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.