Paul Krugman and the coming fight with Republicans over austerity economics

Ron Wyden, the incoming chair of the Senate Finance Committee, is the only Democrat quoted on the record by Greg Sargent in this column, A hidden reason that Joe Biden is trying to go big Washington Post 01/15/2021. But I hope they all recognize the lesson from 2009 and the following years:

[M]any Democrats have lived through what happened when former president Barack Obama inherited another major economic crisis from another Republican president.

As has been endlessly hashed out, Obama opted for a stimulus that fell short of what was needed. Putting aside why that happened, what everyone now knows is that it was a serious mistake. Democrats lost the House in 2010 and spent the remainder of Obama’s presidency locked in brutal fiscal trench warfare with a GOP determined to starve the recovery with austerity to cripple his presidency under the guise of fake concerns about spending and deficits.

The actual position of Republicans in the Senate and House is the one Dick Cheney articulated back during his (and Bush II's) Presidency: "Reagan proved deficits don't matter."

That's their position. When they say something different, they are just trying to sucker Democrats into deals they then won't honor. As this article recounts, that was a successful *partisan* strategy for the Republicans during the Obama-Biden Administration because the economic results were so damaging.

Paul Krugman was warning about exactly that in real time during the Obama-Biden Administration. His current analyses are certainly worth following.

Neither defunct ideology, nor bogus economic concerns, nor the vain hope of comity should be allowed to stand in the way of delivering the policies America needs 1/ https://t.co/tWt0uHEq6r

— Paul Krugman (@paulkrugman) January 15, 2021

His four rules are:

1. Don’t doubt the power of government to help.
2. Don’t obsess about debt.
3. Don’t worry about inflation.
4. Don’t count on Republicans to help govern.

That last point is especially important, and something even the most left-leaning Members of Congress would say in that form: The Republican Party has no interest in bipartisanship as any kind of governing principle. Democrats may be able to pick off some Republican votes in Congress on particular issues. But the notion that make the hearts of TV pundits go pitty-pat that we will see some kind of Bipartisanship consensus on major issues is just wrong. The only exception would be issues on which a large number of Democrats are willing to capitulate to a Republican position.

Krugman caught some deserved criticism from the left for his seeming to pooh-pooh the importance of the $2,000 check issue last month. To his credit, he recognized that he was being tone-deaf on the politics of it. His larger economic argument wasn't wrong: extended unemployment insurance is more important to economic recovery than immediate $2,000 payments. But, as he recognized, that debate was taking place in a very particular political context.

Krugman has actually generally been good on the political side of economic issues. He even uses the term "political economy," which was what economics was called in the 19th century.

The central fact of U.S. political economy, the source of our exceptionalism, is that lower-income whites vote for politicians who redistribute income upward and weaken the safety net because they think the welfare state is for nonwhites 1/ https://t.co/R9CO8GK2kz

— Paul Krugman (@paulkrugman) January 1, 2018

In current economic trends, Krugman is a "neo-Keynesian," not a post-Keynesian or an adherent of Modern Monetary Theory (MMT). Although Keynesian is generally identified as a left-leaning economic theory, it's not inherent left or progressive. Keynesianism is a way of understanding how economies work. It can be employed for conservative as well as liberal/progressive ones. Andrés Velasco, who was Michelle Bachelet's Finance Minister in Chile 2006-2010, explains in Are We All Keynesians Again? (Project Syndicate 08/25/2020), "we must remember what Keynes taught: fiscal policy should be tightened during good times, precisely so that it can be expansionary during bad times."

That concept is known as balancing the budget across the business cycle with deficits during recessions and surpluses during expansions. But the idea of running surpluses during expansions is particularly inappropriate to the United States today. Jamie Galbraith provides an accessible description of why in his book, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (2008). Short version: as long as the US is a net importer and the dollar is still the de facto world reserve currency, the collective federal, state, and local government spending will be in surplus only in years in which the private sector is in deficit, i.e., investing more than earning.

