I wanted to start by saying how pleased I am you call yourself a liberal, because there are a lot of people – politicians – who are reluctant to be associated with the word.This is an excellent point by Krugman. There isn't a big difference between these labels. What is surprising is how impotent this set of political viewpoints from the left is in facing the aggressive political stance of the set of right wing political viewpoints: social conservatives, the Tea party, hard-nosed nationalists, and antediluvian religious parties.
As I see it, there has been a lot of effective propaganda. As a result, a lot of people adopted the term “progressive” as a somehow less charged way of saying the same thing, which I don’t think works. I consider myself both – liberal and progressive. It’s not too different from what would be called a social democrat in Europe – you believe in a decent-sized welfare state, you believe that we are our brothers’ keepers. Of course I’m not a politician so I can afford to label myself in a way that might lose some votes…
The hard right view that elites are god-sent to solve our problems and we must "trust our leaders" and everything good will follow is shocking. There is almost nothing in history to show where those in the catbird seat have suddenly had a change of heart and decided to include the poor and the downtrodden in sharing the goodies. The right paints the left as wanting to steal their hard-won wealth. The left paints the right as indifferent to the suffering and hard scrabble struggle of the poor. Both are right. As usual, the truth lies in the middle, all sides must give a little. Politics must turn its back on dogmatists and embrace pragmatism.
When I read your book, The Conscience of a Liberal, I came to realise that that purpose is to save the middle-class America you grew up in. Do you feel it’s under threat?This is a profoundly sad point. I lived through the 50s and early 60s and now have been imprinted to foolishly think that era was "normal". I remember being shocked by the collapse of the late 1960s with a government tone deaf to social needs, but I was also disgusted by the extremists of the left that were simply unrealistic in their demands. The middle disappeared and it hasn't reappeared. That is the great tragedy of America. Nixon claimed his "silent majority" but in reality his power base was built on racists in the south and hardhat conservatives in the north (aka "Reagan Democrats"). The Democrats were impotent with a split between an idealistic and uncompromising left and the sordid politics of big city political machines and corrupt unions.
It’s not under threat – it’s actually largely, but not completely, gone. We’re trying to recapture it. We really have had a tremendous polarisation [in wealth]. People notice it every once in a while and it comes as a huge revelation to them. So for example, in last week’s New York Times, Nicholas Kristof had a column about how maybe we’re turning into Pakistan. It’s clear that we are not at all the relatively equal middle-class society we were, and we’re getting less so. That’s something you want to try to turn around.
I love this following bit of the interview because Krugman makes the point that proper politics can only work if you understand your opponent's viewpoint and have real arguments to counter them. To simply reject your opponent blindly is deadly:
Wouldn’t some people accuse you of having an extremely strong belief system? Isn’t there a sense among liberals that, “We’re in the right so we don’t have to pay too much attention to conservative or Republican arguments”?This is a critical point. The political left today has been beaten up but it has its feet on the ground. They understand reality. They can articulate views on left and right. The right are rampant, spoiled, and out of touch. Their reach is now far surpassing their grasp. They have turned into ideologues mouthing words that mean nothing.
In my experience with these things – which I find both within economics and more broadly – is that if you ask a liberal or a saltwater economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at.
The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right. Or if you ask a conservative, “What do liberals want?” You get this bizarre stuff – for example, that liberals want everybody to ride trains, because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views.
But how strong is the proof that fiscal stimulus works? At the beginning of the crisis, I asked my sister and her husband, both former colleagues of yours at Princeton about it. They said it wasn’t certain it worked, but given the lack of alternatives, it was better than doing nothing. Is the evidence stronger than that?I find it incredible that people can't separate two issues in their mind: short term deficit and long term balanced budget. The tragedy is that modern governments didn't follow Keynes' advice, essentially the Biblical advice of Joseph to the Pharaoh, i.e. in the 7 fat years lay up stores in the granaries and in the 7 lean years use that grain to feed the people. When you have 9.1% unemployement and 14 million unemployed, you stimulate the economy, you build infrastructure, you rev up a WPA effort. When you have good times like the late 1990s, you do what Clinton did, you use the surplus to pay down debts and sock away funds for the rainy day that will inevitably come.
I think it’s stronger. We can’t do controlled experiments with economies. You can’t prove something the way you can prove something in physics. But we have a number of pretty clear cases. We have the Great Depression, which was ended by a very large fiscal stimulus, otherwise known as World War II. The 1930s is, in many ways, the best laboratory. You can see that when Mussolini did a military build-up, it expanded the Italian economy exactly as a Keynesian would have predicted.
Of course it’s not as clear-cut as one would like. It’s not as if you can find someone who is doing a fiscal expansion while holding everything else constant. Life doesn’t work that way. But compared to a lot of other things people believe in economics – about the efficiency of the markets, or what will happen if you raise taxes – it’s a lot better established. There are a lot of propositions in economics that are held with great firmness that actually have no clear historical evidence behind them. Fiscal policy is, if anything, actually a bit better grounded in the evidence.
This article is ostensibly about a recommendation of 5 books to read, but Krugman does his usual interesting and thoughtful commentary.
Now, if you have read this blog post to this point, you are ready to read a paper that Paul Krugman is giving this weekend at the Cambridge conference commemorating the 75th anniversary of the publication of The General Theory of Employment, Interest, and Money. Go read his paper, MR. KEYNES AND THE MODERNS. He puzzles why he is addressing this crowd and says:
The other reason I’m here, I’d guess, is that these days I’m a very noisy, annoying public intellectual, which means among other things that I probably have a better sense than most technically competent economists of the arguments that actually drive political discourse and policy. And not only do these disputes currently involve many of the same issues Keynes grappled with 75 years ago, we are – frustratingly – retracing much of the same ground covered in the 1930s. The Treasury view is back; liquidationism is once again in full flower; we’re having to relearn the seeming paradox of liquidity preference versus loanable funds models of interest rates.And here's Krugman's sound advice to those frustrated by the current situation:
The General Theory famously ends with a stirring ode to the power of ideas, which, Keynes asserted, are ―dangerous for good or evil. Generations of economists have taken that ringing conclusion as justification for believing that their work matters, that good ideas will eventually translate into good policy. But how much of that hope can survive now, when both policy makers and many of our colleagues have fallen right back into the fallacies Keynes exposed?
The best answer I can give is that steady upward progress was probably too much to expect, especially in a field where interests and prejudices run as strong as they do in economics. And there may yet be scope for Keynesian ideas even in the current crisis; after all, the crisis shows no sign of ending soon, and the policies of what I call the pain caucus are visibly failing as we speak. There may be another chance to return to the ideas that should have been governing policy all along.
So since I’m in England, here’s my advice to economists (and policy makers) frustrated – as I am – by the inadequacy of policy responses and the intellectual regression of too much of our profession: Keep calm and carry on. History will vindicate your persistence.