New York Times Reporters need to Read Krugman’s Columns

By William K. Black

To know the Washington Consensus as a regular citizen is to hate the Consensus.  The Washington Consensus, as the name implies, was an “inside the beltway” series of neo-liberal policies embraced by the IMF, the World Bank, and the U.S. government.  It called for a minimal State and an all-powerful private sector.  The private sector and de facto private central banks would discipline the State by insisting on balanced budgets – perpetual austerity.  Democracy was unreliable, indeed dangerous, so the central banks had to be “independent” of the democratic process (and wholly dependent on the largest banks).  Only the private sector had the proper incentives that could be relied upon to create vibrant growth and a self-correcting economy.  The Consensus was developed in the context of the policies that should be imposed on Latin America and Latin Americans were the guinea pigs of Consensus.  (This metaphor was particularly troubling for Latin Americans who knew that their ancestors raised guinea pigs as a reliable source of meat.)

The Consensus led to weak growth, high unemployment, and repeated privatization scandals.  It enraged ordinary citizens in much of Latin America, which is why there has been a landslide of national leaders elected because of their promises to oppose the Consensus and their open disdain for Washington’s neo-colonial diktats.  There is nothing unusual about the Latin American reaction to the Consensus.  What is startling is that at the same time that Latin America was rising up to reject the Consensus the dominant neo-liberal politicians and economists in Europe were passionately worshiping its failed dogma with the zeal of the convert.  They created the Berlin Consensus, and it rested on austerity today, austerity tomorrow, austerity always.

Overall, European nations showed significant budgetary restraints in the decade leading up to the Great Recession.  Most of the periphery did so – Greece is a special case.  The Cato Institute, for example, praised Iceland and Ireland as models of restraint.  Spain also received praise.  The claim that the periphery was “profligate” through large budgetary deficits in the run up to the crisis reverses the facts.

Austerity during a serious recession is economically insane.  It is a pro-cyclical policy that makes the recession more severe.  A more severe recession is a mass destroyer of wealth and quality of life.  It is pure waste.  It is the primary cause of dramatic increases in public deficits and debt.  Unemployment reduces tax payments and increases demands for public spending.  One cannot decide to end a budgetary deficit during a recession by adopting austerity.  Austerity (some combination of cutting government spending and increasing taxes) reduces private and public sector demand.  This means that imposing austerity is likely to deepen the recession and can make the national deficit and debt larger.  It is analogous to the medical insanity of bleeding patients to cure them of disease – and then bleeding them more because the prior bleeding make them sicker.  Europeans of the periphery are having austerity imposed on them by German demands – and they are subjected to repeated insults from German and Dutch leaders for failing to balance their budgets because the austerity imposed by Germany deepened their recession and slashed their tax revenues.  Germany’s demands for austerity have thrown the euro zone back into recession – but it has forced the periphery into Great Depression levels of unemployment.  German-imposed austerity, the Berlin Consensus, is even more draconian than the Washington Consensus in Latin America.  Germany and the ECB are open that they are not simply demanding austerity and massive privatization – they are also demanding dramatic reductions in working class wages throughout the EU.  The German’s and the ECB are not demanding any sacrifices from European elites.  They explicitly target the working class and government workers’ wages and oppose any increased taxation of the wealthy.  The Berlin Consensus is a road map to ever greater inequality.

The reaction among Europe’s citizens has been overwhelmingly negative.  Every nation that has agreed to austerity has suffered economically and every ruling party that agreed to austerity in return for EU aid has fallen.  Austerity is the leading cause of disintegrating EU unity.  The nice thing about democracy is that the people are often less wedded to failed economic dogma than are the academic devotees of the cult of austerity.

The New York Times has a very good economist, a Nobel laureate, working for it as a regular columnist.  His name is Paul Krugman and among his areas of primary study is how to recover from a severe recession.  Regular readers of the paper will know that recovery is the most common subject Krugman’s columns discuss.  Sunday’s elections in France, Greece, Germany, and the UK have spawned a spate of articles in the New York Times that have focused on finance and recovery from the Great Recession in Europe.  The reporters’ collective take on the elections demonstrates that they are in the grip of dogmas that are so powerful that they have come to believe in anti-facts and to rely on “economic” theories that are rarely believed by economists and have been continuously falsified by reality.

It is now apparent that the paper’s journalists that cover the EU do not read or do not understand Krugman.  Here is how they began a story on the French election and the import of Hollande’s victory.

“Mr. Hollande’s campaign promised a kinder, gentler, more inclusive France, but his victory over President Nicolas Sarkozy will also be seen as a challenge to the German-dominated policy of economic austerity in the euro zone, which is suffering from recession and record unemployment.”

