June 10, 2005

#183: K on the Dark Side...

P. Krugman


The only way to comprehend Paul Krugman's recent columns such as Running Out of Bubbles (05/28/05) and today's Losing Our Country (05/10/05) is understand the depths of his pessimism. It's too easy to say it's just political and anti-Bush. It goes deeper than that. It's part of his DNA. It's worth repeating ourselves from earlier Squad reports to say he has spent a career looking for the economic dark side. A sample of his books and writings the last 25 years reflect this general malaise in thinking with such gloomy titles as, "Return of Depression Economics", "The Age of Diminished Expectations", Dispatches From The Dismal Science", "Even Worse than You Think" and "A Bridge to Nowhere?" and "The Great Unraveling." He's definitely a "glass is ninety percent empty" type of guy!

With this as background it is pretty easy to see why he still pines for the 60s and 70s and hates the 80s on forward. He simply doesn't believe in economic progress. Krugman would rather live in a world where the wealth pie is divided equally than in one where it is growing rapidly but unequally. The distinction is important because the policies that get one versus the other are exactly opposite. He doesn't trust the policies that are necessary for growth because some people might get rich. Perhaps these are honest differences, but beyond that the column is a bundle of unanswered questions about the costs of foregoing growth policies. For example, he asks the question, but never answers as to why the slow growth of middle class incomes (based on his flawed measurement) is because the rich are not taxed enough.

"Why is this happening? I'll have more to say on that another day, but for now let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power."

You bet! And the main reason is because they were stagnating our economy and hurting everyone's income and wealth. The irony that Krugman will never face is that the very "virtues" that he has cited over the years (not just today) in praise of business in the 60s, e.g., restrained profit motives, more awareness of "public" interests, cozy relationships with workers and unions were precisely the factors that led American industry to get a butt-kicking in the 70s by 2nd and 3rd rate countries all around the world and to having stocks of U.S. companies selling at prices below asset value. Nobody was happy with this – not even Jimmy Carter.

Fortunately, there was still enough vitality in American capitalism that the response to the 70s malaise was swift and brutal. A decade of mergers and hostile takeovers in the 1980s ushered in the era of "lean and mean" and put shareholder interests back in the driver's seat. There were abuses, of course, and some corporate raiders went to jail–Boskey, Milken, et.al. But in the end we were better for it and a foundation was formed for the productivity growth associated with the new economy in the 1990s.

Clearly Krugman cannot abide rough and tumble capitalism – most socialists cannot – so he blames "the engine of growth" for all our problems as he spirals down into another chasm of economic pessimism. He's trapped by his own ideology – poor but equal!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at June 10, 2005 12:47 PM
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