This follows on from his NYT weekly column last week, which quoted extensively from Michal Kalecki. As Krugman wrote then:Yeah, that falls in with the uncertainty canard. It is amazing how "uncertain" big business assholes get when a Democrat is elected. These are the same geniuses who thought things were going great in August of 2008. Back in 1932, Hoover claimed that the economy was tanking because the market feared Roosevelt getting elected. Likewise, people made the same claim in September of 2008. I guess that is appropriate, as Republicans think the policies of the twenties, or even the 1890s are where we should be today.
First, however, I want to recommend a very old essay that explains a great deal about the times we live in.Essentially Krugman’s (and indeed Kalecki’s) point is this – we have the macroeconomic tools to restart a robust recovery and get unemployment down but these tools are not being used for political reasons.
The Polish economist Michal Kalecki published “Political Aspects of Full Employment” 70 years ago. Keynesian ideas were riding high; a “solid majority” of economists believed that full employment could be secured by government spending. Yet Kalecki predicted that such spending would, nonetheless, face fierce opposition from business and the wealthy, even in times of depression. Why?
The answer, he suggested, was the role of “confidence” as a tool of intimidation. If the government can’t boost employment directly, it must promote private spending instead — and anything that might hurt the privileged, such as higher tax rates or financial regulation, can be denounced as job-killing because it undermines confidence, and hence investment. But if the government can create jobs, confidence becomes less important — and vested interests lose their veto power.
Kalecki argued that “captains of industry” understand this point, and that they oppose job-creating policies precisely because such policies would undermine their political influence. “Hence budget deficits necessary to carry out government intervention must be regarded as perilous.”
When I first read this essay, I thought it was over the top. Kalecki was, after all, a declared Marxist (although I don’t see much of Marx in his writings). But, if you haven’t been radicalized by recent events, you haven’t been paying attention; and policy discourse since 2008 has run exactly along the lines Kalecki predicted.
On another bit of economic argument, Robert Reich makes some great points:
We’ve also lost most living memory of an era in which we were all in it together — the Great Depression and World War II — when we succeeded or failed together. In those years we were palpably dependent on one another, and understood how much we owed each other as members of the same society.That, at its heart, is the explanation of what is wrong with our economy.
But I think the deeper explanation for what has happened has economic roots. From the end of World War II through the late 1970s, the economy doubled in size — as did almost everyone’s income. Almost all Americans grew together. In fact, those in the bottom fifth of the income ladder saw their incomes more than double. Americans experienced upward mobility on a grand scale.
Yet for the last three and a half decades, the middle class has been losing ground. The median wage of male workers is now lower than it was in 1980, adjusted for inflation.
In addition, all the mechanisms we’ve used over the last three decades to minimize the effects of this descent — young mothers streaming into paid work in the late 1970s and 1980s, everyone working longer hours in the 1990s, and then borrowing against the rising values of our homes — are now exhausted. And wages are still dropping — the median is now 4 percent below what it was at the start of the so-called recovery.
Meanwhile, income, wealth, and power have become more concentrated at the top than they’ve been in ninety years.