Notice the logical disconnect?  There is “austerity” and there is “suffering from recession and record unemployment.”  The two are presented as if they are not connected.  Austerity during a weak recovery from a Great Recession will cause intense “suffering from recession and record unemployment.”  That is a fact as we have taught it in economics for over a half-century.  It has strong theoretical and empirical support.  Indeed, Mr. Draghi, the head of the European Central Bank (ECB) has conceded that austerity deepens recessions and unemployment.  He claims that eventually this turns around and austerity aids recovery.  When and how austerity turns around and eventually aids a recovery has neither theoretical nor empirical support (hence Krugman’s derisive allusion to the stealth “confidence fairy”).  Note also that the interrelationship of the German-imposed austerity and the resultant return to recession in France is precisely why Hollande won the election and is therefore critical to the article.

The article’s economic analysis descends from that failed start. The next sentence reads: “French voters may not like the belt-tightening, but both Mr. Hollande and Mr. Sarkozy had promised to balance the budget in the next five years.” This sentence contains two false implications.  First, it implies that a nation suffering from recession can simply decide to “balance the budget.”  As I explained, and as the EU’s tragic experience under German austerity confirms, trying to balance the budget not only makes recessions and unemployment worse, but can make the deficit grow.  Severe recessions are the great cause of rapidly expanding budget deficits.  Second, no patient likes being bled by quacks (whether their doctorate is in medicine or economics).  The implication of the article is that austerity in a Great Recession or a depression (which is what the periphery is suffering) is some kind of unpleasant medicine or form of virtuous self-discipline (“belt tightening” is an absurd metaphor for German-imposed austerity).  The journalists portray the French as refusing to continue to drink the vital but bad tasting medicine that the wise Germans stoically took a decade ago.  No, the French object to further bleeding by German and French quacks whose answer to everything is austerity (Sparmaßnahmen).

The journalists continue the theme of the selfless German economic doctors attempting to convince the frivolous French to take the ill tasting cure for their economic ills.

“The presidential election in France and the parliamentary vote in Greece on Sunday have been closely watched in European capitals, particularly in Berlin, where Chancellor Angela Merkel has led the drive to cure the debt and banking crisis in the euro zone with deep budget cuts and caps on spending.”

The Berlin consensus has not and cannot “cure” the debt and banking crisis – it has made it vastly worse.  We are all able to observe the German snake oil “cure” forcing the euro zone back into a gratuitous recession.

The journalists soon slip into TINA (there is no alternative) and implicitly embrace the bond vigilantes (aka, the banks whose frauds and abuses drove the financial crisis that caused the Great Recession) as the appropriate arbiters of public policy.

“While crowds in Paris cheered Mr. Hollande’s victory, investors were more cautious in their reactions.

They are concerned that Mr. Hollande might choose to spend more money to jump-start the economy rather than move ahead with labor and business reforms that economists say France sorely needs to improve its competitiveness to prevent it from getting caught in the euro zone crisis.

‘Markets will not attack France right away,’ said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. ‘But there is a risk that if Mr. Hollande does not act early on, France will become the next sick man of Europe.’”

Where to start?  First, the bond vigilantes have been attacking Italy and Spain’s sovereign bonds for weeks even though both nations are slavish in their devotion to the Berlin consensus.  Italy and Spain make good targets because they have adopted austerity and forced their economies back into recession, which meant that the promises to reduce the budget deficit to meet Berlin’s destructive targets were impossible to meet.  The journalists’ implication is that imposing austerity during a recession improves an economy.  We have run many real world tests of this dogma and it does the opposite.

Second, the journalists imply that TINA rules – there is no alternative to austerity because the bond vigilantes will crush any alternative.  It that were true, then it would be all the more reason for the citizens of Europe to rise up and restore their national sovereignty that they have ceded to Berlin and the largest banks who caused the financial crises that drove the Great Recession.  The largest banks are the principal bond vigilantes.  If the only alternative available to Europe under the euro and the Berlin Consensus is to force the euro zone into recession, the periphery into depression, and slash working class wages then the euro and the Berlin Consensus have to go because they are destroying the Europeans, their economies, and the EU project.  The Berlin Consensus invokes the same “logic” that became infamous in one American unit’s response to the Tet offensive – “it became necessary to destroy the village in order to save it.”  Berlin is happily destroying the periphery in order to save it – and is distressed that not enough inferior Europeans praise Berlin for imposing discipline on the ungrateful periphery.

