Wednesday, July 4, 2012

Who, Exactly, Is Getting Away With What, Exactly? And Why?

. Wednesday, July 4, 2012

In an recent article in the NY Review of Books, Paul Krugman and Robin Wells review three recent books that attempt to diagnose just how American political economy got so screwed up after 2008*. Noam Scheiber blames Obama's choices of economic advisors, and in particular the reliance on acolytes of the Rubin-Summers faction of Clinton administration vets who have a predilection towards getting into bed with Wall Street. Next comes Thomas Frank, demonstrating yet again that he understands nothing about American politics or political history (and in particular the politics and political history of the American right wing). Frank claims to have observed "something unique in the history of American social movements: a mass conversion to free-market theory as a response to hard times" that is buttressed by hermitically-sealed stupidity. If this is indeed a first then what exactly was "morning in America" all about? And how to explain the rise of right-wing parties throughout the industrialized (and industrializing) world since 2008, much less the landslide victory of Obama in the 2008 election? Thomas Edsal's thesis -- which Krugman and Wells reject as incorrect on its face -- is that America does not have enough resources to accommodate conflicting social goals, which has led to in uptick in partisanship.

So we have three theories: Scheiber's leadership failure cum rent-capture critique, Frank's vast right-wing conspiracy cum ignorance critique, and Edsall's scarcity leads to nasty politics critique. While showing signs of sympathy for all three, particularly the first two, Krugman and Wells end up with their own conclusion:

But ultimately the deep problem isn’t about personalities or individual leadership, it’s about the nation as a whole. Something has gone very wrong with America, not just its economy, but its ability to function as a democratic nation. And it’s hard to see when or how that wrongness will get fixed.
Let's leave (mostly) aside that this political narrative is opposite in emphasis of the tale Krugman was telling a year ago (cf) -- then it was about personalities and leadership -- and note the defeated tone. While some of Krugman's friends believe that the only way the wrongness will get fixed is through the destruction of the Republican Party (eg), that isn't going to happen so there must be some other way out of the malaise. The problem is that Krugman and Wells seem to have few answers on that score. I believe that is because they don't have a clear conception of politics.

Each of these three concluding sentences contains a distinct phrase of dissatisfaction. The first asserts that there is a "deep problem" in American politics; the second identifies that problem as the lack of an "ability to function"; the third summarizes these first two components as culminating in "wrongness". These are vague, even non-descript, but let's try to parse each of them.

Given the context of this essay within their other writings, the "deep problem" would seem to be persistently high unemployment and growing inequality. How do I know that Krugman and Wells think this is the problem? Mostly from the context of their other writings, but in this essay the refer to parallels between today and the 1930s, a period of high unemployment that followed a rise in inequality and significant financial crisis. The cause of these problems would seemingly be both ideational -- capture of elites in government (Congress, the Fed) and the commentariat, as well as much of the public, by right-wing laissez-faire orthodoxy -- and material -- capture of the government  (the Obama administration, the Fed) by Wall Street. Both of these phenomena have been discussed in the political economy literature, of which Krugman and Wells are completely unfamiliar**.  

The next sentence indicates that this problem is not limited to economic outcomes: there is also a political problem, the "(in)ability to function as a democratic nation". It is not at all clear what he means by this. I think he means that democratic nations are supposed to always and everywhere and at all times generate egalitarian outcomes, and pursue policies that maximize some deduced social welfare function that just so happens to map onto Krugman's ideological preferences more or less perfectly. Other than vague intimations that bankers control the country through their puppets in the Obama administration, it's not clear why Krugman thinks that the U.S. doesn't function as a democracy. Because it hasn't generated a particular set of outcomes in a given time and place? What a priori reason do we have to think that this should happen? Why should we think that the U.S.'s version of democracy is somehow superior to other democracies that have similarly depressed economies, e.g. Europe?

The fact is that "democracy" is a catch-all word that describes a host of political institutions which are similar only in that they aggregate the preferences of their citizens through some type of electoral process which is guided (and constrained) by previously established law. "Democracy" is decidedly not
a description of a set of particular outcomes favored by the technocratic center-left, a group of which Krugman is a member. It is even less a description of a political system dedicated to pursuing an Old Keynesian version of technocracy. Given that, it is not completely clear to me that the U.S. has lost its ability to function; conflicting interests, partisanship, gamesmanship, interest group lobbying, rent capture, and vituperative campaigns are all par for this course, not evidence that things have gone horribly awry.

