Keynes and Krugman and the economics of hope

So I’m working my way through Robert Sidelsky’s magisterial three volume, eighteen hundred page biography of John Maynard Keynes.  I’ve written a play about Keynes, Clearing Bombs, which my dear friends at Plan B Theatre are strongly considering for production, and thought I should do some massive re-reading, just to make sure I got it all right. Before I take one final pass at it. Plus, Keynes is fun to read about.  Then, a couple of hours in, I took a break, so I could watch this, Paul Krugman on Morning Joe.

Joe Scarborough used to be a Republican Congressman, but he’s reasonably moderate, and a great interviewer.  I like his show, don’t catch it every morning, but I do check out his guest list.  When Krugman appears on something like This Week with Snuffleupagus, he tends to be shouted down by the likes of Mary Matalin.  But Scarborough is more respectful to his guests, and lets the conversation go on for enough time for Krugman to make his points.  Even Rachel Maddow, who I adore and who also had Krugman on recently, gave him maybe four minutes.  Scarborough gave him twenty one.

Krugman is actually a bit like Keynes in this sense–he’s the economist as rock star.  Krugman’s new book, End This Depression Now (which I really recommend), is out on paperbook now, so he’s doing the media tours, but he’s always a favorite talking head.  Like Keynes, he’s a terrific economist, a Nobel laureate.  He’s also unafraid to take on conventional wisdom.  He can be pretty feisty.  Like Keynes, he makes a lot of his money in journalism.  Like Keynes, he writes some books intended for a general readership, and other books intended for economists. Like Keynes, he keeps up an active teaching load.  And, of course, Paul Krugman calls himself a Keynesian, or a neo-Keynesian.

Keynes’ great moment, the time when he really shined, was during the Great Depression.  He advised Roosevelt in the creation of the New Deal, just as Krugman advises President Obama in fighting the economic devastation caused by the Great Recession, the world-wide financial crisis.  But for both men, their best advice was in part ignored.  Krugman called for a job growth economic stimulus, and Obama did go to Congress and get one, but half the size Krugman called for.  Same with Roosevelt–the New Deal job stimulus measures were never big enough, and Keynes continually said so.

But watching TV this morning, while also reading Skidelsky on Keynes, I suddenly had this insight: they represented an economics of hope, and those who opposed them represented an economics of fear.

Krugman continues to insist that the current Washington obsession with debt reduction is completely misguided.  Most of our European allies chose austerity, because it sounds good.  It appeals to our Calvinist sides–we have sinned–racked up massive debts–and we must repent, or catastrophe beckons.  The Austrian school economists (best represented by David Ricardo and Ludwig von Mises and, above all, Friedrich Hayek), were convinced that Roosevelt’s New Deal would prove catastrophic.  That the debt he was accruing would lead to hyper-inflation.  Which never happened.

Here’s Krugman this morning:

People like me have been saying for five years, don’t worry about these deficit projections for the time being, they’re not an issue, and people have been saying ‘imminent crisis, immanent crisis; how many times do they have to be right and do people like me have to be right before you believe in us.

And one of the other guys on the show, pretty red-faced and angry by this point, responded:

You’re right until you’re wrong, and that’s a bad day!

You’re right until you’re wrong.  And what you see, over and over again in this debate is crisis talk.  The national debt is a crisis.  The collapse of our economy is upon us.  Interest rates are going to soar, inflation is going to rise, borrowing will become impossible, hyper-inflation (Germany in the 30’s) beckons.  We’re like Greece.  Always always poor screwed-up Greece.

It’s all about fear.  It’s nothing but fear.  If we don’t immediately cut spending, end this (non-existent) spending spree we’re on, we’re going to see really really bad things happen to our economy.

Krugman has repeatedly pointed out this: Greece is a country that does not control its own currency.  As we’re now seeing, that is a very very bad idea.  Iceland’s economy was in a much bigger hole than Greece’s was four years ago, but Iceland never joined the Euro, and Iceland is much further along the road to recovery than Greece is even close to being.  Greece is in such bad shape, it’s putting itself up for sale.  In Greece, nobody–seriously, basically nobody–pays their taxes.  To compare the US economy to the economy of Greece is like comparing LeBron James to the last kid off the bench of his high school’s junior varsity.

When you say the name ‘Paul Krugman’ to conservatives, they tend to recoil, because let’s face it, he can be pretty dismissive.  Rude, honestly.  I read his blog every day of my life, and I admit it, he’s pretty partisan.  (In all fairness, he’s been much tougher on President Obama than he is on conservatives.)  His favorite targets are what he calls ‘Very Serious People’, which is to say, Beltway conventional wisdom.  He thinks they don’t understand economics and that they’re wrong about our country’s current economic problems. But I think the larger point is this:

Predicting catastrophe makes for better sound bites.  Predicting gloom and doom sells.  Predicting disaster works.  In my play, I paraphrase Keynes as follows:

Classical economics is unsentimental, tough-minded, austere, and that lends it a kind of virtue.  Plus, it’s complicated and difficult, constructed with such a vast logical superstructure—it must therefore be profound.  And it can explain social injustice and cruelty as an inevitable incident in the scheme of progress, and argues that any attempt to change such things as likely to do more harm than good; what government wouldn’t find that attractive?

That’s close to what Keynes actually wrote, in his General Theory of Employment, Interest and Money.  But he said, it’s not true. Government can work to create jobs.  We can stimulate a sagging economy.  And governments can do what private individuals cannot; borrow large sums of money at generous terms.  And use it to ameliorate human suffering.

When economies boom, then austerity makes sense, then deficit reduction can become a priority.  Right now, it shouldn’t be.  We can choose hope.  We don’t need to succumb to fear.



2 thoughts on “Keynes and Krugman and the economics of hope

  1. Brad Mortensen

    Eric, thanks for your analysis of Krugman (and Keynes). I, too, have found Krugman’s arguments compelling and sensible, and I have wondered why most people I discuss economic issues with seem so passionately supportive of the opposite, Austrian school-based approach. The idea of fear vs. hope as an underlying basis for which approach appeals to a person makes sense.

    In fact, to take it one step further, I have theorized that one’s underlying view of humankind may influence one’s political philosophy! It seems to me that the conservative approach is based on a view that humans are naturally lazy and duplicitous, and therefore strict limits must be placed on social behavior. On the other hand, liberals seem to believe that people are inherently good, and that undesirable behavior often results from people who are trying to cope with difficult circumstances (a la Jean Valjean!). If true, it would make sense that liberals would tend toward a hopeful, optimistic approach economically, whereas conservatives may send potential calamity around every bend.

    Personally, I get tired of the serial crisis model that seems to animate the GOP leaders. I sense the majority of the country is weary of it as well. Perhaps our president will allow his newly rediscovered liberalism to lead us toward a brighter day!

    1. admin Post author

      Let’s hope so. When I talk to my family members about, they say, ‘I’m afraid of what the future holds for my grandchildren.’ Me, I’m hopeful.
      I think my grandchildren are going to be awesome.


Leave a Reply