Wednesday, August 26, 2009

Paul Krugman the Zombie

I don't really like Paul Krugman. He's pretty much the opposite of me. But an old friend seems to think he is great, so when I saw an article of his in a newspaper sitting on a lunchroom table, I took a moment to read it through. I came back home and found it online. Thought I'd break it down a bit, line by line:
The debate over the “public option” in health care has been dismaying in many ways. Perhaps the most depressing aspect for progressives, however, has been the extent to which opponents of greater choice in health care have gained traction — in Congress, if not with the broader public — simply by repeating, over and over again, that the public option would be, horrors, a government program.
I'm not going to get too much into this, as I know few of the details of Obama's "plan," except to note the way the "healthcare program" is couched in the term "greater public choice." Let's be honest: choice is not what this is all about. We are not simply adding one more choice to the pool. "Conservatives" and libertarians are not hypocrites for opposing choices when they are the product of government coercion.

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good.

Call me naïve, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.

Let’s talk for a moment about why the age of Reagan should be over.
Really? Washington ruled by an ideology that says government intervention is always bad? Politicians that abhor meddling in our lives? Either Krugman must be living on another planet, or I must. Is he talking about some other Washington? I don't know that Reaganism succeeded or failed; one thing I do know is that the 20th century has been dominated by an erosion of free-markets and the consolidation of power in central banks and national governments. 20th century America is far less free than 19th century America, economically speaking, and it is getting Progressively worse, so to attribute the supposed failure of our markets to supposed deregulation, free-marketeering and the like as supposedly endorsed by Reagan is a bit preposterous. Said another way: how is the failure of an unfree market evidence that Reagan was wrong? But in a sense, some of what he says is true: classical liberalism is a zombie philosophy. It is long dead, but people like Krugman like to pretend it is still alive so that they can blame it for every observable evil.

First of all, even before the current crisis Reaganomics had failed to deliver what it promised. Remember how lower taxes on high incomes and deregulation that unleashed the “magic of the marketplace” were supposed to lead to dramatically better outcomes for everyone? Well, it didn’t happen.

To be sure, the wealthy benefited enormously: the real incomes of the top .01 percent of Americans rose sevenfold between 1980 and 2007. But the real income of the median family rose only 22 percent, less than a third its growth over the previous 27 years.

Moreover, most of whatever gains ordinary Americans achieved came during the Clinton years. President George W. Bush, who had the distinction of being the first Reaganite president to also have a fully Republican Congress, also had the distinction of presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains.
There is also a little bit of truth to this as well. Wealthy families did find that their wealth increased more so than their middle-class counterparts, but this probably has far less to do with tax cutting and deregulation than with monetary inflation and the trade cycle. Reagan presided over the "tough" interest rate policies of Paul Volcker, which put a temporary dent in the price inflation of the 70's and set off the beginning of a new round of the trade cycle. He was followed by Alan Greenspan, an inflater of the first order. Early in the cycle, capital goods naturally saw their prices appreciate, and as the wealthy tend to have a greater fraction of their wealth tied up in capital goods, like financial assets, they saw their assets appreciate more than families which had most of their assets tied up in consumer goods or lower-order capital goods like houses and cars. Their salaries also likely appreciated faster as well, as they would most likely occupy positions higher up in the division of labor. Therefore, their labor represented a higher-order capital good than their middle-class counterparts, and the price of their labor increased at a correspondingly higher rate. Further, a great many of the so-called free-market policies of late have focused on countering the consequences which appear later in the trade cycle, particularly with masking price inflation. Price inflation generally begins to appear when full employment is approached, as this causes increasing wage competition among employers, so naturally, any force which works to increase the supply of labor will delay the onset of this effect. For example, pushing more women into the workforce and encouraging immigration would help to keep wages down and extend the cycle. Doctoring economic statistics also helps to mask the effect. So does monetary tightening just at the point that labor manages to acquire negotiating clout. We can also easily see how the effect has reversed over the previous twelve months, as capital asset prices have collapsed. The rich benefited most in the run up, and they are now taking the biggest hit in the collapse. But I don't hear Krugman crying for them now. Hoover may have been a Republican, but he was not a free-marketeer, and neither was Bush. Economically speaking, they probably belong in the same category, but this category would also be occupied by none other than Krugman himself: emotionally driven, squishy-leftist socialists. And Krugman can place the lion share of the blame for his income inequalities on the squishy-leftist socialist FED. Shall we hear his clarion call for its abolition soon? I doubt it.

And then there’s the small matter of the worst recession since the 1930s.