Which leads us to the very end. This "wrongness" -- essentially the existence of distributive interest group politics -- is only a "wrongness" if you expect particular (and exceptional) moments of national unity (such as the bipartisan passage of the Social Security Act that Krugman and Wells reference at the top of the piece) to be the norm. But they are not the norm, and we should not expect them to be. Democratic politics is generally messy, generally contentious, and generally fought along lines demarcated by interests and ideology. Any particular individual -- and in fact all particular individuals -- will be upset with roughly 50% of the political decisions made. This is just how it works. There is no sense in bemoaning this, as it is a fact of life. It is not a "coup", it is not a systemic collapse of everything we hold dear.

It's not clear to me why the NY Review of Books would ask non-political economists to write about political economy. Had they not they not done so, they might have been able to publish an article with a better ending then "We don't like this but we don't know how to fix it."

*By "screwed up" the authors seem to all mean something along the lines of "President Obama only getting to fulfill most of his campaign promises". These being provision of universal health care, no tax increases on those making under $250k/year, an aggressively militaristic anti-terrorism policy, re-regulation of the financial sector at both the domestic and international levels, the repeal of DADT, and increased investment in green technologies. Or by "screwed up" maybe they mean the continuing existence of an opposition party, or the fact that Obama was always insufficiently left. Anyway, Krugman and Wells just take it for granted that something is screwed up, and the impression they leave of the books they review is that the other authors do the same thing. I haven't read any of those books so I can't be sure whether that's a fair characterization or not.

**I can be quite sure of this, having read them both extensively over the years. The closest thing to a political economist to whom Krugman gives credence is Larry Bartels, an American politics scholar who has studied some politics of inequality.  


Latinamericanist said...

"The closest thing to a political economist to whom Krugman gives credence is Larry Bartels, an American politics scholar who has studied some politics of inequality."

That's nonsense and if you were even remotely as familiar with Krugman's work as you claim to be you'd know it. Krugman has cited, discussed and in some cases even blurped all of Pierson and Hacker's recent books (he even get sacknowledgments in the intro to several of them). While you may not like them very much, you can't really claim that they're not political economists - hugely influential and successful ones at that.

Also: "Had they not they not done so, they might have been able to publish an article with a better ending then "We don't like this but we don't know how to fix it." would they? Which left-leaning political economist, political scientist, or sociologist has advanced any realistic idea on how to change trends like increasing inequality of wealth and income?

LFC said...

The material in this post about how U.S. democracy is functioning just fine, thank you, ignores the element of money in politics, which has become much more of an issue in recent years and esp. since the Citizens United decision.

Does any other 'mature' or 'advanced' democracy (by which adjective I mean to exclude, inter alia, so-called 'competitive authoritarian' regimes) allow private money to play such a large role in the political process, esp. campaigns?

So I think it's not just an 'outcomes' criticism. It's 'we get outcomes that are both uncongenial to us and objectively bad for the polity b/c the process is ****** up'. That's how I would read them, at any rate, given your summary. I have not read the review itself.

Kindred Winecoff said...

LA -

My claim is that Krugman and Wells have no familiarity with the political economy literature. I stand by it. DeLong will at least reference Barrington Moore with ease from time to time, even if his knowledge ends more or less there. I don't think Krugman has ever managed even that.

In any case I considered Hacker and Pierson. A quick Google search ("krugman hacker pierson" no quotes) didn't turn anything up. Typing "Hacker Pierson" into the search bar on Krugman's NYT blog yielded zero results. (A similar search for "Bartels" on that blog gives 16 results.) I didn't check my copy of Winners Take All Politics before posting, but I have now: no blurb from Krugman. (I haven't yet read End This Depression NOW! so maybe there are references there. And I'm not checking acknowledgements... this is a quibble.)

As for whether I like them: I have no particular animus towards them. I don't agree with them on all points but I don't agree with anyone on all points. Mostly where I disagree with them is that I think they usually do a poor job of contextualizing changes in the US economy with changes in the global economy, and therefore (in my view) overestimate the effect of local variables and underestimate the effect of global variables. But that's more related to the fact I do IPE and not AP.

Has Krugman advanced a realistic idea on how to change the distribution of income? Well he says (elsewhere) to tax the rich more, but I can give you a very long list of political scientists and sociologists that say the same thing. As in, almost 100% of them. And 98% of them are left-leaning, although I'm not sure why that matters. Not very creative. Also, apparently, not all that realistic.

Anyway, the supposed point of this review essay is not (necessarily) to proscribe new policy, but to dissect what has happened. Krugman and Wells end up shrugging their shoulders. They reach no tangible conclusion. "Something" has gone wrong, causing a "deep problem" in "the nation as a whole". Could they be any more vague?


Okay, you're all over the place. The major problems in the country -- Iraq War, tax cuts, fiscal irresponsibility more generally, financial crisis -- all occurred pre-Citizens United. More generally, money is always and everywhere involved in politics. That doesn't really tell us anything about policy. In 20th century US politics the two great progressive movements were led by people named Roosevelt and Kennedy.

