Brought to you by Trader Joe's North Beach Blend, brewed in French press...
Among our Plantation Liberal Economists, I only pick on Paul Krugman because he is the most visible. It's also fun because he's (a) extremely arrogant and (b) fundamentally silly. While he sees himself as an indefatigable champion of progressive causes, he is actually a kind of gift to the Republicans in a way that Rush Limbaugh is Christmas everyday to the Democrats. That is to say, a purveyor of ideas so palpably out-of-date and nonsensical as to be easily caricatured.
One such theme in Mr. Krugman's scientific essays is the Black Box concept of macroeconomics. As previously noted, Mr. Krugman pays very little attention to the particular composition of the American economy, what you or I might call "facts." His reference always is to "advanced industrial economies" or to historical records of the American economy, often dating back a hundred years or more. I think of Dr. K's analyses as a kind of "hydraulic" systems analysis. The variables of central bank interest rates or money supply are tweaked, and the variables of unemployment and GDP respond. If the results are not satisfactory after these dials are turned, the "fiscal policy" valve in the form of deficit spending by Congress is opened to achieve the right ambient pressure.
This pure, abstract approach allows Mr. Krugman to avoid the moiling, cacophonous debate among other analysts who talk about job offshoring and globalization, the effect of automation on the work force (of which Mr. Krugman was unaware, by his own admission, until a point within the last year), and the quality of jobs which are now produced by the American economy (that is, the McCrap jobs of baristas, burger-flippers, Wal-Mart aisle monitors, bartenders and food servers, almost all of which pay minimum wage).
Other analysts are not so lucky. For example, Herman Daly of the University of Maryland insists that economics is simply a subsystem of the ecological world (e.g., Reality) and not the other way around. Gail Tverberg (who has another fine essay just posted) believes in the fundamental importance of energy cost, on the tenable theory that nothing happens in the physical world without energy. The chart up above is of West Texas Intermediate oil prices; the recent decline in barrel prices, as we frack, squeeze tar sands, and dig for every drop we can find, probably explains the recent improvement in the McCrap Jobs market - Americans have a little more money to drive to McDonald's or to Wal-Mart to spend their food stamps. Jerry Mander and others note that capitalism seems to have run its course, has finished its work of destroying the natural world, and that survival depends on a different relationship between Homo sapiens and Mother Earth. Those in Shanghai, where the smog is now as thick inside buildings as outside during the worst days of pre-catalytic-converter Los Angeles, would probably tend to agree.
Such thoughts do not disturb the sense of serene mastery of the economic situation enjoyed by Mr. Krugman, Brad DeLong and the other Black Box economists. Certainly we must pay attention to the destruction of the natural world as a regrettable externality that should be remedied to the extent consistent with optimal GDP growth (the economy is performing "below potential!"). If we listen to their advice on the right Black Box settings, the economy will come around. It is only the pig-headed resistance of those who insist on looking at the world as a whole who stand in the way.