Mr. Krugman's Science, Part 7

On Monday the 29th of April the good professor (Mr. Krugman) laid it out:

So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused. 

Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity. 

Essentially, this is The Krugman's Weltanschauung:  he writes many columns, many blogs (an unglaublich number, in fact), and essentially this is what they all say.  Along with saying that he's right about everything, as often as he can.  Mr. Krugman is comically insecure about his ego; his relentless self-promotion alone makes it fun to read along.

Yet I'm grateful for this summation by Mr. Krugman, Scientist.  Mr. Krugman, by referring to a "once-in-three-generations financial crisis," must mean, of course, that our present predicament is like the Great Depression of the 1930's.  Therefore, if we use tools such as those employed to lift the United States out of the Great Depression (specifically, starting a world war), or, more humanely and conducive to international esprit-de-corps (and more fun), preparing for an alien space invasion, we could end this silly downturn and return to prosperity.  "For the economy isn't always like this."

When I read Mr. Krugman's Science, my impression is that he views an economy as a sort of econometric abstraction.  Real people live in it and try to derive a livelihood from it, and in a way it's part of the natural world (you know, Earth), but the idea of "cycles" implies that whatever this abstraction is, it behaves over time in more or less predictable ways, and it can be fine-tuned and modulated by human intervention so that it performs optimally, producing 2% inflation, unemployment at 5% honestly calculated, and a generally rising standard of living with a strong middle class, right here at home.  That's the thesis. 

In 1930, three generations ago, the Earth's human population was about 2.07 billion people.  India was a British colony and essentially medieval, as was China.  Agrarian, rural, subsisting in villages and poor urban centers.  Certainly these countries were no threat to the United States or Europe as economic powers.  Latin America, Africa and the Soviet Union were either extremely undeveloped or mired in unworkable Communism.  The United States was energy independent and the world's industrial powerhouse.  It seems very likely that the Great Depression can be characterized, given all this, as a self-inflicted wound.  The means to recovery were always at hand: plenty of land, plenty of fresh water, plenty of manpower, plenty of energy, plenty of all natural resources, plenty of everything, and no significant international competition which threatened any of these things.  Thus, when the United States, still gripped by the effects of the Great Depression, mobilized to meet the challenges of Fascism, the veil fell from our eyes and we realized we had had the means to become rich all along.  There followed thirty years of prosperity such as the world had never seen.  I personally came of age during that era, and I must say: damn, it was nice.

Today there are 7 billion people in the world.  The CO2 concentration in the atmosphere has risen to about 385 parts per million, or .04% of the air we breathe (up from its historic, CRC-listed level of .03 - think about that).  There are those who argue cogently that we face near-term extinction as the result of our destruction of the atmosphere and oceans.  What might save us from this fate is the economic collapse that seems built into the interlocking system of international fiat currencies and mutually-dependent economies.  Door One or Door Two?

Brazil, Russia, India and China (the BRICs) are rising economic powers, competing mightily with the United States in world trade and utilization of natural resources, especially oil.  Our once-vaunted middle class has been hollowed out by offshoring of labor and dependence on cheap labor markets for our daily goods. Automation threatens many of the remaining manufacturing, "value-added" jobs.  The Big Box revolution has destroyed the Main Street mercantile businesses. Big Ag eliminated the family farm and the agrarian life that employed 20% of the United States in 1930. 

On Monday night I attended a lecture at the Jewish Community Center in San Francisco (what, you gotta problem with that?) where Eliot Spitzer gave an impassioned, highly cerebral talk on the American economy and the general state of our democracy (one can see why The Powers That Be needed to lay this man low - how could the oligarchs get on with Fraud As Our Business Model with this guy in the way?).   Mr. Spitzer, an authentic liberal Jewish New York intellectual, laid particular emphasis on this chart:

We all got rich together until about 1975; then the middle class began to lose ground, as the effects of globalization began to kick in, as jobs left for cheaper labor markets, as a relentless surge of mergers & acquisitions created larger and larger monopolies which could "leverage" the global trade and access the cheap labor markets, turning Americans into menial "consumers" who could not keep up with the general increase in wealth, which was in turn concentrated in fewer and fewer hands.

 

Thus, Mr. Krugman, is it really cyclical?  Or are you part of the Cargo Cult which stands on the shore and waits for the masts of the distant ships of prosperity to appear over the horizon?

 

More on this gripping tale in the days to come.