Paul Krugman was once much admired by his economist peers as a notable talent, who made substantial contributions to the theory of international trade. But well over a decade ago now, something terrible happened to him; he became famous. He joined the elite of scholars who succeed, after academic accolades and popular publications, in elevating themselves from their university departments to distinguished visiting professorships, lucrative book contracts, regular op-ed columns (in the New York Times in Krugman's case) and the ultimate exaltation of frequent appearances on television. Hubris follows, and Krugman has lately become less an economic thinker than a repetitive guru and moralist, showing signs of delusions of grandeur.
This last infirmity of Nobel Prize minds has sometimes afflicted celebrated natural scientists, those eager to become the new clergy for a society that imagines itself unreligious. But in recent decades, economists have been to the fore as archbishops of media enlightenment. They have their own unique mythic hero in John Maynard Keynes. Keynes, indisputably brilliant, giant figure of the British Treasury in both World Wars, memorable devastating analyst of the Versailles Treaty, major architect at Bretton Woods of a post-World War II international financial order that held up for a quarter of a century, has been, and probably will always remain, the ne plus ultra of economists. Even free-market apostles like Friedrich Hayek and Milton Friedman always paid their respects to the great Englishman.
In the years before the 2008 Crash, from the latter 1970s on, economists in academia who were left-liberals by temperament and political preference had increasingly felt themselves forced to line up behind the free-market monetarism of Milton Friedman. However, after the apocalypse, they have been clearly relieved they can now openly call themselves 'Keynesians' again, with Krugman the acknowledged leader of the pack. The immense prestige of Keynes had been partly dented in the last quarter of the 20th century, when the fiscal interventionism he had advocated in his big book of the Depression years, The General Theory, fell out of fashion, including with the younger Krugman. But he and his fellow errant sheep have returned to the fold. Keynes is now so much back in vogue that his biographer, Robert Skidelsky, entitled a recent new admiring tract, The Return of the Master. But the trouble with that is that it is only Krugman's present interpretation of Keynes that has 'returned'; he has by no means reincarnated Keynes, in depth or breadth, or, to his current despair, immediate influence on the powerful.
Krugman has been raising his voice lately less in cool analytic arguments than in something more like an agonized shriek. Not only has he published a new polemic book – End This Depression Now! - but has lately been trying to get up a 'manifesto', better described as a petition, to be signed by all academic professional economists who agree with his policy recommendations, and anyone else who feels like joining in. He realized that neither Barack Obama, nor the present Republican-dominated Congress (the Republican party, in his view, having 'gone insane'), nor Federal Reserve chairman Ben Bernanke, are likely to pay any attention to his proposals at all, and if Obama is succeeded by Mitt Romney, economic policy will only get worse from Krugman's point of view. What he wants done is simple enough: another shot at a massive stimulus, far larger than the one tried four years ago, to 'reflate' the U.S. economy and bring back full employment. He dismisses negative consequences like another giant increase in the already staggering level of federal debt and debt service, and the unleashing of inflation, which he sees as controllable, and even desirable in lightening the burden of mortgage debt in the private sector.
Krugman can readily pull quotes from Keynes in support of his ideas. He sees the present recession as displaying what Keynes called the 'liquidity trap', when a heavily indebted private sector is so intent on rebuilding savings that even zero interest rates will not make it borrow again, and spend enough to restore full capacity and employment. Then there was also the Master's admonition that a boom, not a slump, is the time for austerity.
These thoughts are, of course, as familiar to economists he criticizes for their different policy prescriptions, like both Alan Greenspan and Ben Bernanke at the Federal Reserve. American economists of all political views have long been convinced that they can draw vital 'historical lessons' from the 1930s, Bernanke even having devoted much of his life to studying them. There are even some areas of concord between interventionists and free-marketers, like agreement on the unwisdom of money contraction by the Federal Reserve after the 1929 Crash. Disagreement comes about the other causes and nature of the extended Great Depression, and the effectiveness or ineffectiveness of Roosevelt's New Deal or the advice of Keynes. Krugman actually opened one of his recent columns with the words, 'for economists who know their history...'
The trouble with these 'historical' arguments as that they have been presented repeatedly by Krugman and others like him is that they do not really display very much knowledge of history, even the broader history of the U. S. from the Civil War to the 1929 Crash, More fundamentally, Krugman and most of his modern professional colleagues give little sense that they have any idea of learning from history comparatively, studying several different political and intellectual leaders, countries, cultures and socioeconomic systems. In fact, for all the common idolization of Keynes by American economists, they seem to miss that Keynes, who was a very broadly-educated man, did understand a great deal of history in this sense, that he was also very familiar with other countries than his own. He also did not think of himself or other economists mainly as academic 'research' scholars like physicists, but more at best as a specialized kind of counselors of state and journalistic pundits, with some useful detailed understanding of markets, international trade, and banking and currencies. Keynes would sometimes change his mind, not just about the lessons to be drawn by events of the moment, but even about theoretical ideas; by the 1940s, for example, he was telling friends that he was becoming more and more doubtful that there had really been much improvement in economic understanding on the original ideas of Adam Smith.
Krugman displays not a trace of Keynes's ability to examine rival policy prescriptions with cool detachment and scepticism, which he could extend even to his own ideas. Not only does his American disciple now argue invariably at the top of his voice, but with no trace of the thought that, since 2008, it has been time for economists in general – liberal and conservative, interventionist and laisser-faire, fiscalist and monetarist - to display a little humility, and to contemplate the accumulating evidence that they have been no more wise and prescient in recent years than non-economists as guides to public policy; perhaps worse. Krugman might be correct that a new massive public expenditure could stir the economy to life, but he also might not be; or at least find that the result would only be a very brief revival, followed by a renewal of recession with just a still more terrifying level of debt – one that might cause a flight of bondholders from American debt, and perhaps the calamitous end of the dollar as the world reserve currency.
He is probably right in thinking that the 'austerity' economics being pursued in Europe and advocated by American Republicans, may themselves protract the miseries of unemployment.
But if he and his like-minded economist colleagues really 'knew their history', they would stop persuading themselves that the new Deal was a great success, or that any failures in it could be explained because Roosevelt didn't go into debt deep enough. They might turn their eyes to some rather important other historical aspects of the wider world after the catastrophe of the First World War. They might also look at the possibility that both they and their free-market rivals have been too ready to use a facile, ahistorical, utilitarian rationalism to explain the investor and consumer psychology of mass populations, especially mass populations grown more and more apprehensive over long years of watching the irresponsible deficit spending of politicians in booms and slumps alike. As long as most people remain doubtful about the kind of political leadership they see in the world's capitals, they are unlikely to re-open their pocketbooks, as those who really 'know their history' are already well aware.
[Neil Cameron is a Montreal writer and Historian].
The views expressed in this opinion piece are the author's own and do not necessarily represent those of The Prince Arthur Herald.
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