Economist Paul Krugman

A Discussion About The Discussion

What follows are excerpts of an actual online discussion about the debt ceiling and the notion of minting a coin to avoid allowing partisan extremists to use the nation’s debt obligation as a bargaining chip to implement policies they can’t pass through normal constitutional processes.

Economist Paul Krugman figures prominently in the discussion since he has weighed in on the notion of the presidential use of the treasury (via minted coin) to bypass that scenario.

The Original Post

Paul Krugman is unpopular with many folks…he is not considered to be a “real economist” by many conservative business school academic types, since his Nobel Prize in Economics was given for his work in trade theory. And many call him a “socialist” without understanding the difference between Keynes and Marx.

But here is the hard reality that many people who view economics simply in the here and now generally overlook: In the long run, Krugman has been fairly consistent in being proven to be much more often right than his peers and certainly his naysayers. 

I first noticed him just prior, during and following East Asia’s so-called IMF crisis. And dang it all – he was consistently on target while being dismissed as some kind of liberal gadfly by establishment types who ended up being very, very wrong. I suspect he is still on target and he is most certainly not much more popular by pointing out that the kings of economic policy-making are still strutting about without any clothes.

The following is a decent summary of his minority perspective that may well be viewed by future historians as pleas from our generation’s Jeremiah: The Big Fail (New York Times.)

The Discussion Thread

Commentator A: “The ‘Free Market’ in perspective”
Any time someone recognizes the necessity for rethinking corporate capitalism altogether and exploring ways to democratize the economy with worker-owned cooperatives, and business models like unions that look out for workers, the community, and the environment, he’s labeled something sinister-sounding. In fact, the founders of the United States were liberals who envisioned – not a radical vision of individual rights and gun toting alienated vigilantes – but community. The nation they envisioned was based in philosophy and law on principles of shared responsibility, community, freedom of and *from* religion, and restraint of oligarchs (the Boston Tea Party was in fact an opposition to the monopolization of trade.)

For the principles of the free market (ie. the capitalist system) to function efficiently and effectively, there needs to be competition, as opposed to the anti-competitive oligarchical forces of corporate personhood. Take away competition in enterprise and politics, and you’re left with – what? Let’s look into this further:
Walmart chart
Source: Independent Business

  • WalMart dominates perhaps 25% of retail in the U.S., which has caused the collapse of small business retailers and the suppression of wages and benefits.
  • The cause of skyrocketing U.S. healthcare costs is the domination of the industry by a cartel of about 5 insurance corporations (United, Cigna, etc) and about that many pharmaceuticals, along with the consolidation of community hospitals under large hospital chains. Because these giant corporations have a lock on the industries they dominate, enabled by the failure of government to enforce anti-trust provisions of the law, the competitive forces that conservatives pretend to worship have all but been eliminated. The results: costs that are more than double those of other advanced nations, inferior outcomes, declining quality of service, and poor general health.

If these observations sound radical, they really aren’t. They’re simply representations of core U.S. economic problems – and history shows that the founders, like Jefferson, Washington and Adams, tried to avoid the domination of the economy by such forces. Jefferson, for instance, who was not a wealthy man (he owned land and slaves, which were both quite cheap at the time, and died bankrupt) wrote quite emphatically and eloquently about this. 

What differentiates Krugman from an ideologue is that his observations are based not in opinion and theory, but history. That the supply side economic theory has been quite compellingly discredited doesn’t deter some from continuing to espouse it. Since Krugman calls them on their lack of rigor, dishonesty and intellectual corruption, he is quite naturally villified and slandered.

But never make the mistake of false equivalence – ie. putting the opposing viewpoint on the same level as his scholarship. The “balanced media” fallacy that we see on CNN and other infotainment media does a quite disrespectful job of perpetrating the notion that the right and left are simply having an honest philosophical disagreement, and both deserve an equal hearing. What they fail to do is call out the falsehoods.

Commentator B: “What about that trillion dollar coin idea?”

Is this the same guy who is proposing a trillion dollar platinum coin to rid us of all our fiscal problems?

Commentator A: “Here’s the coin idea in context”
Krugman doesn’t speak in terms of “rid us of all our fiscal problems.” He’s a wry realist, and sees the larger picture that the national media is turning attention away from. Unlike most prominent economists, Krugman has a wicked sense of humor. He calls the $1 trillion coin idea – which is the subject of a petition – “silly but benign”:

Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous.

Bear in mind that if Congress does nothing to deal with the debt limit, the country could lose its ability to meet its financial obligations. The idea of empowering the Treasury to create currency to deposit into its Federal Reserve account to pay off past debts (which the Republicans were happy to create but anxious to push off onto a Democratic administration) is not a solution to rid us of all our fiscal problems, but rids us of the possibility that economic neanderthals to cause another unnecessary crisis.

Commentor B: “Isn’t it all just theoretical?”
Why stop at $1 trillion why not up to $10T or $100T. When does a silly idea become not so “benign?” The problem with Krugman and other theoretical economists is just that, it is theoretical. He has spent his whole career except for a brief stay in the Reagan adminstration in academia. Never made a payroll, never negotiated with suppliers, never endeavored to satisfy customers. I would no more want advise from him than advise from the Pope on my sex life. Interesting enough when factors don’t meet his premises like the potential impact of his $1T coin on inflation and the dollar, or the aging population exponentially increasing health care costs on the charted deficit projections, he dismisses them as of minimal consequence. Kudos to him for mentioning them, but just mentioning them does not make those factors go away.
Commentator A: “Actually, it’s all empirical”
The key point is that this isn’t theoretical economics, but empirical.