I'm not familiar enough with the campaign laws of other democracies to say whether private money serves a similar role elsewhere (tho I suspect not), but I think it's actually the wrong question. What matters isn't money being spent per se*; what matters is interest groups seizing control of policy to capture rents. This *does* happen in many other democracies, often to a greater extent than in the US. It might be different interest groups than those in the US, but so what? It might not be financial campaign contributions that's doing the work, but so what?

Democratic politics (hell, *all* politics) is messy, exclusionary, and contentious. This is normal. It was normal in Krugman's imagined Golden Era of the 1960s, and it's normal now.

*The best empirical work on this question that I'm familiar with, conducted pre-Citizens United, is that campaign contributions don't actually have a great effect on either electoral outcomes or legislator behavior post-election.

LFC said...

Obviously the problems didn't start with the Citizens United decision. I was trying, perhaps clumsily, to push back against your point that there is nothing very awry with how U.S. democracy functions. Yes, there is always contention, interest groups try to seize control of policy to "capture rents". But the severity or degree of these processes varies -- e.g., rent capture by big business in the U.S. was probably higher in the Gilded Age than during the Progressive Era. And it is prob. higher in the last few decades than it was in the 60s-70s, though you may disagree. Whether the campaign finance system contributes to this is an empirical question, of course, and I haven't followed the research. (I would be surprised if it had minimal effect, but I'm not in a position to debate that in an informed way.) The causes of steeply increasing income/wealth inequality in the U.S. from c.'79 to the present are also debatable, but the phenomenon itself is arguably some indication that the arteries of democratic politics have gotten clogged up (if you'll permit the metaphor). Clearly there is a range of causes (decline of organized labor, globalization, domestic economic policy etc), but 'process' elements may have contributed.
Though Krugman is probably less concerned with this, political polarization at both the mass and elite levels, and in particular the steady move of the Rep. party to the (far) right, has not helped. (Cf. Mann and Ornstein on this.)

Kindred Winecoff said...

I started to write a reply but it was getting long so I just turned it into a new post:

Latinamericanist said...

Krugman blurped Off-Center, cited and is acknowledge in The Great Risk Shift, was at APSA 2008 at a political economy panel with Pierson, McNolan(?) Farrel etc... I was wrong about Winner Takes All Politics, though - it looks like he never talked or wrote about that either, which is too bad - still, while I don't know whether Krugman has read Barrington Moore, the claim that he doesn't know anything about PE is shady.

The other point: "Has Krugman advanced a realistic idea on how to change the distribution of income?" No he hasn't. But you imply that he would be able to if he only knew the PE literature better and to that my reaction is - huh? Because I haven't seen any PE-inspired realistic proposals, either.

The other thing is the question "what has gone wrong". I think Krugman and Wells are much clearer on that than you give them credit for. They talk of political and economic disappointment and then specifically: "why there has been no second New Deal [i.e. political disappointment] and why the policy response to the prolonged economic slump has been so inadequate [i.e. economic disappointment]."

They also have more of an explanation than you give them credit for. Essentially there are two parts:
1. The Democratic party has become too close to Wall Street (that's straight out of Hacker&Pierson)
2. Facing demographic change, the Republican party faces a dwindling voter base and uses hard-core confrontation as a strategy to mobilize it.

I think 1. is plausible - especially if you beef it up with the H&P story about the roots of the Democrat-Wall Street alliances in the 1970s. I think 2. is a bad argument and I don't really see the mechanism. But it's certainly an argument, no?

Kindred Winecoff said...

I didn't know Krugman blurbed Off-Center (which I haven't read), and at APSA 2008 I was just beginning my first semester in grad school so I was unaware of that panel too. My general point -- that Krugman spends much more time in the truel that is modern macroecon than in anything resembling political economy -- I think still holds. I'll try to define how I read him so we can maybe reach clarity: Krugman's intellectual project still seems to be a) find the technocratic economic solution to a given problem; b) propose it; c) demonize anyone who questions a) or b). This is not the approach of someone with an appreciation for political economy.

In terms of what PE has done... you're correct that it often hasn't been much (at least besides what Krugman is already saying). I think that's because at this point PE takes as given that democratic institutions are Good and Right by definition, and all their theories suggest that democratic institutions will generate good outcomes by definition. That leaves most of PE in a weird place. They either have to cast that assumption aside, or they have to adopt some normative cause which is officially covert but almost always transparent. My intellectual project involves the former; not so much the latter.

