Apropos of a current theme of this blog, that the powerful Austrian school of economics that has supplanted Keynesianism as the go-to ideology of our government and, more and more, both political parties, is rooted in the same Nietzschean stew of pro-winner, anti-loser sentiment that appealed to the Nazis, Paul Krugman has a piece in the current New York Review of Books that devastates the “austerian” contention that Keynesianism feeds the Beast, while austerity corrects naughty economic behavior. His main support for his argument is the recent discovery of severe flaws in the methodology of two studies most often cited by austerians, one by Harvard profs Carmen Reinhart and Kenneth Rogoff and the other by Italy’s Alberto Alesina and Silvia Ardagna, purporting to show that government spending that exceeds 90% of GDP in the wake of a depression or financial meltdown is catastrophic for the economy in question.
David Stockman’s The Great Deformation … [is] an immensely long rant against excesses of various kinds, all of which, in Stockman’s vision, have culminated in our present crisis. History, to Stockman’s eyes, is a series of “sprees”: a “spree of unsustainable borrowing,” a “spree of interest rate repression,” a “spree of destructive financial engineering,” and, again and again, a “money-printing spree.” For in Stockman’s world, all economic evil stems from the original sin of leaving the gold standard. Any prosperity we may have thought we had since 1971, when Nixon abandoned the last link to gold, or maybe even since 1933, when FDR took us off gold for the first time, was an illusion doomed to end in tears. And of course, any policies aimed at alleviating the current slump will just make things worse.
In itself, Stockman’s book isn’t important. Aside from a few swipes at Republicans, it consists basically of standard goldbug bombast. But the attention the book has garnered, the ways it has struck a chord with many people, including even some liberals, suggest just how strong remains the urge to see economics as a morality play, three generations after Keynes tried to show us that it is nothing of the kind.
And powerful officials are by no means immune to that urge. In The Alchemists, Neil Irwin analyzes the motives of Jean-Claude Trichet, the president of the European Central Bank, in advocating harsh austerity policies:
Trichet embraced a view, especially common in Germany, that was rooted in a sort of moralism. Greece had spent too much and taken on too much debt. It must cut spending and reduce deficits. If it showed adequate courage and political resolve, markets would reward it with lower borrowing costs. He put a great deal of faith in the power of confidence….
Given this sort of predisposition, is it any wonder that Keynesian economics got thrown out the window, while Alesina-Ardagna and Reinhart-Rogoff were instantly canonized?
It’s also worth noting that while economic policy since the financial crisis looks like a dismal failure by most measures, it hasn’t been so bad for the wealthy. Profits have recovered strongly even as unprecedented long-term unemployment persists; stock indices on both sides of the Atlantic have rebounded to pre-crisis highs even as median income languishes. It might be too much to say that those in the top 1 percent actually benefit from a continuing depression, but they certainly aren’t feeling much pain, and that probably has something to do with policymakers’ willingness to stay the austerity course.
I know Krugman’s luster is tarnished among many (including myself) who have wanted the financial wizards who caused the 2008 crisis to be punished–in short, by many who firmly want to believe that economics is not morally neutral. Many on left and right (including myself) believe a day of reckoning for these masters of the universe is long overdue, and this has caused many of us to question the moral basis for fiat currency, which we believe has had the effect of vastly enriching a small class of numbers gamers and putting virtually every one else in their debt.
I don’t know who is right in this debate, frankly, but I was struck by how Krugman’s scoffing at the prissy morality of the austerians echoed anarchist anthropologist David Graeber’s insight that somehow the idea that debts must be repaid has vaulted to the top of the West’s morality hierarchy over other ideas like people need food, shelter and quality of life. I think all of us–left, center and right, libertarian and socialist, Occupiers and Tea Partiers–need to ask ourselves why we have allowed this shift to occur. Is it really necessary? Or do we need to get our priorities right?
We desperately need to talk to each other about this.
- Michael Kinsley Humiliates Himself In Terrible Defense Of Austerity (businessinsider.com)
- Kinsley, Krugman and Austerian Aliens – Bloomberg (bloomberg.com)
- Krugman: Austerity Theory Implodes (drudge.com)
- Seven Howlers from Michael Kinsley’s Very Misguided War Against Paul Krugman (delong.typepad.com)
- Paul Krugman’s call to arms against austerity (guardian.co.uk)
- The Ideological and Material Underpinnings of the Austerity Con (lawyersgunsmoneyblog.com)
- David Stockman: “The American Empire And The End Of Sound Money” (zerohedge.com)
- FOCUS | David Stockman: What Do Poor Folk Know From Fancy Finance? (readersupportednews.org)
- Stockman Warns of Crash of Fed-Fueled Bubble Economy (bloomberg.com)