Third, consider the multiple fictions posing as indisputable facts in this sentence taken from the passage quoted above:  “[Investors] are concerned that Mr. Hollande might choose to spend more money to jump-start the economy rather than move ahead with labor and business reforms that economists say France sorely needs to improve its competitiveness to prevent it from getting caught in the euro zone crisis.”  I will start with the metaphor.  When your car battery dies your car will not start.  Your car may have other flaws that make it less than ideal, but if you need to get to work tomorrow do you (1) jump start the car or (2) spend the day ordering racing tires and then wait two weeks for them to arrive and be installed before jump starting the car?  Jump starting cars works.  We have sound empirical and experiential bases for knowing that it works.  Running an international competition among nations based on a race to the bottom on working class wages does not work for the world or the working class.  It is a wonderful way to make the one percent even wealthier.

Who are the “economists” who say that France “sorely needs” as its priority to cut working class wages?  If international “competiveness” on working class wages determines which nations are “caught in the euro zone crisis” then this is another form of dogma that relies on TINA.  Again, assume for the purpose of discussion that the economic world we live in has become a negative sum war against the working class.  This is what we call the “Road to Bangladesh” strategy.  The only way to win a race to the bottom is to refuse to play the game – and create a new system in which we race to the top.  It is bizarre that the Berlin Consensus fundamental policy – slashing working class wages – is a straight steal from Marx’s critique of capitalism.  The Berlin Consensus’ labor policy is premised on the inherent downward pressure on working class wages imposed by the global “reserve army of the unemployed.”  The Berlin Consensus’ further problem is that the enhanced global competitiveness that other EU nations are supposed to obtain by sharp cuts in working class wages are supposed to turn EU nations into massive net exporters like Germany.  This is a classic example of the fallacy of composition.  We cannot all be net exporters.  Indeed, Germany’s large net trade surplus makes it far harder for other EU nations to become net exporters.  The Berlin Consensus cannot “succeed” even under its own terms for the EU, much less the global economy.

Fourth, who is the only “expert” cited to support the proposition that France has no alternative, it must balance its budget during a recession in order to avoid becoming “the next sick man of Europe”?  That would be a representative of the Peterson Institute’s international program.  The original Peterson Institute was established for the purpose of lobbying for balanced budgets.  The Peterson Institute researcher continues the medical metaphor under which austerity is the essential but bad tasting medicine that the wise Germans took and cured their economy and are prescribing for the frivolous French.  The Peterson Institute loves the Berlin Consensus.  The Peterson Institute is one of the groups claiming that U.S. is minutes away from hyper-inflation and that only slashing Social Security, Medicaid, and Medicare can save the nation.  Meanwhile, we continue to borrow at historic low interest rates.  Their predictions about hyper-inflation and high U.S. interest rates have consistently proven false.  Krugman’s (and UMKC’s) predictions about interest rates and hyper-inflation have proven correct.

I don’t mind the journalists quoting Jacob Funk Kirkegaard of the Peterson Institute.  I object to his statements being treated as indisputable fact.  Reading recent columns he has posted on the Peterson web site demonstrates (1) that he reads Krugman, (2) he admits former ECB President Trichet’s claims that austerity produced more rapid and successful economic recovery are false, (3) he admits that austerity produces deeper recessions and has forced the periphery into depression, (4) he discloses that his priority for the EU is to break its unions, particularly in Spain, so that working class pay can be reduced substantially and employment expanded, and (5) he argues that the reason he supports austerity for Europe is that it is a political act required to convince Germany to support a revised, more stable euro.  He has an interesting background as an ex-intelligence officer for the Danish army.

The dogmatic austerity devotees who consistently get it wrong are treated as undisputed authority while the New York Time’s own expert who has consistently gotten it right, and has a Nobel Prize in economics, is ignored.  (Krugman was formerly more of a deficit hawk.  He now takes into account how different sovereign monetary systems, e.g., the U.S. and Japan, are from currencies like the euro and is more of a dove.  UMKC economics consists of deficit “owls.”)

A related New York Times story about investor reactions to Hollande’s victory buys into austerity and the assault on working class wages even more wholeheartedly.

It cites no contrary views by economists.  It does not even mention austerity throwing the euro zone back into recession and periphery into depression.  It embraces TINA and the Road to Bangladesh strategy.  It sees no irony in this, warning that unless France makes deep cuts to working class wages:  “‘France runs the risk of becoming more of a periphery country than remaining in core,” Mr. Kirkegaard of the Peterson Institute said.”  So the only way for France to avoid becoming like the periphery is to force cuts in working class wages to levels where France can outcompete China – and Germany and Bangladesh.  And what does Kirkegaard think the Spanish will be forced to do under this strategy?  They’ll have to make deeper cuts than the French.  And what will the French do in response to the Spanish working class wage cuts?  And what will Vietnam and Bangladesh do if the EU nations cut their working class wages to levels that allow them to “win” the race to the bottom?  Won’t they be forced to react by further cuts in their working class wages?  Who is going to buy Germany’s VWs under this strategy?  To sum it up: in order to avoid becoming a part of Europe’s periphery France’s working class must become part of the third world.