That is an accounting definition that is based on real-world phenomenon. But it means that assuming that government surpluses are automatically needed in expansionary periods would make for really bad policy. But Jamie Galbraith's father John Kenneth Galbraith had explained in The Affluent Society (1958) a very practical political reason that balancing the budget across the business cycle is near-impossible. That is because lowering taxes or increasing spending during recessions is much easier politically than raising taxes or cutting spending during an expansion.

After the $2,000 flap, I saw some progressive/social-democratic dismissals of Krugman as being just another neoliberal. At least on Twiiter ...

If you look at some of his columns from the 1990s, that might seem plausible, because he is an authority on international trade and he was generally friendly to the neoliberal deregulation trade treaties. But politically, he was one of the most visible critics of the Iraq War and the dishonest claims around it in his New York Times column. And on one of the most spectacular neoliberal fiascos, the imposition of brutal austerity policies on Greece in the 2015 euro crisis, he was severely critical of it. And more generally, he was intensely critical of austerity economics and its adherents' false claims after the 2007-8 crisis. He was also very specific in real time during the Obama-Biden Administration of warning about exactly what Greg Sargent write about in that recent column.

He also popularized the concept of the Very Serious People (VSPs), his mocking term for people like Alan Simpson and Erskine Bowles of Simpson-Bowles Commission fame, officially the National Commission on Fiscal Responsibility and Reform, aka, the Catfood Commission, as in let-Grandma-eat-cat-food, because of their focus on cutting Social Security and Medicare. In Krugman's use of the term VSPs, he saw them as people who were accepted by political and media elites because the VSPs repeated familiar ideas they found comfortable, even when there was little real-world basis for them. (See: Joe Wiesenthal, PAUL KRUGMAN: Alan Simpson Is 'All Wrong' And Conventional Wisdom On Economic Policy Is 'Stark Raving Mad' Business Insider 07/14/2012)

Krugman was particularly scornful of the media reverence for Paul Ryan, a once-prominent radical Republican Congressman who pimped austerity policies for years and was treated as a VSP by the media. "Look, the single animating principle of everything Ryan did and proposed was to comfort the comfortable while afflicting the afflicted." He called Ryan "an obvious con artist" who nevertheless managed to "get a reputation for seriousness and fiscal probity." (The Paul Ryan Story: From Flimflam to Fascism New York Times 04/12/2018)

Krugman has also been notable in stressing for years that the asymmetric partisan polarization in American politics was overwhelmingly due to the still-ongoing radicalization of the Republican Party. He was no friend of the lazy mainstream media convention of Both Sides Do It. (Joe Wiesenthal, KRUGMAN: It's Entirely One-Sided: Republicans Are To Blame For Today's 'Nightmarishly Dysfunctional Political Situation' Business Insider 07/12/2012)

In the column on Paul Ryan quoted above, he also addressed one of the key points in Sargent's 2021 column:

Some commentators seem surprised at the way men who talked nonstop about fiscal probity under Barack Obama cheerfully supported tax cuts that will explode the deficit under Trump. They also seem shocked at the apparent indifference of Ryan and his colleagues to Trump’s corruption and contempt for the rule of law. What happened to their principles?

The answer, of course, is that the principles they claimed to have never had anything to do with their actual goals. In particular, Republicans haven’t abandoned their concerns about budget deficits, because they never cared about deficits; they only faked concern as an excuse to cut social programs.

As Sargent puts it:

Many Democrats who lived through that, a lot of whom are still in Congress and some of whom are advising Biden — who himself experienced it as vice president — must be wary of a repeat.

Making them even more wary, one hopes, is the fact that Republican deficit concerns evaporated once a Republican (Donald Trump) became president. Indeed, the Trump economy was good (at least until the coronavirus shattered it) precisely because it was fueled by stimulus. [my emphasis]

So, yes, there are areas, especially on neoliberal deregulation "trade" treaties, where progressives will disagree with Krugman. But on some of the biggest and most urgent issues - the radicalization of the Republican Party and the damage of austerity economics - he has a solid record.