Friday, May 04, 2012

Billionaires in the mist

Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent. 
Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed.
Really? How? Krugman does not say, which is par for the course for those who blame our economic ills on income inequality (Here's a related blog post by James Pethokoukis addressing Krugman's claim).
But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high. For we have responded to crisis with a mix of paralysis and confusion — both of which have a lot to do with the distorting effects of great wealth on our society. 
Put it this way: If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that “I am now a Keynesian in economic policy” — Washington would probably have responded fairly effectively. There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed.
Paralysis? If only! As Ian Bremmer writes in today's Washington Post:
Let’s not forget that the first two years of the Obama administration saw more significant legislation passed — such as the stimulus, the health-care overhaul and the Dodd-Frank financial regulatory reforms — than any period since the mid-1960s.
Apparently in Krugman's world, a Keynesian stimulus package that cost over $800 billion (roughly 5.5% of GDP) and was signed into law less than 30 days after President Obama took office signals the existence of a legislative straitjacket. Now, it's true that the action taken was hardly bipartisan, but what does that matter? Would the impact have been any different if Republicans other than Susan Collins and Olympia Snowe had voted in favor of the measure? Does the imprimatur of bipartisanship determine legislation's effectiveness?
But that was then. Today, Washington is marked by a combination of bitter partisanship and intellectual confusion — and both are, I would argue, largely the result of extreme income inequality.
The accusation of bitter partisanship is pretty rich coming from a guy whose own partisanship is well documented. But perhaps Krugman is just a victim, driven to partisan extremes by surging income inequality?

Then again, as a guy who owns a $1.7 million pad in Manhattan, condo in St. Croix, large house in Princeton and paid for it all with many millions earned through his gigs as a columnist, professor, speaker, Enron advisor, Nobel Prize winner and royalties from his textbooks and best sellers, it's safe to assume that Krugman is part of the top 1 percent. Thus it seems he is contributing to the vast inequality that in turn is driving his partisanship -- Krugman is his own worst enemy! Perhaps if he earned less money the country's politics would be less poisonous and confused...
On partisanship: The Congressional scholars Thomas Mann and Norman Ornstein have been making waves with a new book acknowledging a truth that, until now, was unmentionable in polite circles. They say our political dysfunction is largely because of the transformation of the Republican Party into an extremist force that is “dismissive of the legitimacy of its political opposition.” You can’t get cooperation to serve the national interest when one side of the divide sees no distinction between the national interest and its own partisan triumph.
An incredibly lame argument. Political parties are based on ideology. Ideology is in turn based on what courses of action one perceives to be in the national interest (presumably people don't subscribe to beliefs they think are bad for the country). If one believes that one's ideology represents the national interest, why would anyone sell out that ideology? After all, to compromise on ideology logically means harming the national interest (To be clear, compromise is not always bad as it depends on the direction in which one is compromising. For example, while a $500 billion cut in federal spending may be ideal, it would be worth compromising on $300 billion if that represents the best deal possible).
So how did that happen? For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.
Ah, for while Republican minds have been polluted by ideas forced upon them by billionaires, Democrats apparently operate in an environment where money spent by George Soros, Warren Buffet, the Hollywood left, etc. shapes their thinking not at all. Apparently Republicans believe what they believe not because it is right, but because they have sworn allegiance to unnamed billionaires in exchange for their filthy lucre.
And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.
The arrogance here is really something to behold. Apparently Krugman sees himself as inhabiting the only sensible part of the ideological spectrum and his inability to talk sense with those on the other side is prevented by those goshdarn billionaires. Also, note that blame is placed on the 0.01 percent instead of the 1 percent, which conveniently exculpates Krugman.
Disputes in economics used to be bounded by a shared understanding of the evidence, creating a broad range of agreement about economic policy. To take the most prominent example, Milton Friedman may have opposed fiscal activism, but he very much supported monetary activism to fight deep economic slumps, to an extent that would have put him well to the left of center in many current debates. 
Now, however, the Republican Party is dominated by doctrines formerly on the political fringe. Friedman called for monetary flexibility; today, much of the G.O.P. is fanatically devoted to the gold standard. N. Gregory Mankiw of Harvard University, a Romney economic adviser, once dismissed those claiming that tax cuts pay for themselves as “charlatans and cranks”; today, that notion is very close to being official Republican doctrine.
If there are so many votes waiting to be won by calling for a return to the gold standard among Republican voters, why did only Ron Paul among those vying for the Republican nomination advocate such a move? And why has Paul never polled more than 15 percent among Republicans in national polls? Furthermore, if the idea that tax cuts pay for themselves is close to being official GOP doctrine, why did the latest budget proposed by Paul Ryan -- a guy Jonathan Chait claims has "thoroughly seized control of the Republican agenda" -- promise to pay for its proposed tax cuts in the form of the elimination of unspecified tax breaks and credits? After all, if Republicans believe tax cuts pay for themselves, any such offset should be unnecessary.
...The real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.
Agreed. Paul Krugman, it's time for you and your ilk to step aside.

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