Paul Krugman is wrong; Obama DOES need to discuss Keynesian economics in his State of the Union address. Here’s why.
Paul Krugman is my hero. I credit him–him alone, really–with ending, finally, the Peterson Foundation’s capture of almost all of the mainstream news media as their PR outfit. Just as I credit Occupy Wall Street, also alone, with finally ending the decades-long political prohibition of class warfare by any group but the hedge fund/CEO crowd. Krugman, unlike other liberal economists, thanks to his New York Times column and blog, is not relegated by the news and political worlds to tree-falling-in-a-forest status. His writings penetrate the barriers–consciousness–that no other liberal economist can. And he has, single-handledly, removed from the big-name propogandists the freedom to sell their snake oil, unrebutted in any broadly-read forum, as news and fact-based commentary. Krugman bats down this stuff, daily.
The economic/fiscal right is similar to the conservative-legal-movement right, best as I can tell, in its perversion– its Orwellian redefinition–of common language terms and its out-of-the-blue proclamations of false fact. In law, it is words, phrases and concepts such as freedom, liberty, viewpoint coercion, matters of public concern, First Amendment rights to free speech and free association and to petition the government for a redress of grievances, that are now regularly removed from their ordinary meaning to strip or fabricate constitutional rights, depending upon which outcome advances what is at bottom the Reagan-era-right’s legislative agenda. There is, it is by now clear, no redefinition or fabrication of fact too shamelessly politically opportunistic, or too whiplash-inducing in light of their own recent aggressive rulings to the contrary, that four or five justices won’t adopt, and certainly no limit to the bald silliness that their legal-movement apparatus won’t offer with a straight face.
Freedom means imprisonment. Or, more precisely, it means being denied access to the federal habeas corpus process after conviction of felonies and sentenced to a long prison term, however rampant the violations of federal constitutional rights, as long as the conviction was in state court, because states, or more accurately, state judicial branches are sovereigns whose dignity must not be offended by the shackles of having to comply with the Constitution’s dictates and prohibitions. Yes, and work will make you free, as long as the work occurs inside a concentration camp, within a sovereign state. Or at least it will if you’re a public-sector employee in a unionized job and you are ideologically opposed to big government but not so strongly against it that you will quit your job and ask that your position not be filled upon your departure. Or if you’re a physician who accepts Medicare patients. But not if you’re a prosecutor whose discovered bald misconduct on the part of the part of the police in a prosecution, and your own office looks the other way and you complain, since the phrase “big government” does not include within its meaning police misconduct and therefore is not a matter of public concern.
I wish there were a Krugman-equivalent for legal issues. Without one, these folks dramatically rewrite the Constitution and federal statutes, with rare exceptions entirely off the public’s radar screen. But there’s not.
But I digress. I come not just to praise Paul Krugman but also to refute him. Well, actually to refute his argument today that it’s okay if Obama doesn’t address Keynesian economics in his State of the Union address next week, as long as he addresses, at length, issues of dramatically unequal income and wealth distribution and access to the means of economic mobility. Krugman recognizes, of course, the relationship between the two, but concludes, citing FDR’s inability to do so in 1937, that the former is almost impossible to accomplish while the latter is easy to do because the public is now very aware of the basic facts and, by large majorities, concerned about it.
Krugman’s purpose is largely to dispute the claim by some liberals that a focus on inequality distracts from an argument for a jobs-creation agenda–that is, an argument for a new economic-stimulus fiscal policy. He’s right that that is wrong; issues of inequality of income and wealth are anything but a distraction from the sluggish economy. And, separately, they’re of essential concern.
But a threshold to progress on either of these fronts is victory in this year’s congressional and state-government elections. And therefore, a refutation of the Republican “Obama economy” mantra.
Two weeks ago, in a post I titled “Yes, Speaker Boehner, But WHOSE Policies of the Present Are to Blame?”, I expressed my deep desire to see Obama use his State of the Union Address to point out the dramatic decline in government employment at every level of government–federal, state, local–throughout his presidency, and to show, using charts, how that differs from every economic downturn since the early 1930s. This is different than a Keynesian argument for economic stimulus. This is easy to explain–both the facts and the economic effects. If a teacher, firefighter or police officer is laid off, he or she and his or family is spending far less money in the community and the larger economy. And the layoff may mean the loss of the family’s home. Federal funds to states and localities has been dramatically reduced since the Tea Party gained control of Congress–a majority in the House, a veto-by-filibuster in the Senate. Compare that to, say, the recession in the early 2000s.