I would suggest that one reason why there hasn't been a second New Deal is because there was a first New Deal. As bad as 8% unemployment is, the automatic stabilizers in the US have actually served a purpose. The New Deal arose out of chaos. We haven't had chaos. Just unpleasantness.

I'm not actually sure that "the Democratic party has become too close to Wall Street" is actually much of an explanation. What have Democrats *done* as a result of this that has led to this crisis? Why have Democrats gotten close to Wall Street in the first place? What does the experience of other countries tell us about the relationship b/t left parties and finance? What does the historical record tell us?

Krugman is on record -- repeatedly -- as saying that Glass-Steagall repeal isn't the problem. He is on record -- repeatedly -- as suggesting that our fiscal problems are almost entirely the GOP's fault. His complaint about the Democrats seems to be that they don't have enough spine. But that's not a political theory with any teeth. Nice moral tale; bad explanation.

I agree that your #2 is bad, but I think it's bad for the same reason that #1 is bad.

Phil Arena said...

Glad to see this post. Both it and the discussion in the comments have been interesting.

I understand Krugman and Wells to be arguing here that 1) the Rubin camp within the administration won the internal policy debate, and 2) this is why the policies that would have helped promote recovery never materialized. I'm more interested in 1) than 2). I was curious about whether you found it persuasive or not. I gather that you're not particularly impressed with it?

It is interesting, as you point out, that much of what Krugman has had to say elsewhere puts the blame on the GOP more so than internal debates within his administration.

What *does* the experience of other countries tell us about the relationship b/w left parties and finance? Do you question that the left has grown cozier with the banking industry, or are you just saying that because this is a general phenomenon, the K&W essay and its focus on individual personalities within this particular administration is misleading? (I'm not arguing -- just trying to clarify.)

Kindred Winecoff said...

Hey Phil -

I'm not even sure how to adjudicate #1. Rubin obviously wasn't in the Obama administration. Summers had been his secretary, but nobody with any knowledge believes that Summers is Rubin's lapdog. Some believe that Geithner; I think that's absurd. The evidence seems to be comprised of "Christy Romer wanted a bigger stimulus and Geithner didn't". But the record ALSO shows that none of Obama's policy people (Axelrod, Emanuel, etc.) thought that a bigger stimulus would pass. In the end, which matters more: the intellectual battle b/t Geithner v Romer, or the (likely correct) belief of the policy people? In any case we don't even know what the hell Rubin wanted!

(FWIW, I very much doubt Geithner cared all that much about the size of fiscal stimulus, and many of the left's criticisms of him is that he engaged in too much *monetary* stimulus. They call this "bank-friendly policies". From the perspective of stimulating aggregate demand this criticism is self-contradictory. It only makes sense if you believe that some groups deserve stimulus more than others. Which, fair enough, but we're outside of social science at that point. And at that point it isn't really about stimulating aggregate demand... it's about privileging some groups over others. I'm not saying that's not allowed, I'm just saying that we need to call it what it is.)

Regarding #2, I actually think that policies promoting recovery *have* materialized. The argument isn't even about that. It's about two things: *how* recovery has materialized (ie mostly skewed towards corporate profits over labor income), and *how quickly recovery* is materializing (ie not fast enough to boost labor incomes, but fast enough to maintain the value of asset portfolios w/o eating into their value via inflation). Why this has happened this way is a very interesting question for political scientists, and I have ideas, but they'll have to wait for another post. Steve Randy Waldman (aka Interfluidity) has also written a good amount about this.

As I mentioned in a comment in my succeeding post, I'm planning a new post on the relationship b/t finance and government, taking a fairly broad perspective. I'll save most of my thoughts for that. Right now I'll just say that the left has gotten cozier with finance, but mostly because they realized they could use finance for their own purposes. The dirty secret about the banks' "reckless lending practices" is that that, translated, means "lending to poor people". "Subprime" means "poor". "Toxic assets" means "money poor people aren't gonna pay back". It meant "give student loans so poor kids can go to college". It also meant "lending to governments to fund welfare programs at affordable rates". The left liked all of these things at the time, and encouraged them, and not just in the US. That alone didn't cause the crisis, but it was politically useful for them.

But even this isn't just a function of internal US politics or economics; it is also related to broader global developments over the past quarter century or more. In particular, the shift to an export-biased development model that strongly incentivizes maintaining large and persistent current account surpluses in developing countries. That money had to go somewhere. It went to US banks, who gave it to US borrowers.

Phil Arena said...

Thanks for the response. That all makes a lot of sense. I had some similar thoughts, but I'm far enough from my expertise here that I'd prefer to keep my mouth shut and see what others have to say.

I look forward to the post on the relationship b/w finance and government.

Who, Exactly, Is Getting Away With What, Exactly? And Why?




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