I will close by using the medical metaphor.  Bleeding patients, or nations, to cure them is quackery that harms the patient and the nation.  Economists pushing the Berlin Consensus violate the first principle of the Hippocratic Oath – do no harm.  Paul Krugman needs to run a teach-in at the New York Times for its international business reporters.  They are helping the economic quacks who prescribe the snake oil of austerity and have as their real objectives (1) gutting Social Security, (2) destroying unions, (3) slashing working class wages, and (4) making the one percent ever richer and more politically dominant.

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

Follow him on Twitter: @williamkblack

36 responses to “New York Times Reporters need to Read Krugman’s Columns

  1. What a bunch of muppets! As Yves Smith opined the other day, the NYT is proving over and over their fealty to the 1% … Eeeegads!

  2. Well done Mr Black. And I’m not even that huge a fan of Paul (like many visitors of this site)
    I for one am not planning to give guinea pigs a taste any time soon.

  3. I sometimes think China could be an important object lesson as well. Yes, China does have lot’s of corruption (but more than the US … I’m not so sure anymore, maybe a different type of corruption), but its leaders seem to care, or fear, unemployment. They are determined to keep people working. That alone is likely to lead them down a very different path to the one the West is currently on. If in 10 years China is the world’s largest economy and is continuing to grow rapidly, people may start to wonder why.

  4. The policy of austerity and low taxes on the wealthy, act to increase the holdings of the wealthy by lowering prices, mostly without harming the wealth of the most wealthy. That’s why this is pushed. As for journalists, one must always remember that in today’s system, every reporter is a whore who is scared to lose their job. So they toe the line that editors and owners want.

    I have run into this in other areas in different form. For instance, it is for all practical purposes impossible to get a factually ridiculous international story fixed. This wasn’t always so. I realized though, that with international reportage positions become so scarce, journalists that write stories can’t afford to look bad. The more egregious the factual error, the more important it is to bury any factual error.

    Relative to economics, most in journalism are, shall we say, not mathematically inclinced. Many are really quite challenged in their capacity to think logically. The rest are scared little bunnies, which is, interestingly enough, exactly what these policies of contraction want to create – precisely so that it is easier to exert firm control by elites. Those elites are, many of them criminal (viz. banking) and most of the rest are simply avaricious. But all wealthy elites are arrogant, self-assured and power-hungry. It matters not if their wealth was essentially obtained by accident (and most have a great deal of accident involved). The human animal is made such that dominance chemistry rules the roost.

    Which is why it is necessary to bite both the criminal elites and their rabbit minions.

  5. “[T]here is a risk that if Mr. Hollande does not act early on, France will become the next sick man of Europe.” – Jacob Funk Kirkegaard

    Breaking News: We are receiving reports that France has actually been a “sick man” since it went into recession. It will be a dead man if it continues to engage in austerity.

  6. Dan Kervick

    This business is really beginning to make me mad, Bill. And I want to believe that some of these journalists are just ignorant, and believe what they are told only because they don’t know any better.

    But since the beginning of this crisis I have had a very eerie feeling and personal reaction over some the things I see in the New York Times, or hear on NPR. Basically, it feels like a world in which people are choosing up sides. These establishment mouthpieces are not just ignorant. Rather they represent the class of the affluent and highly educated, and are defending the prerogatives of that class. They instinctively hate working people, hate the uneducated, hate everyone they view as one of life’s tasteless, classless, ignorant losers. And they want to see the latter all punished and put in their place. They also want to force the losers to work for even less so the affluent can continue to enjoy their present standards of living – a standard that has been created through three decades of shifting income balances toward the top.

    They are not just ignorant. They have chosen a side: the side of haves against have-nots.

    Greece is just one of the most extreme example – the people who own or indenture the factors of production of Greece refuse to put those resources to work until the least fortunate Greek people agree to take less.

    • Dan, You forgot the Washington Post. They’ve chosen the 1% side, Peterson, and austerity, a long time ago. At this point, I don’t think there are any major progressive papers left. There were always only a few and the NYT and WaPo were first among them.