The chief advocates for discredited economic policies are self-serving CEOs and other financial and political elites. Those who constitute the “Fix the Debt” coalition are a case in point, as are the CNBC Wall Street voices that harp on the same fallacies in the media day after day.
To wit, although supply side economics is soundly discredited by the preponderance of evidence spanning several decades now,  it continually gets resurrected under new guises. Today’s term for the fallacy is “the job creator” theory.  The common thread is that these advocates of the so-called “fiscal conservatism” are transaction-oriented self-serving interests whose pronouncements represent conflicts of interest, appeals to authority and fallacious logic.

By contrast, economists like Krugman and others appeal not to confirmation bias, but the ability of people, given these basic facts, to sort out the facts that track trends over time and  allow individuals to draw correlations for themselves.

Analysis of these facts and figures reveals a clear pattern: Despite the fact that the job creators have had their demands met over the past few decades, vis a vis deregulation on labor, anti-trust and fiduciary practices, and had their taxes lowered, this period has seen record budget deficits, job losses and wealth and income disparities. And if you trace the history of these developments, you can extrapolate a causality between these windfall benefits and the current economic malaise.  So the “job creator” theory hasn’t been borne out in fact.

On the other hand, the facts are also in about Keynesian or demand side economics. Analysis of U.S. economic history shows that the emergence of a middle class corresponds with the rise of economic democratic developments, including organized labor, and that the decline of the same has resulted in a reversal of the fortunes of the working class, a shrinking middle class, and unstable economic trends.

You rightly mention exponentially rising health care costs. This is indeed at the root of the problem, and it is caused by anti competitive forces. As the health care industry is dominated by a few giant corporations that continue to merge and consolidate, gobbling up competitors, prices continue to rise. Privatization of public programs is one of the culprits. The public VA model is the most cost effective one in the economy, but the industry is lobbying for privatization that benefits themselves rather than the consumer. 

For instance, GWB’s Medicare Part B initiative essentially puts drug coverage under Medicare into the hands of private industry, and prohibits the government from negotiating prices. Medicare Advantage plans – which are privatized Medicare providers are more costly than traditional public Medicare (you may recall that candidate Obama was pilloried for cutting back funding to these private providers – it was misrepresented as “stealing from Medicare.”)

Debt ceiling
The impact of fiscal policy (including this coin) on inflation is a canard, a red herring in the debate. The hard fact is that the debt ceiling – which Republicans raised several times under GWB to deal with unnecessary, unjustified, and unpaid-for military adventures abroad and corporate giveaways – is simply a matter of honoring past debts, incurred by that administration. The chief difference is that Obama actually pays for his spending whereas Bush just passes the costs on to the next administration.
Commentator B: “What about inflation?”

I don’t see how dismissal of the inflationary impact of his coin folly and avoidance of the tremendous fiscal impact of the aging population is anything less than a honest discourse.

Commentator A: “Inflation is a red herring.”
Inflation is a side effect of economic growth, and I doubt that any economist would dismiss it when it arises. The fact is that it simply isn’t an issue today, which the Fed’s Ben Bernanke acknowledges. It is therefore a red herring argument, a false dichotomy. Here’s an analogy: Would you fail to rescue a cancer patient because saving his life raises the possibility that he might later suffer a heart attack as the result of the medicine prescribed – simply because there is a minor statistical chance of such a side effect?

The debate Krugman highlights is refocusing on the root issue: that a group of ideologues are attempting to use the debt ceiling as a leverage tool to effect a radical political agenda. That radical agenda justifies itself as “reducing the deficit, but in fact has nothing to do with the deficit. The fact that Republicans voted 19 times to raise the debt ceiling under the historical deficit spending of GWB exposes that dishonesty.

What is really going on is a politicized rhetorical cover ploy, which I call “whack-a-mole.” Keep the Democrats busy defending against red herring after red herring to distract attention from the underlying issue.The underlying issue is, of course, an attempt to redistribute wealth upward via legislative policy, allowing oligarchs to enjoy greater tax breaks and more lenient regulations that enable them to strengthen their position at the expense of the working class.

The debate then becomes a false dichotomy: whether or not to cut programs that encourage economic competition, strengthen small businesses rather than large conglomerates, and provide policies that allow the working class (which is 98% of us) to flourish.

The areas that could be reformed sufficiently to reverse the deficit are by designed barely mentioned, such as corporate welfare to all of the industries that benefit from special favors and privatization (such as the security industry, oil and gas, big agriculture, big hospital groups and pharma, etc.) 

Or as Krugman puts it:

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years. Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.

In other words, returning the balance to a reasonable discussion requires a reset, but when “conservatives” are engaging in rhetoric, gerrymandering, filabuster, whack-a-mole, voter disenfranchizement, huge injections of corporate capital and influence, factual distortions and other strategies to game and rig the system, it’s easy to get wrapped up in discussions like the one we’re having here, which just attempts to teach people how they’re being influenced by power. However, it’s a discussion I’m glad to have as it can help raise awareness of the game.