Even though I know it irritates the left flank of my readership, I continue to be fascinated by Paul Krugman. His blog entry today, one of many he has written about those he calls "austerians" [a play on the "Austrian School" of economic theory], captures perfectly what it is about him that interests me. This is going to take a little while, and even though it is the day after Labor Day, when, at least in the old days, school started, perhaps you will follow along with me.
Briefly, some background. For years now, both in the United States and even more ferociously in Europe, the conventional wisdom among Those In the Know has been that the world's capitalist economy, reeling from the crash of 2008-9, needs austerity, in the form of budget cuts and reductions in social welfare spending to ward off the terrors of runaway inflation, and tax cuts for the wealthy to inspire them with the confidence that will encourage them to get off their piles of cash and start investing in growth-producing capital expenditures. Krugman has for some years been one of the leading voices decrying this conventional wisdom, insisting that we need deficit spending and economic stimulus to correct a dramatic shortfall in demand [in short, old-fashioned Keynesianism.] Again and again, Krugman has pointed out that inflation has remained stubbornly low, and that it is a deflationary spiral à la japonaise that is our real threat.
Today, he came back once again to the question that has bugged him for years: Why do apparently successful and highly motivated money managers and investors, who keep track more closely than anyone else of exactly what they are gaining and losing day by day, keep endorsing economic theories and policy proposals that are directly contrary to their economic interest? As he likes to say, and said again today, "if you acted on what they were saying on CNBC or the WSJ editorial page, you would have lost a lot of money."
He tries out a range of possible explanations [this blog post, he tells us, is in a manner of speaking notes to himself.] One possibility is that all of these wise men were traumatized by the high inflation of the seventies and have never gotten over it, but Krugman finds that implausible. A second is that the 0.01% among the Austerians are essentially rentiers who prefer super-low inflation, as all creditors do. [If that is not immediately obvious to you, the point is that if you are a debtor and owe money, on a mortgage say, inflation reduces the real value of the dollars you are required to pay back to your lender. If you are a lender, au contraire, you want the dollars you receive from your debtors to be worth as much as possible. This is the underlying theme of The Wizard of Oz, of course.] But Krugman finds this explanation also implausible. As he says in his blog post today, "One thought I’ve had and written about is that the one percent (or actually the 0.01 percent) like hard money because they’re rentiers. But you can argue that this is foolish — that they have much more to gain from asset appreciation than they have to lose from the small chance of runaway inflation."
Then he turns to a deeper and more serious explanation. Perhaps what the Austerians really want is the destruction of social welfare programs -- the gutting of Social Security, Medicare, and Medicaid, the reduction or termination of unemployment insurance, the guaranteed minimum wage, and disability insurance. They view economic crises as useful excuses for advancing this anti-Working Class [or as we have learned to say these days, anti-Middle Class] agenda. Rather long-sightedly, they are willing to take a little less profit in the short run in exchange for permanently destroying the Welfare State. This is an idea Krugman and others have considered on occasion, and his discussion makes it clear that he takes it seriously.
At least in this blog post, Krugman does not ask why the "Austerians" should be so eager to destroy the welfare structure that, arguably, has benefited them over the decades by maintaining enough consumer demand to permit them to continue to make large profits. But in fact this is a question that received a very interesting treatment, many years ago, by a left-wing economist named James O'Connor. In The Fiscal Crisis of the State , O'Connor argued that what we conventionally refer to as social welfare expenditures actually consist of two quite different components. One part of those expenditures -- for example support for public education -- is a socialization of expenditures required to create and sustain the labor force. If modern industrial jobs require literacy skills and a certain level of technical knowledge, then either the employers are going to have to pay to prepare their workforce to engage in profitable labor or else they can foist this expense on the state, which pays the bill with taxes on the workers as well as on the employers. The net effect of this is to transfer some of the costs of labor away from the capitalists, and thus has the effect of increasing their profit rate.
But a significant portion of social welfare expenditures, O'Connor suggests, really has a quire different function. It is a sort of modern Bread and Circuses to buy the Working Class off so that it will not rise up in revolution. And this, O'Connor argues, poses a problem, because the price of keeping the peace is growing too rapidly and cutting too deeply into profits. This, he says, is the fiscal crisis of the state.
Looking back on that argument forty years later, we can see that Capital has in fact been quite successful in beating down the demands of Labor and weakening Labor's ability to secure even the share of the social product to which it had become accustomed. Labor Unions have been gutted, real wages have been stagnant for decades, and Capital has even been willing to take lower profits on occasion to make sure that Labor is held down. Krugman does not mention this argument, of course, and he may be quite unaware of it, although I would not bet on that. He is a smart cookie.
At the end of his blog post, after canvassing various explanations for the fact that the Austerians cling to their claims despite all the contrary evidence, Krugman concludes, " The thing is, it sure looks like a form of false consciousness on the part of elite. But I’m still trying to figure it out."
I gasped when I read that. How much closer can Krugman come to Marx's position without so much as considering the possibility that there is something structurally wrong with Capitalism itself? The reason why he interests me so much is precisely because he is smart, well-read, curious, knowledgeable, and has his heart [if not his head] more or less in the right place. And yet, if I or someone else were actually to confront him and ask, "Why don't you at least consider the possibility that Karl Marx might have something useful to say to you?" he would laugh and dismiss the idea out of hand.
It is really interesting. This is like Obamacare. When Americans are asked how they feel about Obamacare, they say they hate it. When they are asked how they feel about the Affordable Care Act, they say they love it. Maybe we just need another name for "Karl Marx" -- an alias.