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  8. Let’s see…

    Since the 2008 presidential election, Big Oil is earning record profits, Big Military / Homeland Insecurity is growing like a steroid enhanced 1990s cleanup hitter, banks are bigger and badder than ever, health care costs continue to defy gravity. Insurance giants are about to get a windfall from health care “reform.” Massive civil liberties rollbacks, Internet lockdown policies proceeding nicely, the suspension of habeas corpus complete. Cops busting dirty hippie heads across the country. Wistleblowers crushed. Money still flowing massively upwards.

    For the folks who really run things, it looks like “mission accomplished” to me. Still some chores to do on the punch list, but, really, could things be any better for the upper .01 percent?

    • Dan Kervick


      • Thanks. I should have closed with this:

        “Welcome to Gitmo, Mr. Black. We normally use the local salt water for our re-education enhancements, but please rest assured that the water used for yours will exceedingly fresh.”

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  10. Roger Erickson

    You could be far more assertive. For example, “Meanwhile, we continue to borrow at historic low interest rates” is simply NOT the case.

    Selling T-securities – after the fact – to drain banking reserves is NOT, I repeat, NOT borrowing!!! As writers from Ben Franklin to Warren Mosler have observed, the ONLY concern is right-sizing a fiat currency supply in order to avoid excessive rates of either inflation or deflation. When & to what degree financial assets are added or removed from circulation is an issue. The operational details of HOW is of secondary importance – if “flations” are the main concern – but it does matter how the topic is presented to an audience.

    Acknowledging a debt while claiming it doesn’t matter is ceding the oratory before the debate begins. It’s far better to define the terms accurately beforehand, and then stick to principle thereafter.

    Claiming that there is no God, no devil, and that we won’t go to hell will never swim upstream as an atheist talking point. All it does is reinforce in audiences the very concepts you’re trying to free them from.

  11. Charles Yaker

    Great article as usual. Unfortunately the only ones reading it are the choir. We need to buy billboards and cover the nation with simple declarative statements. “Austerity and balanced budgets will lead to Ressesion possibly Depression and much more suffering. There is an alternative.”

  12. Prof. Black, history serves us in two ways. The name “Funk” rang a bell within the Economics + Politics frame. Peter Viereck writes about Walther Funk’s place in the Third Reich in his “META-POLITICS: The Roots of the Nazi Mind” (Alfred A. Knopf 1941, Capricorn Books 1961):

    “W. Funk exemplifies the arty frustrated musician who becomes a high Nazi. Earlier, he had worked with Jewish bankers, those same Jewish bankers called by the Nazis the ‘secret directorship of gold’ known as plutodemocracy. (p. 157) … Despite all Funk’s former Jewish connections, Hitler has chosen him both as Minister of Economics and president of the Reichsbank.” (p. 158)

    Speaking of Veblen anent the Treaty of Versailles, Prof. Guido Giacomo Preparata writes, in his “CONJURING HITLER: How Britain and America Made the Third Reich” (Pluto Press, 2005):

    “But as far as the conspiratorial dynamics of the Treaty was concerned, Veblen was clairvoyant; he had made three considerations: (1) Germany was spiritually prone to a cyclical recrudescence of eerie fanaticism; (2) the sham of reparations was designed to cause distress only among ordinary Germans; (3) the German dynastic absentees, that is, the true rulers, had been spared by the Allies any sort of punitive sanction.” (87)

    The .01% and their .99% Agency did it then, and they’re doing it now. Must the whole of history rhyme?

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  14. I loved the final line:

    (1) gutting Social Security, (2) destroying unions, (3) slashing working class wages, and (4) making the one percent ever richer and more politically dominant.

    The word “paranoid” comes to mind.

    No, its about the quality of life and equal opportunity for future generations. Just a few facts:

    (1) From 2008 -2010 the Federal Reserve exploded its balances sheet by $2 trillion, a 300% increase.
    (2) In the same period Federal debt rose by $6.4 trillion (130%).

    And you guys keep saying you want more. This debt and spending gave us a sugar high. It worked, but was of no lasting benefit. The debt that it cost us will be there for our children’s children to pay. Shame on you.

    • “The debt that it cost us will be there for our children’s children to pay. Shame on you.”

