Krugman's Nostalgianomics

Paul Krugman's latest piece in the Times argues that the roots of the present (and still-continuing) economic crisis can be found in the financial deregulation that was ushered in in the 1980s (although one might argue Nixon taking the United States off the gold standard was itself an even earlier antecedent):

For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.

Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence.

On the latter point: traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. But indebtedness began rising under Reagan; it fell again in the Clinton years, but resumed its rise under the Bush administration, leaving us ill prepared for the emergency now upon us.
All well and good, and all very much in line with Krugman's recent tack: There was a historical moment in which we didn't face the problems we now face, and we need to understand the relationship between that past and our present. So it was with some interest that I found an interesting critique of Krugman's work (via A&L Daily) on the impressively named
The sentiment [pining for an age of middle-class America] is nothing new. Political progressives such as Krugman have been decrying increases in income inequality for many years now. But Krugman has added a novel twist, one that has important implications for public policy and economic discourse in the age of Obama. In seeking explanations for the widening spread of incomes during the last four decades, researchers have focused overwhelmingly on broad structural changes in the economy, such as technological progress and demographic shifts. Krugman argues that these explanations are insufficient. “Since the 1970s,” he writes, “norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics.”
Their argument can be boiled down to an argument of evidence: Krugman's statistics, they suggest, aren't complete, and don't take into account the way in which conservatives and liberals alike pushed for the changes in the nation's economy that have helped lead to this new Gilded Age in which we seem to find ourselves. The article's author, Brink Lindsey, goes to some lengths to point out how some of the liberal values Krugman aims to recover were themselves maintained by extremely illiberal policies in order to suggest that Krugman's present critique is hobbled by his overreliance on a kind of golden past. Closing his critique of Krugman's 'nostalgianomics', he writes:
The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won’t lead us anywhere. Reactionary fantasies never do.
One set of questions, then, might be: On what terms can we return to the past? On what terms can we appeal to History? Lindsey is right to suggest that we cannot look to recover some economic model of past times. However, I think he errs in characterizing Krugman's project as mere 'nostalgia'. What is at work in Krugman's work is an effort to draw out the decisions that have put us where we are. If Lindsey's emphasis is on the broad categorical shifts we saw in the 1960s and 1970s, then Krugman's emphasis might be on the particulars of legislation and business. At his best, Krugman's writing checks us (optimistic Obama-ites and jaded souls alike) and asks us to reconsider the terms that have framed our present. Lindsey starts from a position in which he assumes that competition is always the best thing. Krugman - his nostalgia aside, though not excused - has the sense to ask how we arrived at that point.


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