There’s a lot to be said about the financial disaster of the last two years, but the short version is simple: politicians in the thrall of Reaganite ideology dismantled the New Deal regulations that had prevented banking crises for half a century, believing that financial markets could take care of themselves. The effect was to make the financial system vulnerable to a 1930s-style crisis — and the crisis came.

“We have always known that heedless self-interest was bad morals,” said Franklin Delano Roosevelt in 1937. “We know now that it is bad economics.” And last year we learned that lesson all over again.

Or did we? The astonishing thing about the current political scene is the extent to which nothing has changed.
Where to begin? The biggest thing the crisis of the 30's had in common with the crisis of the 2000's is the FED. Note too: the roaring 20's and the roaring 90's. It's not a coincidence, and it is a far better explanation than market deregulation. After all, where were the regulations in the 19th century? Or the economic crises? Or the world wars, death and destruction? Ah yes! All that took the advent of central banking and leftist political ideology. Heedless self-interest is bad morals, but it doesn't hold a candle to government coercion and the fraud of central banking, fractional reserve accounting, and fiat money systems. It also doesn't describe the ethics of the free market. But he is right: nothing has changed, and nobody has learned the proper lesson, least of all Paul Krugman.
The debate over the public option has, as I said, been depressing in its inanity. Opponents of the option — not just Republicans, but Democrats like Senator Kent Conrad and Senator Ben Nelson — have offered no coherent arguments against it. Mr. Nelson has warned ominously that if the option were available, Americans would choose it over private insurance — which he treats as a self-evidently bad thing, rather than as what should happen if the government plan was, in fact, better than what private insurers offer.
This is flat-out disingenuous. Krugman has a Nobel Prize in economics. He knows full well that the government plan will have the benefit of every insidious coercive power available to the US government, including taxation, inflation, and subsidy, which will be the source of any "edge" it has over private insurers. Of course people would choose it over private insurance; they don't have to pay full price for what they get by shafting others unfairly! And if they are not the ones doing they shafting, they are the ones being shafted! That's hardly a definition of "better" that most people would be comfortable with. He also surely knows full well that Nelson's argument, however poorly worded, is a reflection of the governments ability to use coercion to bully out competitors, which it most certainly has in the past and most certainly will do again. How can you possibly compete with an entity that is fully capable of operating at a loss indefinitely? The fact that Krugman so casually describes this phenomenon with such a dishonest phraseology is, frankly, scary. If he wants to talk about it plainly for what it is, fine. There is an argument to be made that nationalized healthcare would be better than the horrible mess we have now. If the populace simply cannot politically conscien a free-market in medicine, the opposite may actually be practically preferable to a dysfunctional hodgepodge compromise. But Krugman's line of "argument" here is disgusting.
But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse, a collapse that was averted only with huge infusions of taxpayer funds.
This is such a complete load of garbage that it is not worth addressing. Barney Frank and the Democrats control every lever of power at the national level. If any group were ever positioned better to reinstall New Deal regulations, or more likely to be drooling over the possibility of having their way with the financial systems, I can't imagine it. If it doesn't happen...well, so much for blaming those awful conservative Republicans.

So why won’t these zombie ideas die?

Part of the answer is that there’s a lot of money behind them. “It is difficult to get a man to understand something,” said Upton Sinclair, “when his salary” — or, I would add, his campaign contributions — “depend upon his not understanding it.” In particular, vast amounts of insurance industry money have been flowing to obstructionist Democrats like Mr. Nelson and Senator Max Baucus, whose Gang of Six negotiations have been a crucial roadblock to legislation.

But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism. That’s ironic, in a way, since a large part of what made Reagan so effective, for better or for worse, was the fact that he sought to change America’s thinking as well as its tax code.

How will this all work out? I don’t know. But it’s hard to avoid the sense that a crucial opportunity is being missed, that we’re at what should be a turning point but are failing to make the turn.
There is a lot of money behind the present system -- mostly from entrenched, established, corporatist, leftist-fascist interests who would like nothing more than to continue milking the benefits they presently receive from our corrupt system. People who don't want a free-market, just one that's "free-enough." Obama has nothing in common with Reagan, and no doubt his praise was aimed at mollifying middle-of-the-roaders who feared voting for someone who was an outright socialist, which he no doubt is. But Krugman is right, a turning point has been reached -- a point of no return. It is all ending. America is going to be dethroned. The economy is deep-fried. Debt will do us in. The saddest part of it all is that it is not hard to understand. The important concepts of economics are really quite simple. Grown men should know better than to think they can create wealth by destroying capital and wasting resources. Even something so counter intuitive as the fallacy of neutral money can be grasped with only a little explanation and thought. But the lies and fallacies continue, even among Nobel laureates. It never ends. And as empires built on coercion and theft go, it certainly never ends well.

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