      Good.Grief. Have you learned anything from NEP? You like facts? Here’s a couple facts I have for you. If you were to pay your taxes in cash, the money would get shredded… Destroyed! Eliminated! So if there were an iota of truth in your assertion about “debt costing us” and being there “for our children’s children to pay”, the taxes we pay would go somewhere to “pay down on that debt” wouldn’t it? It goes nowhere… taxes destroy money. When are “flat earth” thinkers like you ever going to get it? The debt/deficit is nothing more than “keeping score”. Not shame on Bill, but shame on you, for perpetuating an incorrect view of gov’t spending and taxation. Back to the drawing board! Here’s a good place to start:
      See Deadly Innnocent Fraud #2

    • (1) & (2) : Who cares? Whoop-de-doo. Chump change.
      So the US has issued a lot of money=debt=bonds. Chump change in comparison to the real wealth of the USA. Before the GFC, the debt was probably was too small in practical terms for financial stability & stable growth.

      The debt that it cost us will be there for our children’s children to pay.
      Our children’s children don’t OWE the debt.
      They OWN the debt.
      The only problem is the maldistribution of this debt. The 1% children will own this debt, which makes them effectively own the 99% children if the 1% succeed with their “sound finance”, “balanced budget” con game you seem to be suckered into.

      The “economics” you have been brainwashed into – not your fault – is pure shit. It makes no sense & has no application to reality. It is less science than astrology is. It has effectively reversed the creditor /debtor relationship in your mind. What you say is like thinking if you stab someone, you will start bleeding.

      No. Up is up. Down is down. You’ve been brainwashed into thinking up is down.

      If you really, really want to worry about the debt, with
      As I explained, and as the EU’s tragic experience under German austerity confirms, trying to balance the budget not only makes recessions and unemployment worse, but can make the deficit grow. Severe recessions are the great cause of rapidly expanding budget deficits.
      Black touches on the important stream of thought from Keynes, Lerner, Domar, Godley to Fulwiller that shows that “Take care of the employment and the budget will take care of itself”, that “Functional Finance is sounder than Sound Finance”. Austerity, balanced budget attempts create big deficits. Spending enough when needed will lead to shrinking deficits. Today’s deficit & debt are residues of the austerity, the overtaxation of the working class during the neoliberal “Great Moderation” = “Great Stagnation”. The Keynesian full employment era continually shrank the debt/GDP, bottoming out under Carter. So even for the not very meaningful goal of debt/gdp minimization – Keynes on steroids, MMT is the way to go!

      • “The important stream of thought from Keynes, Lerner, Domar, Godley to Fulwiller that shows that “Take care of the employment and the budget will take care of itself”
        Yes, that was the way George Bush phrased it when he cut the taxes on the rich so they would naturally go out and hire people- except they didn’t- they pocketed billions in money that would have gone for taxes and sent jobs overseas where wages were cheaper. The result: 5 million lost manufacturing jobs and new debt EQUAL TO THE SUM OF ALL PREVIOUS DEBT. (sorry, but I could not find larger caps.) This is known as Caligulan Compassionate Conservatism

        • Of course cutting taxes on the rich & continuing to overtax the poor is the worst way to do things, as the weakness of the 2000s expansion showed. Bush followed Keynes recommendation backward, increasing the deficit, badly targetted to the rich, which doesn’t work very well. But if taxes had not been cut, or spending increased, preferably targetting employment to do sensible things “take care of the employment”, the Clinton surpluses would have caused a GFC a decade ago. Still, US government debt = money is pretty much at low chump change level, nothing to worry about, and a lot less than private debt, which is something dangerous. Abba Lerner didn’t fear a government debt as big as today’s – when the economy was 3% of its current size!

  15. Germany is clearly doing something right with its own economy. More deficit spending across the eurozone may be necessary now, but at some point the troubled countries will have to make some major changes, if they’re to become competitive in future. Germany will also have to start importing more from its neighbours, of course.

  16. Charles Yaker

    Proffessor ; This is the second time you have reccomended that we stop playing the game. I would love to do that but am not sure how. Can you explain?

  17. I’m not sure I would agree this is a “German imposed” austerity as much as an austerity imposed by an elite group from many countries. Professor Alain Parguez, a French economist who spoke at the MMT seminar in Italy, as well as a seminar at the IUC of Turin last November, the audios for which can be found on the internet, calls this elite group by name, Opus Dei. And from the contents of both audios one can infer a merger of State and religion has taken place in Europe, where members of religious orders and Opus Dei sit in positions of government authority; specifically mentioned were the Ministry of Finance, the Ministry of the Interior, and the European Commission. As no logical economic reason exists for austerity, one is left with political motivation, and this group appears to want the elimination of European democracy and the social welfare state with the resultant reduction of European labor to the level that exists in China. As this end will result in a sea of labor in possession of no rights, ruled by an oligarchy, the question one has to ask is…can these people really be this crazy?

    • epcurnyn, the Opus Dei information is the missing piece of the puzzle. Now everything makes perfect sense.

