http://www.dissentmagazine.org/online.php?id=604#.T7McXQ1plf8.email
End
This Depression, But How?
Fred Block - May
15, 2012
End This
Depression Now!
By Paul Krugman
W. W. Norton & Company, 2012, 272 pp.
By Paul Krugman
W. W. Norton & Company, 2012, 272 pp.
He is so exasperated with the lack of serious arguments by the advocates of austerity that he oversimplifies his own argument. Krugman insists that getting the
But when will this happen? One of the key elements of private investment—construction of single-family homes—has dropped precipitously and might never return to pre-downturn levels. In 2006 new single-family homes represented more than 18 percent of private fixed investment, but by 2011 had fallen to 5.7 percent. And since further suburban and exurban growth raises deep environmental problems, it is not clear that a full recovery of this sector is desirable. But what types of private investment will rise to fill in that gap? Krugman doesn’t even entertain this question.
Krugman disconnects his policy prescriptions from his diagnosis of the causes of the crisis. Worse, he explains the downturn as the consequence of financial excesses and then immediately turns to the task of stimulating demand.
Keynes and likeminded thinkers in the
Both in End This Depression Now! and elsewhere, Krugman is an eloquent critic of increasing income and wealth inequality. Yet he is unwilling to follow Keynes on this key point. He even asks at one point: “But is there also an arrow of causation running directly from income inequality to financial crisis?” His answer is uncharacteristically timid: “Maybe, but it’s a harder case to make.”
Failing to make that case has the ironic effect of ceding the structuralist high ground to right-wing economists. Take a recent column by David Brooks, “The Structural Revolution,” which argues against a “cyclicalist” approach to the recession:
But you can only
mask structural problems for so long. The whole thing has gone kablooey. The
current model, in which we try to compensate for structural economic weakness
with tax cuts and an unsustainable welfare state, simply cannot last. The old
model is broken. The jig is up.
The fallacious conservative
argument is that irresponsible borrowing by governments, individuals, and
businesses caused the meltdown, so across-the-board austerity is the only
solution. The biggest obstacles to recovery, in their story, are a shortage of
workers with sufficient skills and investor anxieties about continuing public
deficits.Krugman effectively demolishes this right-wing version of structuralism. But people naturally gravitate to explanations of great events that invoke some kind of big and powerful causal mechanism. By treating the initial crisis as an anomaly caused by irresponsible financial behavior, Krugman fails to deliver such an explanation and leaves the Right’s story untouched. Without an alternative narrative about what went wrong, their “too-much-borrowing” fairytale will remain hegemonic.
But we do have an alternative big story—and we need Krugman’s megaphone to help get it out. One piece is the argument that Occupy Wall Street has made: when the 1 percent grabs most of the gains from economic growth, as they have over recent years, bad things happen. The 99 percent have to either limit their consumption or increase their borrowing and go further into debt. Either way, effective demand in the economy will ultimately be restricted. At the same time, multi-millionaires think nothing of putting big sums into extremely risky investments that promise high returns because they already have more dollars than they or their children will ever need. But unlike polo or auto racing, this dangerous hobby of the rich can actually blow up the global economy. Thanks to JPMorgan Chase’s huge losses last week, we know that the biggest banks still can’t resist playing this treacherous game, especially when they’re trying to keep up with the richest kids (the hedge funds).
This runaway speculation is a sign of how our financial system has failed to direct capital in productive directions. As environmentalists have been arguing for forty years, an economic growth path based on cheap oil and coal and urban sprawl is no longer sustainable. But entrenched interests and a dysfunctional financial system have blocked the huge public and private investments in resource-conserving technologies—renewable energy, mass-transit systems, and less wasteful patterns of land use—that would generate durable and sustainable growth.
So, yes, let’s end this depression now by new government stimulus, but let’s also make structural reforms to redistribute income and to accelerate investments in the long-delayed clean-energy economy. As Krugman makes clear, no one should listen to the austerians. After all, they are basically the same cabal of climate-change deniers and ultra-rich—think the Koch brothers—who got us into this mess.
Fred Block is a research professor of sociology at the
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