David Stockman appears to be arguing that modern capitalism in America would work within our present framework of democracy if we would just stop using so much debt financing, both public and private. Krugman argues, contra, that we should use public debt financing to fill in for lost consumer "demand" in our economy until the economy gains "traction" and becomes self-sustaining.
Yawn. I feel for these guys. It can't be much fun to construct all these charts and graphs on what is essentially a dry-lab basis that has nothing to do with anything. They're a couple of old geezers (like me) who are remembering an America of their youth and pretending it can be restored if we pick the right nostrum. And they're both so damn angry all the time.
It's okay, guys. It's not your fault. For my part, you might say I'm more of a classicist. As I've written before, I think you can learn a lot by reading and studying the works of those deep thinkers who observed the "turn" in the organization of society and thus were acutely aware of the nature of the changes taking place. Those who come along later are born and inured to the "normal" that already exists, and thus have a difficult time seeing that the way things are set up is not necessarily "ideal" or maximally conducive to human happiness. This is the "normality bias," or the "normative tendency of the factual." So that our modern critics, for the most part, are forever jiggering, intellectually and politically, with a social system that will never deliver the results they desire.
One of my intellectual heroes is Emile Durkheim, the French social theorist often credited with the founding of modern sociology. The scion of a long line of rabbis from the Lorraine area of France, Durkheim jettisoned religious thinking and embarked on an "empirical" study of society, in a less "conceptual" way than Karl Marx, who tended to go in for fanciful narratives about "scientific history" that foundered on a misunderstanding about the basic nature of human psychology. Durkheim gave us the concept of the "organic society," the beehive where citizens surrender their individual autonomy and self-sufficiency in favor of mutual dependence in a highly specialized "division of labor." (Thus the title of Durkheim's master work, The Division of Labor in Society.)
This division of labor is the foundation of modern capitalism, and no country is more capitalistic than the United States. It is our essential religion, in a way that Durkheim would have appreciated (since he believed that religions arise out of social utility). Capitalism tends to push toward ever greater efficiency and increasing profit margins. Whether these drives are consistent with the welfare of the individual members of the society is a secondary concern. You might say that capitalism has a mind of its own. America has now arrived at the point where about 58% of the adult population (those 16 or older) have any kind of a job. This is called the "employment rate of the general population" and is probably the key measurement of conditions inside the "organic society."
The great thing about the various "bubble years" that we passed through over the last couple of decades is that the accumulation of debt they made possible enabled our society to employ more of our people, in the Planning & Tanning Economy, than is now the case. Mr. Krugman liked these arrangements and disapproves of the "cranky old man" criticisms of a moralist like David Stockman. I think that's how that dynamic works.
America always tends to lead the way in social innovation. Our employment of only 58% of the adult population does not seem to adversely affect our "productivity" or the profit margins of the large corporations which own our society and political system. In other words, brutal as it is to say, we don't need the other 42% to avoid shortages or to maintain our vital heat. Indeed, we don't even need the 58%, as we all know. We don't need me, for a specific example. The work I do could easily be taken on by a couple of other lawyers as additions to their work and I would fade into total economic irrelevance (in other words, I'm already in a state of complete economic irrelvance in terms of "productivity" and "efficiency" within the Organic Society).
I think these trends are generally taking hold in advanced industrial societies. The problems look like something else because we insist on believing that the "organic societies" of the modern world exist in order to provide livelihoods for their individual citizens. This is a fundamental misconception about the sociopathic (literally) tendencies of capitalism. It leads the esteemed Mr. Krugman to argue repetitively that the American economy is "under performing" or has "unutilized capacity." Not really. We have everything we need, although as Gail Tverberg points out, the prices of some of the absolute essentials, such as petroleum, have gone through the roof. The marginal effect of this price surge (which finds its way into practically everything) is that the hard-pressed citizenry abstains from the frivolous activities and purchases of the Planning & Tanning Economy, and those activities were the difference between the Bubble Years and now. As Gail notes in Our Finite World:
Economists base their models on the assumption that the economy only needs labor and capital; it doesn’t need specific resources such as fresh water and energy of the proper type. Unfortunately, substitutability among resources is not very good, and price is all-important. In the real world, growth slows as resources become more expensive to extract.
This is something of a major oversight. Ironically, this elision comes about in another way that My Man Durkheim would appreciate: Paul Krugman and David Stockman are not ecologists, geologists or biologists. They do desire prominence, however, and the easiest assumption to make in order to maintain their academic or business standing is to assume (falsely) that their fields are self-sufficient, and that the world can be explained without venturing outside their narrow disciplines. Nonsensical, isn't it? Yet that's how we form our "opinions" these days.
To wrap this up: with automation, assembly-lines, agri-business, online commerce, automatic toll booths on the Golden Gate Bridge, voicemail, computers, outsourcing of manual labor to poorer countries, and all of our other modern wonders, we produce, for the nonce, all that is necessary to maintain the population's vital heat. Increasingly, what we don't produce are jobs so that the American commoner can afford to buy those essential things. We're papering over the difference now with "transfer payments:" food stamps, Social Security Disability and early retirement, straining public pension systems, which keep the hoi polloi alive, for the most part, and keep the natives from becoming so restless they rise up against those who do so well within the current system. Eventually, we will "means test" all of these "entitlements" as the next stage of devolution, then we'll host a "Debt Jubilee," and then we'll descend into anarchy, in the great historical tradition. It should be interesting.