It’s their fiscal policy–and their economy. And by no means just because of a failure to enact further stimulus programs. The public needs to be told–and shown–this. I think it’s important not to conflate stimulus with dramatic reductions in spending. And, with all the respect that Krugman is due notwithstanding, I think that’s what he’s doing.
As for FDR, it seems to me likely that he reversed fiscal course in 1937 not because of public opinion poll results but instead because he, like the public, bought into deficit fears. But the experience of the 1930s’ double-dip depression, along with the current experience here and in Europe, is not that hard to explain to the public. FDR’s problem was that Keynesian economics was pretty new territory then, and he wasn’t clairvoyant. He made the same mistake that Obama made. He bought the wrong sales pitch. Understandable in 1937, but not so much these days.
Keynesian economics has little to do with “inquality”.
The public could buy:
1. Direct creation of jobs as job No. 1 that will do more than anything to reduce inequality
2. That our infrastructure is falling apart and fast falling behind other countries
3. That deficits obsession can take a back seat for awhile because we have had much worse ones before and have always pulled out of them with strong economic growth
4. Strong economic growth cannot happen without getting people back to work
5. We will not have strong economic growth unless Congress changes and authorizes infrastructure programs and help to the states for re-hiring laid-off police, fire fighters and teachers
6. It makes no sense for these programs to put the country back to work to be “paid for” by cutting other spending and getting other people fired
Never the name “Keynes,” never, ever the word “stimulus,” just “common sense” words that counteract the traditional “common sense” Republican words.
When households cannot make their car payments, how will paving roads help?
Maybe, a large tax cut, to pay-down debt and reduce monthly bills (e.g. high-interest credit card debt), and therefore increase discretionary income, would be better than government hiring some people to pave roads.
States getting less revenue, cutting expenses, and running budget deficits is part of the “train wreck,” over the past few years.
Much like DIGGING for gold, wealth is created through LABOR. Without labor then economy is just paper shuffling. NO JOBS, NO WEALTH. Face facts—Obama has gotten his, he’s NOT worried about YOURS.
Peak Trader –
Bruce Bartlet demonstrated a few years back that the effective tax rate for a middle income family with 2 kids is 5% or less.
Something percentage over 40% of the population pays no federal income tax at all, because they don’t make enough money to qualify.
Tax cuts sound good, but there is precious little to be gained in that direction.
Big expansions in EITC, UI benefits, SNAP and welfare would be far better stop gaps.
You’re right about debt overhang being a big drag. Sadly, I don’t think there is any kind of simple solution, though. Certainly there is very little – perhaps nothing at all – helpful that could get through the idiot controlled House.
JzB
Beverly notes the cutbacks in every level of government employment, local, county, state. Just tonight the Raleigh news talked about the 80 (out of 100) counties in NC where the main employer is some form of government job – teacher, firefighter, police, etc.
I live in one of these rural counties and have watched, over 25 years, as plants closed, towns died – or are on life support. The only ones left to support the local dry cleaners, grocery store, hair dressers, etc., are the “public employees” of one kind or another. And they are being cut out, cut back, whittled away. Our county taxes don’t go down, though the services they’re meant to pay for wither. The state income tax was reduced, but sales taxes increased. (Guess whom THAT benefits?)
I expect, if I live long enough, to see the county I live in become a ghost of its former self. The old folks will die off, the young will move off, and who will turn off the lights, when the last one leaves?
Jazzbumpa, there are lots of regressive taxes, fees, fines, fares, tolls, etc. and the $2 trillion a year of federal regulations are also regressive, along with state regulations (e.g. resulting in higher prices and lower wages for everyone).
A $5,000 tax cut for every worker in 2009, or $700 billion for the 140 million workers at the time, would’ve been in the form of tax credits too, for those who don’t pay income taxes.
Given the high level of household debt, a bold tax cut was needed, more than ever, to jolt the economy into a self-sustaining cycle fo consumption-employment.
It was necessary to take the slack out of demand, through increasing monthly discretionary income, rather than create new demand for other goods, e.g. “infrastructure,” which wouldn’t and hasn’t jolted the economy out of this depression.
Beverly
What you say about the need for Obama to include in his State of the Union address the need for governments, state, city and federal, to reinvigorate their contributions to employment in general is true. It does not, however, require that you, or anyone else, couch that concept in a critique of Krugman’s column. I didn’t come away from Krugman’s ideas, as expressed in that column, with the sense that such details are best left unsaid. Instead it seemed to me that he was simply pointing out that the message to the people needs to be more concrete than a discussion of macroeconomics allows for.
