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Tuesday, September 2, 2014

WHAT'S IN A NAME?


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 [1973], 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.    

Any suggestions?

11 comments:

Chris said...

There's a very comical element, in that Krugman is trying to analyze the false judgements of otherwise smart people in the 1%, and you're trying to analyze the false judgements of a smart person commenting on smart people in the 1%!

I just don't buy Krugman's opening question:

" 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?"

Krugman, and a lot of Keynesians, conflat the well-being of the social body, with the health of capitalism or the interest of the bourgeoisie. This is not the case. So far as I can tell the beliefs and tactics of the 1% are perfectly reasonable given the structure and nature of capitalism, and they really do behave in the best interest of first their firms, and second capitalism. But of course capitalism is not in the interest of the working class.

In short, the answer to Krugman's question is: "they don't." And he needs to see that just because a strong welfare state is good for citizens, it isn't good for capitalism. Yet he always refuses to see this, as do many on the left.

Chris said...

And of course the evidence that they're rationally acting in their own interest is...well...the past 50 years of success and wealth accumulation for the 1%.

Kevin said...

I can testify that it's not just Krugman. In my field, it's as if Marx's claims are valid *so long as* nobody knows that Marx said it, so if you don't mention that fact, the claim stands. This is especially true for things Marx manifestly said, rather than arguable or more esoteric readings of his works.

I'm a fan of an alias for Marx. Say, "Chad."

wallyverr said...


I sometimes cite other aliases, such as "Max" or "Ari" or "Adam". Though I think that here in England it is more common, at least in the circles of academic historians I visit from time to time, to cite Marx as an authority, albeit not as The Authority.

Krugman had written about changes in the labor share of national income, even before the Piketty boom, and also about Kalecki, who I would guess is an intellectual forebear of the O'Connor argument.

Chris said...

On the positive side I do find that I've never had a negative reaction to a presentation on alienation, even when I'm explicit that it's Marx's idea. Every college student knows exactly what the feeling is like and hence is willing to engage the theory.

wallyverr said...

Chris,
In your teaching on alienation, do you ever make use of Michael Rosen "On Voluntary Servitude"? It seems to be a recent book on this theme and assigned in UK universities. I tend to stick fairly closely to economic history, and I haven't read it. EP Thompson is about the closest I get to reading on class consciousness, and Making of the English Working Class was published fifty years ago.

Chris said...

No, I teach Marx's essay on estranged labor directly from the EP Manuscripts. I've never met a single student that outright disagreed with the thesis, or even felt compelled to challenge it.

In general Wolff is right - in my experience - that just by saying "well you know what Marx thought about X", you get an instant sense of disdain and distrust for the proposition. But his theory of alienation is so cogent and real for college students that I find his name doesn't detract from the lecture.

Charles Pigden said...

I think that there is a relatively straightforward answer to Krugman's question. It's about power. The welfare state is an (admittedly imperfect) power-equalizer. It means that if your boss mistreats you you can tell him to get lost without facing financial catastrophe, thus diminishing his power over you. Since the exercise of power is inherently pleasurable the nastier members of the employer class are against measures that minimize their power over their employees. Hence the hostility the welfare star and the enthusiasm for policies which undermine it. (Code word: labor market 'flexibility')

Charles Pigden said...

Corrected!
I think that there is a relatively straightforward answer to Krugman's question. It's about power. The welfare state is an (admittedly imperfect) power-equalizer. It means that if your boss mistreats you, you can tell him to get lost without facing financial catastrophe, thus diminishing his power over you. Since the exercise of power is inherently pleasurable the nastier members of the employer class are against measures that minimize their power over their employees. (Also because of its power-equalizing effects the welfare state makes it more difficult to screw down wages and conditions so as to extract larger profits. You have to be a far-sighted Keynsian capitalist not to see this as a Bad Thing.) Hence the hostility to the welfare state and the enthusiasm for policies which undermine it. (Code word: labor market 'flexibility')

Jerry Fresia said...

I agree with Chris that what the "money managers and investors" are doing is quite rational. There is an excellent recent article on power and inequality by Peter Marcuse (son of Herbert) that Krugman ought to read:

http://zcomm.org/znetarticle/really-explaining-inequality-peter-marcuse/

Magpie said...

"Maybe we just need another name for 'Karl Marx' -- an alias.
"Any suggestions?"

How about Emmanuel Goldstein?