Stephen Darling writes: "It would be great if you could pinpoint what's wrong with the positions of a Krugman and others, like Jeffrey Sachs. It seems to me that they all want to improve the capitalist system along some kind of Keynesian and Rawlsian line (a more just and fairer society). However, as I see it, they have no clear theoretical understanding of what gives rise to such things as poverty and inequality, for instance (especially Sachs). Have they neither read nor understood Marx's theory of capitalist accumulation? I would love to read your thoughts about what's wrong with their accounts of capitalism."
Well, as readers of this blog know, it takes only one interested reader to set me off, so I shall try to say a few words in response. Two warnings: First, although I have read endless numbers of Krugman's blog posts, I have not read any of his books or scholarly articles, so caveat lector. Second, although I have read a good deal of economics, including some dozens of books on various aspects of the subject, I have read very little in Krugman's field, namely Macroeconomics. If these two confessions persuade you that I can have nothing of interest to say about Krugman, feel free to watch some old Jon Stewart shows, which will almost certainly yield more enlightenment, and without doubt more pleasure, than anything I may write.
Since I am going to explain why Krugman fails to satisfy, let me begin by praising him. Krugman seems to me to be a genuinely intelligent economist who tries to take account of, and adjust his opinions to, the facts of the world economy. He is a proud man, for all his folksy writing style, and he clearly believes he has come by his convictions in the way a scholar ought, by adjusting them to reality and acknowledging his mistakes. I think he has earned the right to that pride, and I do not in any way fault him for it. Furthermore, Krugman is politically progressive, by current standards, and he pretty clearly favors vigorous government action to reduce unemployment, raise wages, and reverse the sharp increase in income and wealth inequality. If one asks what laws he would pass if he were king [so to speak], one is, I think, led to believe that he would impose sharply higher taxes on the wealthy, substitute universal health care for our present hodge-podge, drastically raise inheritance taxes, impose Elizabeth Warren-style controls on Wall Street, and in general move America toward some form of what used to be called Social Democracy. Since virtually none of this is at all likely in the foreseeable future, Krugman is far to the left of the general political consensus in America at the moment. What's not to like?
Krugman spends his working hours trying to understand such things as unemployment rates, interest rates, trade balances, flows of capital in and out of national economies, and changes in the gross domestic product, not only in America but in many other nations besides. He views the world of nation-states as a laboratory in which state governments are testing different hypotheses regarding these matters, and from their successes and failures he draws conclusions of a general explanatory sort. Lately, his attention has been focused on what happens to a national economy when the effective interest rate falls so low that monetary adjustments by central banks are ineffective [the so-called Zero Lower Bound.] Krugman believes that he and those who think like him [Brad De Long, Simon Wren-Lewis, Joseph Stiglitz, etc.] have been essentially correct in their analyses and predictions of the past six or seven years, and he is scathing in his denunciation of those who, in his view, have ignored or denied the evidence to defend economic views championed mainly by conservatives here and abroad. My completely untutored impression is that in this he is mostly correct.
I have on several occasions rather dismissively compared macroeconomics to the efforts by the prisoners in Plato's cave to predict the flow of shadows on the wall of the cave [see The Republic, 514a - 520a.] Krugman strikes me as one of the shrewdest and most acute shadow-predictors in America today. He clearly deserved the Nobel Prize in Economics, the highest honor for professional shadow-watchers.
There is a great deal to say about why I find this approach to economics unsatisfactory, and as I am in the midst of teaching a course on Capital, these thoughts are uppermost in my mind. But rather than try in a blog post to recapitulate many hours of classroom lectures, let me simply ask a question that Krugman never asks in his blog posts and NY TIMES columns, and which perhaps he has never asked himself. Why do we need capitalists?
We need labor. Without it, nature would not be transformed purposefully so as to meet the needs and satisfy the desires of human beings. Hence, we need laborers, for it is laborers who labor [I leave entirely to one side fantasies about robots. Sufficient unto the day.]
We need capital. Without it, we would still be running naked across the savannah picking up nuts and berries and scavenging for the leavings of predators. We need tools and machines and skills and techniques, we need seed for the fields and raw materials for the factories. We need to consume less than we produce so that some of what we can produce is available for the next round of production. All of this is capital. We need capital.
But why do we need capitalists?
Many wrong answers have been advanced by those seeking to justify the ways of capitalism. I shall be happy to rehearse them another time. There is an old Bert Reynolds movie, the name of which I have long since forgotten, in which he plays a man who comes out of the joint and travels to Miami [I think.] When he gets to Miami, he seeks out a local mob boss, who asks him what he wants. Reynolds says [this is from memory, so forgive me if it is a trifle vague], "I learned in the joint that there is always someone from whom you have to ask permission. So I have come to ask permission."
Why do we need capitalists? We need capitalists to give permission.
Capitalists own capital. They do not, as capitalists, manage capital. That is done by managers. They do not as capitalists invent new products or devise new production techniques. That is done by inventors and systems engineers, some of whom are very handsomely rewarded for their efforts [and God Bless, as Elizabeth Warren would say.]
Capitalists give permission to workers to use capital to transform nature so as to meet the needs and satisfy the desires of human beings. In return for giving permission, capitalists charge an exorbitant fee called profit. Why do capitalists get to charge this fee? Because the entire legal, political, military, religious, philosophical, and artistic world backs them up. If push comes to shove, they can call out the National Guard, but with a little skill, they can actually persuade the workers that their granting of permission [it is called giving a job] is an act of enormous praiseworthy generosity for which the workers should be eternally grateful.
If there were no workers, to whom would capitalists give permission? If there were no capitalists, workers would not need permission.
What do I find unsatisfying about Krugman? He has never, so far as I can determine, asked why we need capitalists?