Friday, June 10, 2011

Krugman vs. Krugman

. Friday, June 10, 2011

Krugman today:

What lies behind this trans-Atlantic policy paralysis? I’m increasingly convinced that it’s a response to interest-group pressure. Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense. ...

No, the only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers: bankers and wealthy individuals with lots of bonds in their portfolios.

And that explains why creditor interests bulk so large in policy; not only is this the class that makes big campaign contributions, it’s the class that has personal access to policy makers — many of whom go to work for these people when they exit government through the revolving door. The process of influence doesn’t have to involve raw corruption (although that happens, too). All it requires is the tendency to assume that what’s good for the people you hang out with, the people who seem so impressive in meetings — hey, they’re rich, they’re smart, and they have great tailors — must be good for the economy as a whole.

Krugman a few weeks ago (emphasis added):

The past three years have been a disaster for most Western economies. The United States has mass long-term unemployment for the first time since the 1930s. Meanwhile, Europe’s single currency is coming apart at the seams. How did it all go so wrong?

Well, what I’ve been hearing with growing frequency from members of the policy elite — self-appointed wise men, officials, and pundits in good standing — is the claim that it’s mostly the public’s fault. The idea is that we got into this mess because voters wanted something for nothing, and weak-minded politicians catered to the electorate’s foolishness. ...

The fact is that what we’re experiencing right now is a top-down disaster. The policies that got us into this mess weren’t responses to public demand. They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need to get serious. And by trying to shift the blame to the general populace, elites are ducking some much-needed reflection on their own catastrophic mistakes.

Note that the italicized portion leaves interest groups out of it; that column was attacking elite ideology rather than interest groups. I like the more recent Krugman better, for reasons I've already described. What was missing from the older Krugman was just this sort of interest group political story. Leaving them out of the story in the way older Krugman did before is thus missing a huge element. Interest groups come in all shapes and sizes, but right now the policy space does appear to be fairly strongly skewed in favor of creditors rather than debtors. There is a way to link the two Krugmans -- interest groups influence the elite via lobbying and contributions -- but in that case elites are merely an intervening variable, rather than the primary causal variable. The more recent Krugman is honing in on the fundamental cause.

I think the more recent Krugman probably overstates the case a bit, but it's an op-ed not a long-form essay so that's understandable. Anyway, I'm happy influential folks are starting to think and write in these terms. It's not too often that this kind of overt political economy is on the NYTimes op-ed page.


Anonymous said...

I agree; I like this interest-group story more. As you say, however, elite interests and ideology matter, as I think they have been able to persuade many middle-class (even lower middle class?) individuals to support creditor interests. It seems to me that many in the middle class should support looser monetary policies; however, they possibly have been convinced by elites that tight money is in their interest and/or the country's. For example, I have an uncle in Texas that owns a small fast-food restaurant. He does not make over 70K a year and does not have lots of investments. Why is he supporting tight monetary policies, sometimes even suggesting that we should go on the gold standard, when faster growth, lower unemployment, and a bigger demand for his products would be very beneficial to him?

Kindred Winecoff said...

I obviously can't speak for your uncle, but I have a similar uncle. He owns his own business, and makes a decent, though not extravagant, profit. Probably similar to your uncle, he supports policies that are generally good for small business owners: low taxes, low minimum wage, low requirements on benefits/FICA contributions, few regulations, etc. I'm not sure if he wants to go back to the gold standard, but he generally supports a strong dollar. That's for two reasons: 1. he doesn't trust the government to manage the currency capably (or do much of anything capably); 2. he is not competing in a tradable industry. These are both consistent with his other beliefs and preferences, and correlate pretty well with his interests.

Note that the "tight money" line is pushed by (some) elites, the goldbuggery movement is not elite-driven at all. A few elites have picked up on it because it is popular with a certain segment of the GOP, but that preference is very much part of the grassroots. And it tends to be most prevalent among middle class folks that have savings and/or own property, and those that think a gold standard (combined with tax cuts) would eliminate the government's ability to intervene in the economy. These are the folks that call inflation "theft" or a "hidden tax" because it erodes the value of savings. And while deflation might hurt aggregate demand, and thus their businesses, they either can't connect those dots or would benefit from the increased value of their assets.

Others seem to adopt goldbuggerism because it comes on a platter with other anti-government/free-market principles that they agree with. Many don't seem to realize the full implications of it. I never underestimate ignorance in pursuit of interest as an important factor.

Anonymous said...

Thanks for your response. Your analysis helps me understand my uncle's preferences and the causes for variation in monetary policy preferences among all sorts of individuals in society. I agree with most of what you said. I used the term "elites" too loosely. At least for my uncle, his views are definitely shaped by big media personalities (Hannity, Beck, and Limbaugh) and cable outlets (Fox). In this sense, these can still be elites that are the key determinants of his views, just not elites in government. I guess the elites that are influencing my uncle are a particular type of societal elite: the media elite. He is never in contact with politicians, nor spends lots of time listening to them. So, he isn't shaped by government elites. Furthermore, he doesn't spend much time hanging out with people in his community (not even church, golf buddies, etc.). He works a lot, and then goes home to my aunt and their dog. So, he isn't shaped much by interest groups or civic organizations. It seems that societal, non-government elites (media elites) play a large role in shaping his monetary preferences.

Krugman vs. Krugman
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