Paul Krugman Entangled in His Own Logic

Ann Robertson and Bill Leumer

In a recent New York Times article, Nobel Prize-winning economist, Paul Krugman, once again takes aim at economists and politicians, who are fixated on problems that we won’t encounter for decades, if at all, like the possible insolvency of Social Security and Medicare. Embracing austerity, they demand cuts to these programs in order to keep them afloat. Meanwhile they turn their backs on the maladies of the present where we are still suffering from high unemployment and feeble economic growth.

But by failing to analyze the real motives behind his ideological opponents, Krugman unwittingly commits some of their errors and ends up contributing to the real problem.

In 2010, during the height of the Great Recession, President Obama created a commission, headed by Erskine Bowles and former Senator Alan Simpson, to recommend steps that would help reduce the long-run problem of the growing budget deficit. Their recommendations included cuts to Social Security and Medicare in addition to raising taxes. Krugman compellingly argued at that time that this project was exactly the wrong one to embark on. Recessions, and particularly severe recessions require a strong stimulus involving increased spending in order to begin the road to recovery. Deficit reduction in contrast involves cutting government spending and possibly raising taxes. Both measures serve to depress the economy, as Europe has decisively demonstrated, because they leave the consumer with less money to spend. Krugman repeatedly called for a stronger stimulus and avoidance of austerity, only to be answered with President Obama’s very weak stimulus and many austerity measures. Hence the nation experienced only a very slow and lackluster recovery, leaving most of us feeling as if we never left the recession at all.

But when Krugman offers to explain why there has been this fixation on cuts to Social Security and Medicare, he provides two explanations. The first is “intellectual laziness.” People are “trying to avoid hard thinking about the nature of the economic disaster that has overtaken so much of the world.”

This explanation is hardly convincing. For starters, thanks to Krugman’s own work, people have been relieved of doing the “hard thinking” of economic analysis; they can read a Krugman essay or others like it and the analysis is right there.

Krugman’s second explanation is equally unsatisfactory: they lack “moral courage.” One could just as equally argue that it takes true courage to recommend cuts to Social Security and Medicare, as Krugman’s opponents do, given the overwhelming popularity of these programs. And these people are entirely convinced their proposed cuts are “moral.”

There is a much more compelling analysis explaining why people like Bowles and Simpson recommended cuts to Social Security and Medicare in the midst of the recession, an explanation that completely escaped Krugman. In her book, The Shock Doctrine, Naomi Klein quotes Milton Friedman, the conservative economist who provides a theoretical justification for the current neo-liberal policies that have been embraced by Democrats and Republicans and swept the world, as saying: “only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”

Rahm Emanuel, former Chief of Staff for President Obama, but the same concept in this way: “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

The Great Recession provided a golden opportunity: it was a major, wrenching crisis, throwing millions of Americans out of work and out of their homes. And that meant that the American working class was disoriented, demoralized and extremely vulnerable. Here was the chance to push through policies that were extremely unpopular to the working class “the vast majority of the American population” but strongly embraced by the 1%. Hence government officials launched an attack on Social Security and Medicare with President Obama a willing accomplice. He instituted cuts to Medicare (his current budget adds more cuts), and he willingly placed cuts to Social Security “on the table.”

Many who belong to the rich ruling class strongly oppose social programs, dismissing those they serve as leeches eager to avoid work. Aside from Mitt Romney’s famous statement condemning 47 percent of the population to this category, Alan Simpson had his own formulation: “I’ve made some plenty smart cracks about people on Social Security who milk it to the last degree. You know ’em too…We’ve reached a point now where it’s like a milk cow with 310 million tits!”

Milton Friedman himself condemned most government programs, including public education, as a kind of socialism and insisted that market forces should replace them. President Obama has been traveling down the same path, agreeing to cuts to popular social programs and promoting charter schools as a way to introduce market relations and competition into public education.

Consequently, attempts at cutting social programs, far from being a problem of intellectual laziness or lack of moral courage, are simply further examples of a decades-long movement that has undermined the working class across the world and reduced government spending.

Krugman, known for his “liberal” outlook, seems to introduce his own shock doctrine when at one point in his article he actually shocks his readers by buying in on the program: “It’s true that many projections suggest that our manor social insurance programs will face financial difficulties in the future”¦ If so, at some point we may need to cut benefits.”

Such a comment is being uttered in the context of record corporate profits, bargain-basement low taxes on the rich, while more and more people are falling out of the “middle class.” Currently Social Security is funded by taxing the workers wages by 6.25 percent along with an equal tax on the employer. An easy fix to Social Security would be to require employers to pay a higher tax, not to mention eliminating the cap on wages that results in the rich paying a lower percentage of their income into the system than everyone else. This solution would help to rein in the growing inequalities in wealth that are overwhelming our society. Krugman’s openness to cuts in programs that service the working class will only accelerate these inequalities.

Krugman’s own problem stems from his undying allegiance to the Democratic Party, which is controlled by the 1% but gives lip service and a few crumbs to the 99%. To say that the Democratic Party has split loyalties would be too generous. Its policies overwhelmingly favor the rich, which was blatantly apparent during President Obama’s first term when the Democrats controlled both houses of Congress with a super majority in the Senate. The Democratic Party-controlled government provided the banks with a generous bailout “no strings attached” while instituting a few programs to help the working class that were nevertheless cruelly counterbalanced with cuts to other programs that served the working class: hence, the growing inequalities in wealth kept picking up speed.

Although Krugman prides himself on embracing policies that are realistic — he refers to socialism as a “sick joke” — his acceptance of a of a system that is ruled by the rich makes his liberalism equally a joke. During the past four decades, whether Democrats or Republicans have ruled, inequalities in income have surged and the “middle class” has shrunk. Only a party that unequivocally rules in the interests of the working class, as the newly elected Syriza government in Greece seems to be doing, will succeed in halting and reversing these income trends.

Once elected, the Syriza government immediately began to implement its pro-working class, anti-austerity policies. They raised the minimum wage, rehired government workers, restored trade union rights, announced the restoration of pensions, put a brake on privatizations, and are currently in negotiations with European governments to end the austerity measures imposed on Greece in exchange for a bailout. These measures have created a humanitarian crisis for the Greek working class.

The new Marxist minister of finance, Yanis Varoufakis, put his government’s policies   this way: “We are going to destroy the basis upon which they [the Greek oligarchy] have built, for decade after decade, a system and network that viciously sucks the energy and the economic power from everybody else in society.”

A few years ago, few thought that Syriza could take power so quickly. Now Syriza is a spectre haunting Europe, with Podemos in Spain next in line. Nothing short of a party like Syriza here in the U.S. will stand any chance of defeating austerity and raising the working class to a comfortable standard of living. Krugman will either have to join such a party or remain entangled in his own contradictions.

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About Ann Robertson and Bill Leumer

View all posts by Ann Robertson and Bill Leumer
Ann Robertson is a Lecturer at San Francisco State University and a member of the California Faculty Association. Bill Leumer is a member of the International Brotherhood of Teamsters, Local 853 (ret.). Both are writers for Workers Action and may be reached at sanfrancisco@workerscompass.org.