      An “old book” now available in ether from sheds more light yet:

      “THE DUAL STATE: A Contribution To The Theory of Dictatorship” by Ernst Fraenkel, translated from the German by E.A. Shils in collaboration with Edith Lowenstein and Klaus Knorr (copyright 1941 by Oxford University Press, New York, Inc.)–reprint from The Lawbook Exchange, Ltd., Clark, N.J., 2006). This is why our laws have been trashed, as global “leaders” commit crimes with impunity–just as they were during the Third Reich, no doubt for the same reason. Are Opus Dei Agents of Empire the SS of Reich IV?

      • And let’s not forget the glue of “Universal/Catholic/Christian “NOBILITY Economics + Politics” binding despotic dreamers of the Ultraconservative Authoritarian Catholic State, manufactured with the help of the ex-NAZI Joseph Cardinal Ratzinger, now Pope Benedict XVI, and promulgated as the “Republican” TFP religion in America by apparatchiks such as Morton C. Blackwell, Charles “Chuck” Colson and George W. Bush–as revealed between the lines in the Magnum Opus of Plinio Correa de Oliveira: “NOBILITY and Analogous Traditional Elites in the Allocutions of Pius XII: A Theme Illuminating American Social History” (York, Pennsylvania; The American Society for the Defense of Tradition, Family and Property (TFP)–a registered name of The Foundation for a Christian Civilization, Inc.; 1973).

        The Foreword is by Morton C. Blackwell of Virginia, the effective Minister of Youth Education and Political Propaganda for Ronald Reagan. Can there be any doubt that the “Southern Strategy” Putsch for “NOBILITY” BONDING–between the “American Nobility” (the Confederate Master Class, the Military-Industrial Complex, the Roman Catholic-American Evangelical “Crusader” Bloc, the Neocon Economics/Law Bloc) and the “Old European Nobility” (Veblen’s “absentee rentier” DNA on the hoof)–left the door wide open for behind-the-scenes despotic conspiracy by the Master Agents of Opus Dei?

        This book, like “Mein Kampf,” although required reading in the 1990’s at the University of Dallas, an Opus Dei stronghold and maker of supremely obedient men “just taking orders,” has been ignored. Why?

    • I have thus far resisted explanations suggesting vast conspiracies, but clearly the transcontinental destruction of the middle classes is well organized, deeply funded, ruthless and relentless. Blowing up the world economy and then using it as a pretext to expand economic dominance over billions of people may not be the perfect crime, but a criminal act it truly is.

      As the uber elites have more wealth than they could possibly spend in a 100 lifetimes, the motivation for the destruction has to lie elsewhere. At least one meme that has emerged over the past couple of months is that the ruling uber elites have become completely disconnected from the rest of humanity and their behaviors increasingly anti-social if not downright psychopathic. In other words, it’s about the acquisition of ever more power, the ability to dominate and control other people. Clearly the ageless maxim that power corrupts, and absolute power corrupts absolutely is being validated on a global scale once again.

      In a sane world, a leaders who were truly connected to their people would be holding up German and Scandinavian systems as models of how shared prosperity elevates an entire society’s quality of life. Instead, it seems these systems are being targeted for destruction, and in much the same manner that the U.S. is loosing its middle class – slowly, steadily, almost imperceptibly.

      The late, great George Carlin was right: “There’s a Club. You’re not in it.”

      And most meaningfully: “And now they’re coming for it all.”

  18. Prof. Black:

    Quotations below suggest the “Meta-Politics” behind the seamless transition from Reich III to Reich IV, within the “Economics + Politics” dynamic frame. Imagine the “Meta-Politics” driving the U-Chi Economics Wealth Transfer System, obscured through alienated “mathematical” obscurantism. Recall the comments above re Walter Funk , and Veblen’s clairvoyance; and to the book,, “The Dual State,” to set the stage for viewing the putsch for “creative destruction” in America since 1970, with “Randian” and “Austrian” Academics in the vanguard of indoctrination for spoils.

