The question Paul Krugman can't answer
by Gaius Publius on 6/07/2010 02:53:00 PM
Paul Krugman and Brad Delong have been spending time lately discussing the recent G20 finance ministers' communique. Many of Krugman's posts have expressed astonishment that the deficit hawks are having their way. This post, "Lost Decade Here We Come", is pretty typical, and pretty good stuff.
Krugman's most recent is "Madmen In Authority", which he ends this way (my emphasis):
[H]ow much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?
The answer is, to reassure the markets - because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.
And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing. [ . . . ]
So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets - demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.
Awesome.
Recall that his title is "Madmen In Authority." The question he asks is: Why is the G20 demanding immediate fiscal austerity? His answer? Because they've gone crazy.
Really? That can't possibly be right - can it? Let's do what Krugman won't do - assume these people are rational, with understandable goals. After all, these are the G20 finance ministers and central bank chiefs - the economic slice through the little handful of people who . . . well, run the whole world. Really. The whole world.
So what are their goals? Well, what are the goals of any aristocracy? What would most people's goals be, if they had made it into the aristocracy. Simply put, to remain the aristocracy. In a famous essay, What Is Conservatism and What Is Wrong with It?, UCLA's Philip Agre writes:
Economic inequality and regressive taxation, while certainly welcomed by the aristocracy, are best understood as a means to their actual goal, which is simply to be aristocrats. [my emphasis]
I think Krugman has made a remarkable observation - that the G20 aristocracy has joined the Pete Peterson glee club and choir. Reduce debt now! Strangle government now! And in the midst of a world-wide economic recovery at that. It is indeed astonishing.
And Krugman asks the right question - Why?
So let me pass to you, dear readers, the task Krugman avoids. If the aristocats (hunting for a more up-to-date title here) haven't all gone mad, how does it achieve their goals to strangle this toddler recovery? I don't have an answer; I really don't. But I don't accept Krugman's easy out.
Remember, the goal of the aristocracy is to remain in power and to pass that power to their children. Does killing the economic comeback achieve that goal? Or conversely, does its murder avoid a feared outcome?
What is the threat inherent in this recovery? What do they see that we're not seeing? Given the scope of the consequences, I think it's important we figure it out. Your thoughts?
GP
(By the way, my own thinking is that this is connected to the BP oil spill, and the need to put the giant pool of money somewhere.)