Paul Krugman: The Great Unraveling and The Return of Depression Economics
Krugman, Paul. The Great Unraveling: Losing Our Way in the New Century (New York: Norton, 2003)
The Great Unraveling is Krugman's 2003 look at the radical Busheviks, at a time when their reign of error wasn't even half over. The three-page columns--mostly from the New York Times, with a handful from Fortune and Salon--are arranged thematically rather than chronologically. Krugman's writing is workmanlike, providing plenty of information in a serviceable manner. He never descends into economic jargon, at least not without explaining his terms and clarifying their relations.
Krugman deflates the cult of personality surrounding Alan Greenspan, debunks the myths about Bush's tax cuts and his attempt at privatizing Social Security, and excoriates Enron for its part in the California energy crisis. He writes in the Preface that, "These days I often find myself accused of being a knee-jerk liberal, even a socialist:"
If I have ended up more often that not writing pieces that attack the right wing, it's because the right wing rules--and rules badly. It's not just that the policies are bad and irresponsible; our leaders lie about what they are up to. (p. xxvi, Preface)
Bush's attempt at Social Security privatization come in for special scrutiny from Krugman, as he writes acidly:
George W. Bush's plan to partially privatize Social Security always depended on the assertion that 2-1=4 -- that we can divert payroll taxes into high-yielding personal accounts, yet still use the same money to pay benefits to retirees. (pp. 275-6, 6 September 2002, "The Bully's Pulpit")
Krugman deflates one of the ANWR myths--the one that I tacked with a 148-Hummers-in-a-parking-space analogy--in this passage:
According to my calculations, my work space occupies only a few square inches of office floor. You may find this implausible, but I'm using a well-accepted methodology. Well accepted, that is, among supporters of oil drilling in the Arctic National Wildlife Refuge. [...]
Development won't be limited to a small enclave: according to the U.S. Geological Survey, oil in ANWR is scattered in many separate pools, so drilling rigs would be spread all across the coastal plain. The roads linking those rigs aren't part of the 2,000 acres: they're not "production and support facilities." And "surface acreage covered" is very narrowly defined: if a pipeline snakes across the terrain on a series of posts, only the ground on which those posts rest counts; bare ground under the pipeline isn't considered "covered."
Now you see how I work in such a small space. By those definitions, my "impact" is limited to floor areas that literally have stuff resting on them: the bottoms of the legs on my desk and chair, and the soles of my shoes. The rest of my office floor is pristine wilderness.
(p. 339, 1 March 2002, "Two Thousand Acres")
Later, Krugman writes that "While putting this part of the book together, I took a good hard look at the nation's fiscal future--and switched to a fixed-rate home mortgage:"
One of these years, and probably sooner than you think, the financial markets will look at the situation, and realize that the U.S. government has made inconsistent promises--promises of benefits to future retirees, repayment to those who buy its debt, and tax rates far below what is necessary to pay for it all. Something has to give, and it won't be pretty. In fact, I think the United States is setting itself up for a Latin Americans-style financial crisis, in which fears that the government will try to resolve its dilemma by inflating away its debt cause interest rates to soar. (p. 136)
Krugman, Paul. The Return of Depression Economics and the Crisis of 2008 (New York: Norton, 2009)
This unfortunate prescience led to the early 2009 revision of his 1999 book The Return of Depression Economics, explaining and analyzing systemic economic catastrophes. (There is no index in this thin book, which indicates a rush to publication.) Perhaps to inoculate himself against accusations of extremism from the (extreme) Right, Krugman takes pains early on to piss off socialists by declaring them all but irrelevant:
This is a book about economics; but economics inevitably takes place in a political context, and one cannot understand the world as it appeared a few years ago without considering the fundamental political fact of the 1990s: the collapse of socialism, not merely as a ruling ideology, but as an idea with the power to move men's minds. (p. 10)
Most of all, the humiliating failure of the Soviet Union destroyed the socialist dream. For a century and a half the idea of socialism--from each according to his abilities, to each according to his needs--served as an intellectual focal point for those who disliked the hand the market dealt them. [...] But who can now use the words of socialism with a straight face? [...] There are still radical leftists out there, who stubbornly claim that true socialism has not yet been tried; and there are still moderate leftists, who claim with more justification that one can reject Marxist-Leninism without necessarily becoming a disciple of Milton Friedman. But the truth is that the heart has gone out of the opposition to capitalism. (pp. 13-4)
Krugman is quite complimentary toward Ben Bernanke, writing that "If you had to choose one individual to be in charge of the Fed during this crisis, that person would be [Ben] Bernanke. [...] Nobody was more prepared, intellectually, for the mess we're in." (p. 173)
The mess we're in, of course, has parallels in the crises in Mexico and Argentina, Japan's lost decade, and the Asian collapse. Krugman's tales (the role of the IMF, the mechanics of hedge funds, Soros shorting the British pound, Hong Kong, LTCM, the stock market & housing bubbles, auction-rate securities, the Panic of 1907, the 1913 creation of the Federal Reserve System) take up the bulk of RDE. The last two chapters, (pp. 165-91) are the ones that actually examine our current situation. Krugman's thesis is actually quite simple:
What does it mean to say that depression economics has returned? Essentially it means that for the first time in two generations, failures on the demand side of the economy--insufficient private spending to make use of the available productive capacity--have become the clear and present limitation on prosperity for a large part of the world. (p. 182)
What we're going to have to do, clearly, is relearn the lessons our grandfathers were taught by the Great Depression. [...] Now that we're seen a wide range of non-bank institutions create what amounts to a banking crisis, comparable regulation has to be extended to a much larger part of the system. (pp. 189-90)
Encouragingly, Obama has declared an intent to learn those lessons:
"If Paul Krugman has a good idea, in terms of how to spend money efficiently and effectively to jump-start the economy, then we're going to do it."
Krugman is nothing if not full of good ideas; perhaps we now have an administration that is less concerned with ideology and more concerned with reality. Failure in the tasks before us would be catastrophic, and Krugman is one of the wisest voices we have.