“But the experience of the 1930s’ double-dip depression, along with the current experience here and in Europe, is not that hard to explain to the public.” Yes it is. The public is not you, me and the readers of Angry Bear. The public include all the people who simply listen to their TVs or radios and accept with almost blind ideological faith what they are told. They seem to not even recognize that many of those doing the telling are paid millions of dollars to bend the truth and refocus public attention away from the average citizen’s own economic self interest. The public is not at all sophisticated in the least. Macro-economic concepts are removed from their daily economic lives. The talk has to be about the concrete results of good economic policy, not the policies themselves.
Not slashing government payrolls and restoring government services needs to be addressed with a focus on why governments hire people. Public employment is not a make work, welfare program. Government has responsibilities that go far beyond military preparedness. The most obvious services are policing and the courts, sanitation in the most general sense and education. Those employees aren’t there for the purpose of following a Keynesian economic policy. Public employees are not beneficiaries at a public trough. They are providing needed services. That they end up being the only employees left standing in some formerly industrial regions is the result of an inability to “out source” their services or chase away the citizens of those regions whose private sector jobs have been out sourced.
Talking about public employment in the context of jobs, unemployment and income is necessary. Deriding Krugman for emphasizing the concrete rather than the more general macro-economic concepts behind those concrete ideas is not necessary and only chips away at the cohesiveness of the message that the public needs to be hearing and understanding. No, Joe Citizen is not that attuned to the generalities of Keynesian economics, or any other economic policy concepts. The public are meat and potato kind of people. They don’t always understand the intricacies of how the food gets to the plate.
Government can shuffle all the deck chairs it wants. Americans have over consumed, overspent, over ate and under saved and under invested. You can take money from Wal-Mart shareholders and give more to the workers but that doesn’t make the pie bigger. It’s the same pie.
Wealth does not come from redistribution. The progressive/socialist model of Europe is a perfect example. California the most progressive/socialist place in the USA has the highest poverty rate in the nation!!! Texas has a poverty rate 42% lower.
Wealth comes from allocating a resource to a better use. Ya know, “Wealth of Nations” 1776. More debt + more heavy handed economic polices = slower growth.
About the only way out of this is to commit to a NASA type national project of converting our main energy source to natural gas. Win,win,win, lowers emission, puts people back to work creating wealth and reduces the trade deficit and takes us out of the Middle East.
Nope can’t say that….might lose the green votes.
This is rare, but I disagree with both Beverly and Krugman, even though they disagree. If the goal is to generate public/voter demand behind some major policy initiative, the best primary sales pitch addresses the question “what’s in it for me” as posed by most people who already are employed. Importantly, this pitch should be easily understood, credible, and not easily rejected by strong advocates of small government and free markets. This isn’t easy! In the past, the best examples were programs to counter external threats (WW II, Cold War, terrorism). A program marketed as a counter to either inequality or jobs/unemployment would be much more difficult to sell. Surveys indicate that people are concerned about these issues today, but I suggest that this means that these two issues offer good secondary (“and by the way”) arguments for a proposal.
I believe Urban Legend offers better advice than either Krugman or Beverly, the comment above. Working folks might buy into a program that would address national infrastructure, if it explicitly includes things that they want or need. Packaging could emphasize such popular features–perhaps widespread small-town renewal to support local business development, a couple of national modernization initiatives (reliable/cheaper delivery of power? internet? others?) that would be widely experienced–beyond just roads and bridges. Sell this product. Underneath the packaging and headlines, progressives could ensure that the program addresses inequality and jobs/unemployment when explaining to skeptics how this program will work–including any costs to the main audience–and by including some desired features in the details, in addition to citing “side benefits” like faster overall economic growth. For example, maybe jobs will be created by contracting after raising the minimum wage; maybe it will be mostly paid for by a temporary graduated income surtax on people already in the top tax bracket, supplemented by some low interest loans; maybe infrastructure includes more firefighters and police and teachers; etc., there are many ideas floating around.
Jon, I explained before how raising the minimum wage will make the pie bigger, perhaps up to a $15 an hour, and higher in some parts of the country.
Americans didn’t overconsume. It’s perfectly rational to spend, rather than save, when prices, and interest rates, are low or fall. Bargains induce demand.
Do you prefer less income (spending and saving), higher prices and higher costs of borrowing?
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What Obama promised before becoming President are not realized till date mostly. Regarding the economic policy prescriptions, President has done little different from is Republican predecessors. He was perceived to be a Keynesian by heart but his actions are diametrically opposite. So, it is almost hilarious to expect him to say anything Keynesian in his State of Union address. Even if Obama mentions Keynesian economics in the address, the implications are going to be more among the Americans and he is sure from the core of his heart, he can’t deliver. Therefore, I’m quite confident that he doesn’t have the courage to preach ‘Dig Up Hole and Fill It Up’ statement through his statement.