    From the Introduction of “The Dual State: A Contribution To the Theory Of Dictatorship” by Ernst Fraenkel, tr. by E.A. Shils, w/ collaboration by Edith Lowenstein and Klaus Knorr (2006; orig. 1941):

    “By the Prerogative State we mean that governmental system which exercises unlimited arbitrariness and violence unchecked by any legal guarantees, and by the Normative State an administrative body endowed with elaborate powers for safeguarding the legal order as expressed in statutes, decisions of the courts, and activities of the administrative agencies. … In studying the developmental of judicial practice as it is embodied in decisions, we learn that there is a constant friction between the traditional judicial bodies which represent the Normative State and the instruments of dictatorship, the agents of the Prerogative State. (xiii)

    “In the third and concluding section we confront the legal system and legal theory with the legal reality of the Dual State. In the critical, sociological part we indicate the relationship of contemporary [1936] German capitalism to the functioning of the Normative State and the Prerogative State. We shall inquire whether the legal situation characterized as the Dual State is not the necessary consequence of a certain stage of a crisis for the directing elements of capitalist society. Perhaps it can be shown that they have lost confidence in rationality and have taken refuge in irrationality, at a time when it would seem that rationality is needed more than ever as a regulatory force within the capitalist structure.” (xiv)

    See: Chapter 8: The Tomb Raiders of the Postmodern Right: Junger’s Anarch, the Neocon, and the Bogus Hermeneutics of Leo Strauss” in “THE IDEOLOGY OF TYRANNY: Bataille, Foucault, and the Postmodern Corruption of Political Dissent” by Guido Giacomo Preparata (New York, Palgrave Macmillan, 2007).

    These people are “dreamers” of the “German Romantic” kind (defined in “META-POLITICS” by Peter Viereck). To conjure, through a dream currency, a “European Union” based on a dream of Old Boy “Catholic solidarity,” despite political disunity and economic disparity, is a “German Romantic” act of willful folly. The “Sentimental Dreamer” Kurzweil is cut from the same bolt, longing for Union With the Void in “eternal life.” Will we never complete the “German Romantic gestalt”–that falsely promises deliverance from strife and doubt in life–and move beyond it? MUST the insane with grandiose delusions and compulsions continue to run the world, while running from reality, hell-bent on realizing their reactionary dreams?

    It’s them or us, this much is certain. Prof. Black, where do we go from here?

  19. Paul Andrews

    Paul Krugman is an enabler of the Washington Consensus, not an enemy of it. State spending feeds the parasite that is private world finance. The heyday of the Washington Consensus coincided with a huge ramp-up in government debt world-wide. Paul Krugman thinks this wasn’t enough. More state spending will worsen the problem, not improve it.

    • Paul Andrews–Your description of Krugman as an enabler of the Washington Consensus is incomplete and misleading. Rather, it isn’t that Krugman JUST believes in “…a huge ramp-up in government debt world-wide,” vis-a-vis state spending that makes his position one of “…feed[ing] the parasite that is private world finance.”

      This is not accurate. Unlike Black, who is vociferous about the TBTF and institutional ongoing CRIMINAL FRAUDS therein, Krugman doesn’t believe that the TBTF institutions are the inherent problem (ie “parasite private world finance.”) Krugman categorically has said that TBTF isn’t what caused the crisis, only admitting recently within the last 6 months or so that criminal fraud was even evident in it.

      In other words, not addressing the criminal frauds of the TBTFs IS the Washington Consensus, not the state spending/government debt, of which Krugman DOES pay fealty to.

  20. I have a couple questions:
    1. Since money growth does not cause inflation, why does MMT prescribe money reduction as a cure for inflation?
    2. Since money growth does not cause inflation, why does MMT claim that low unemployment as a result of anything other than the Job Guarantee would produce unacceptably high inflation?

  21. “Since money growth does not cause inflation, why does MMT prescribe money reduction as a cure for inflation?”

    They don’t say that. They say (as far as I’m aware) that “money growth” in excess of productive capacity causes inflation.

  22. “Since money growth does not cause inflation, why does MMT claim that low unemployment as a result of anything other than the Job Guarantee would produce unacceptably high inflation?”

    Again, my understanding: As you get close to full employment, demands for wage increases become difficult to moderate (control), so you can potentially end up with an inflationary wage-price spiral. This is why mainstream economists recommend a minimum level of unemployment, to ‘discipline’ wage inflation (the Non-Accelerating Inflation Rate of Unemployment, or NAIRU). If the economy is starting to ‘overheat’ or get too close to full employment, the standard policy is to raise interest rates or cut spending/increase taxes, thereby increasing unemployment and cooling inflation.

    MMTers argue that this policy is highly wasteful and imprecise. The JG can have the same ‘disciplining’ effect on inflation, as those in the JG are employed on a fixed wage, at or below the general minimum wage. The anti-inflation effect is the same as NAIRU, but without the waste and negative economic/social outcomes of unemployment. Plus, as those on the JG are more employable than those that are unemployed, the labour market can more effectively react to increases in demand. This means the JG pool could potentially be smaller than the optimum NAIRU pool whilst still achieveing the same inflation-controlling effect.