainstream center-leftists, there’s a very high risk we’ll have another eventual repudiation of Keynesianism on the same scale as in the 1970’s, and Reinhart – Rogoff and the forces of conservatism will emerge fully renewed and proudly victorious.