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I don’t like to disagree with Paul Krugman, I really don’t. He’s done so much to raise awareness about inequality. And not just in the academic world, where he won the so-called 2008 Nobel Prize in Economics for “his analysis of trade patterns and location of economic activity.” So-called, because it was never bequeathed in Alfred Nobel’s will.
In Disparity and Despair, Krugman noted that by the end of the Reagan years, incomes of the top 1% of Americans had more than doubled, primarily as a result of paid compensation (stock options, bonuses, etc.). While at the same time, the reduction in the typical worker’s income was about 35%.
In The Conscience of a Liberal, he noted that billion-dollar-per-year earners paid tax at 15% instead of 35% by listing their earnings as capital gains, the so-called “hedge fund loophole.” That amounted to about $6 billion or, as Krugman calculated, health care for 3 million children. And, as he elegantly noted, CEOs today make 300 times more than the average worker, compared with the 1970s, when they made only 30 times more.
He even went as far as suggesting a cause for all this inequality, noting that the financial industry had increased its profit “about twice its share two decades earlier” (“Don’t Cry For Wall Street,” New York Times, April 22, 2010). Long before Thomas Piketty et al., Professor Krugman was hammering out the unequal numbers, noting exactly why (and by how much) the rich were getting richer and the poor poorer. Well done, Professor!
But I have to disagree with his latest bent on national debt, and how it doesn’t matter the size. Not for the usual technical reasons about a flat-lining debt-to-GDP ratio (2.8% percent now versus 9.8% then) or whether the ultimate red line should be north or south of 130%. But because economics preaches only one idea: Growth at any cost. Which is never fairly shared.
As Krugman wrote last week in the New York Times (July 21) about the debt and deficit drama of the last few years, “The whole thing turns out to be a false alarm.” For those doing the math, that’s a $7-trillion increase false alarm since Obama took office, continuing at about $2 million a minute. All hunky dory according to Krugman because we’re growing again. Happy days.
Basically, Krugman was heaping further scorn on Kenneth Reinhart and Carmen Rogoff’s theory that too much debt will eventually sink a country, and the resultant slavish, anti-government-spending lobby (i.e., the muckrakers of the Right). Of course, Rogoff and Reinhardt have been much discredited for their work – their numbers were just plain wrong (another of those dastardly spreadsheet errors) – though much of Europe fell for the slight-of-hand before the bad numbers were found out, putting the austerity noose around many marginal workers from Greece to Portugal, from Ireland to Spain (the so-called PIGS that borrowed and borrowed without any thought of the big bad wolf). Not that government workers felt much pain (at which the austerity was intended); ditto, lawyers, bankers, and politicians.
In Europe, more than 1 out of 10 people are out of work. In Spain, youth unemployment is over 50%. In the United States, 47 million live below the poverty line. While the richest are richer than ever (according to CNN Money, a record $2 trillion in 2013 for the richest 400 Americans, up 19% from the previous year). In the last five years, the Dow Jones has risen by a remarkable 80%.
So, does that mean another government spending spree is on order, the only lever governments seem to pull these days? Sure, a little Keynes good, a lot of Keynes better, the great twentieth-century debt god, who gave us the accepted scientific method of relief through government debt, one he also said should be stopped once the medicine works.
Of course it must be noted that prior to Obama, Presidents Reagan, Bush, and Bush Jr. were the Great Expanders, “fiscal conservatives” who didn’t turn off the spigot when they had their chance as intended by real Keynesian policy. In How Mumbo-Jumbo Conquered the World, Frances Wheen noted that Reagan (using his famous Laffer curve) slashed the top tax rate from 70% to 50% and then to 28%, which surprise, surprise increased the federal deficit more than 3 times from $900 billion to $3,000 billion. In the process, Wheen noted that the United States “was transformed from the world’s biggest creditor into the biggest debtor” and that “tax-cuts for the rich were central to the supply-side superstition.”
