William Black on Krugman

The economists from UMKC are on a tear.  As well they should be.  They have been beavering away in almost total obscurity keeping the light of Institutionalism alive.  It's kind of a lonely pursuit but it has one overwhelming advantage—you are correct so much more often than the convention-wisdom economists (who are almost always wrong.) And the folks who got it so disasterously wrong in 2008 haven't altered their worldviews one iota so they are still disasterously wrong.

Today, we see Bill Black give Paul Krugman a royal smackdown. Krugman has a lot of fans so taking him on entails some risk.  But the fact remains that while Krugman is easily the most enlightened economist who is allowed to write for the New York Times, he is a thoroughly conventional thinker. And in his recent role as defender of Clintonism, he was forced to sound even more like a shill for Wall Street than normal. So Black is facing a high hanging curve ball here because Institutionalists live to take on anyone willing to embarrass themselves by spouting the neoliberal idiocies.

Even so, I am pretty sure that folks like Black and Hudson are NOT getting ahead of themselves. The neoliberals are shameless.  They do not change their POV just because they are wrong.  So I must assume that most of the time, the heterodox economists at UMKC must content themselves with celebrating their small victories at their small parties.

Krugman’s Failure to Speak Truth to Power about Austerity

By William K. Black
Bloomington, MN, November 22, 2016

In the first column in this series I explained how Hillary Clinton, during the closing 40 days of her campaign, showcased repeatedly her promise to assault the working class with continuous austerity. I explained that her threat represented economic malpractice – and was insane politics. I showed that the assault on the working class via austerity was such a core belief of the New Democrats that their candidate highlighted that assault even as the polls showed massive, intense rejection of her candidacy by the white working class. I also noted that in this second series in the column I would discuss the failure of her campaign team, and her de facto surrogate, Paul Krugman to speak truth to power about the dual idiocy of her campaign promise to wage continuous war on the working class through austerity forever.

The broader point is the one made so often and so well by Tom Frank – it is morally wrong, economically illiterate, and politically suicidal for the New Democrats to continue to assault the working class via austerity, “free trade” (sic) deals, and financial deregulation. The only thing worse is to then insult the working class for reacting “badly” to being pummeled for decades by the Party that once defined itself as the party of working people. The New Democrats decided to insult the white working class in response to polls showing that the white working class was enraged at Hillary Clinton. Arrogance and self-blindness are boon companions.

I grew up in the Detroit-area and saw George Wallace win the Democratic Party primary for the presidential nomination, so none of this is new to me. We all know that the New Democrats are never going to listen to my warnings or Tom Frank’s warnings. But the leaks show that Hillary had many competent staff who raised difficult questions. Why wasn’t any senior campaign staffer willing to tell her that her austerity threats were economically illiterate and politically suicidal? Krugman warned President Obama several times that austerity was a terrible economic policy.

John Boehner, March 2009:

It’s time for government to tighten their belts and show the American people that we ‘get’ it

Barack Obama, yesterday:

“At a time when so many families are tightening their belts, he’s going to make sure that the government continues to tighten its own,” Obama said. “

We’ll never know how differently the politics would have played if Obama, instead of systematically echoing and giving credibility to all the arguments of the people who want to destroy him, had actually stood up for a different economic philosophy. But we do know how his actual strategy has worked, and it hasn’t been a success

Why did he cease speaking truth to power as the election came down to the wire?

The New Democrats Were Locked Into Austerity

Ever since the birth of the New Democrats, their adherents have embraced austerity. This act of mutual economic and political self-destruction has become so core to their identity that Hillary unhesitatingly made it one her most important closing pitches during the last 40 days of her campaign against Trump. At the very moment when her pollsters were warning her that she could lose due to working class hostility, she chose to showcase her hostility to the working class by promising to inflict eight more years of austerity on them. In your face working class! This is a political strategy that has no upside, but a toxic downside. Despite intense criticism from progressives of her austerity threats, Paul Krugman never urged her publicly to promise to end austerity’s assault on the working class. Similarly, no one on her official campaign team had the courage and strength to tell her to stop and reverse her position.

Part of Krugman’s problem was that while he has come some distance from his long-held support for austerity, his reflexes are still wrong because he does not understand sovereign money. A November 14, 2016 Krugman column revealed the hold his past dogmas still had on him.

Eight years ago, as the world was plunging into financial crisis, I argued that we’d entered an economic realm in which “virtue is vice, caution is risky, and prudence is folly.” Specifically, we’d stumbled into a situation in which bigger deficits and higher inflation were good things, not bad. And we’re still in that situation — not as strongly as we were, but we could still very much use more deficit spending.

Many economists have known this all along. But they have been ignored, partly because much of the political establishment has been obsessed with the evils of debt, partly because Republicans have been against anything the Obama administration proposes.

Krugman still does not understand sovereign money. A budget deficit for a government with a sovereign currency is not a moral issue. Budget surpluses are not a “virtue” and deficits are not a “vice.” The economic issue is strictly pragmatic – what size budget deficit or surplus is best for the overall economy? The political issue is the one Krugman made in his criticism of President Obama’s embrace of the self-inflicted wound of adopting your opponents’ economic illiteracy.

But notice that even though he was writing after the 2016 elections, Krugman could not bring himself to be candid about the identity of “much of the political establishment.” Yes, Republicans always said they favored austerity (except when they held the presidency and had to deal with a recession). But New Democrats believed in the same terrible economics and, unlike the Republicans, Hillary’s embrace of continuous austerity as a means of waging a unceasing onslaught on the working class was so passionate that she highlighted that embrace during the last 40 days of her disastrous campaign even as ever poll and pundit warned her that she was enraging the white working class. Krugman cannot identify Hillary and the New Democrats as the most prominent leader of “the political establishment [that] has been obsessed with the evil of debt” without raising the obvious question – why didn’t he speak truth to power? Why didn’t he advise her to end her obsession with sovereign debt and her economic policies that made war on the working class?

Of course, Krugman did something worse than simply fail to speak truth to power. He joined in the reprehensible effort to trash the reputation of a well-respected economics scholar, Professor Gerald Friedman. Friedman had donated to Hillary’s campaign, who dared to point out that Bernie Sanders’ economic stimulus proposals were far superior to her proposals. On what basis did Krugman seek to destroy the scholar? Krugman complaint was that the economist was insufficiently “obsessed with the evils of debt.” Friedman’s study made a point that Krugman had long made (and I quoted above). The 2009 fiscal stimulus was far too small and that the federal government had made a dire mistake in moving toward austerity in 2010 rather than increasing substantially the size of the stimulus package.

What was really going on, of course, is that Krugman was out to defeat Bernie’s candidacy for the nomination. Had Bernie won that nomination he would now be President-elect. Sanders was the one candidate for the nomination that embodied what Krugman said the Democratic Party desperately needed – ending the hold of “the political establishment obsessed with the evils of debt.” Krugman simply viewed truth and Friedman as collateral damage in his zealous fight to defeat Bernie. Krugman has been unable yet to summon the integrity and courage to admit how badly he served the Nation and the millions of Americans that rejected that “political establishment.” I hope he will reach out to Friedman and begin to offer his apologies. more