George Bush Jr.’s spokesman, Tony Snow, put it most succinctly: “When it comes to federal spending, George W. Bush is the boy who can’t say no. … The president doesn’t seem to give a rip about spending restraint.” During his tenure, the national debt doubled, aided by preferential tax cuts for the rich, which cost American taxpayers $2.74 trillion according to one calculation.
Indeed, it seems no one ever dares turn off the spigot. One-way debt in good times and in bad, the greatest of government Ponzi schemes. It’s like economic global warming. Or maybe we should call it economic climate change? Of course, if there’s no day of reckoning, who cares about a number in a spreadsheet? It’s just a printing press.
The real problem though with all this hotted-up money in the form of stimuli and quantitative easing is that it always ends up in the pockets of the rich, those with their hands on the spigot, which leads to more inequality and more debt. Not less inequality and less debt, what Keynes intended by putting government directly into the fiscal equation.
Same old, same old. Tax cuts for the rich with Byzantine tax rules and new-and-improved loop holes for shareholders, inversion the latest loop-hole du jour, where American companies move their headquarters to low-tax-rate countries to avoid higher American rates. Now you see it, now you don’t – trillions removed from the national coffers.
I agree with Professor Krugman about the importance of an activist government to stop market economy runaways and stimulate need in times of depression, but not if the disbursement isn’t fair. Or the policy unsustainable. Not government run by ill-informed Social Darwinists who believe in trickle-down economics and socialism for the rich. Why is the cost of failure shared by all, but success shared only by the rich?
Why not help those facing mortgage foreclosures? A decent minimum wage? Why not universal health-care subsidies? Or unemployment insurance when a worker’s job gets shipped abroad? Or regulation of exorbitant-interest, pay-day loan companies? Or, be daring – why not better pay and less working hours so that families can live a bit!
Why not reduced military spending? As Johnny Carson aptly noted when Ronald Reagan blamed his deficit on the “Iron Triangle” (news media, members of Congress, and special interest groups), we should put the blame on another geometric figure – the Pentagon. Sadly, the joke is real. At the start of Reaganomics, the debt was less than $1 trillion. Today it’s pushing $18 trillion, increasing by a small aircraft carrier-load a day (that’s right, almost $3 billion every day).
Does anyone really think continuous growth can plug the gaping holes? Especially with the oncoming train wreck of Baby Boom retirement and longer life spans? As Krugman correctly noted in his article, “Things are expected to deteriorate.” Yeah, endless growth in a changed world is no longer a solution.
Am I a Luddite, who wants everyone to live in the country. LOL. Am I anti-wealth? No, people should be rewarded for their work. Am I for fairness? Who isn’t? Do I think we can achieve goals when we cooperate? Of course. That’s what we teach our children, isn’t it?
Let’s slow down all this speeding up. Why not try sharing for a change, and see if that stimulates innovation, creates new entrepreneurs, and reduces our enlarged human footprint. Maybe the next generation television won’t be as HD. Or emails will take a microsecond instead of a nanosecond to go half way round the world. Yes, slower growth with a fairer, more stable economy. What’s the hurry?
Life is more than bottom lines and spreadsheet cells. It’s more than economists arguing about what percentage of debt is sustainable (the modern equivalent of angels dancing on the head of a pin?). Life is about learning to ride a bike, taking your kids to the beach on a summer’s day, sitting with an aged or sick parent. Things the poor are having trouble doing because the system is stacked in favour of the money men. Money, money, money. In a rich man’s world.
Sadly, the rich will continue to direct government policy, pulling levers to suit their needs. As Professor Krugman wrote, “the typical voter has a substantially higher income than the typical person, which is one reason politicians tend to design their policies with the relatively affluent in mind.” Indeed.
It’s time to make the economic argument about people. It’s time that government worked for all. This system doesn’t work.
JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. A short video “Debt and Demographics” is on YouTube. He can be reached at: email@example.com.