Krugman’s Failure to Speak Truth to Power about Austerity

By William K. Black
Bloomington, MN      November 22, 2016

In the first column in this series I explained how Hillary Clinton, during the closing 40 days of her campaign, showcased repeatedly her promise to assault the working class with continuous austerity.  I explained that her threat represented economic malpractice – and was insane politics.  I showed that the assault on the working class via austerity was such a core belief of the New Democrats that their candidate highlighted that assault even as the polls showed massive, intense rejection of her candidacy by the white working class.  I also noted that in this second series in the column I would discuss the failure of her campaign team, and her de facto surrogate, Paul Krugman to speak truth to power about the dual idiocy of her campaign promise to wage continuous war on the working class through austerity forever.

The broader point is the one made so often and so well by Tom Frank – it is morally wrong, economically illiterate, and politically suicidal for the New Democrats to continue to assault the working class via austerity, “free trade” (sic) deals, and financial deregulation.  The only thing worse is to then insult the working class for reacting “badly” to being pummeled for decades by the Party that once defined itself as the party of working people.  The New Democrats decided to insult the white working class in response to polls showing that the white working class was enraged at Hillary Clinton.  Arrogance and self-blindness are boon companions.

I grew up in the Detroit-area and saw George Wallace win the Democratic Party primary for the presidential nomination, so none of this is new to me.  We all know that the New Democrats are never going to listen to my warnings or Tom Frank’s warnings.  But the leaks show that Hillary had many competent staff who raised difficult questions.  Why wasn’t any senior campaign staffer willing to tell her that her austerity threats were economically illiterate and politically suicidal?  Krugman warned President Obama several times that austerity was a terrible economic policy.

John Boehner, March 2009:

It’s time for government to tighten their belts and show the American people that we ‘get’ it

Barack Obama, yesterday:

“At a time when so many families are tightening their belts, he’s going to make sure that the government continues to tighten its own,” Obama said. “

We’ll never know how differently the politics would have played if Obama, instead of systematically echoing and giving credibility to all the arguments of the people who want to destroy him, had actually stood up for a different economic philosophy. But we do know how his actual strategy has worked, and it hasn’t been a success

Why did he cease speaking truth to power as the election came down to the wire?

The New Democrats Were Locked Into Austerity

Ever since the birth of the New Democrats, their adherents have embraced austerity.  This act of mutual economic and political self-destruction has become so core to their identity that Hillary unhesitatingly made it one her most important closing pitches during the last 40 days of her campaign against Trump.  At the very moment when her pollsters were warning her that she could lose due to working class hostility, she chose to showcase her hostility to the working class by promising to inflict eight more years of austerity on them.  In your face working class!  This is a political strategy that has no upside, but a toxic downside.  Despite intense criticism from progressives of her austerity threats, Paul Krugman never urged her publicly to promise to end austerity’s assault on the working class.  Similarly, no one on her official campaign team had the courage and strength to tell her to stop and reverse her position.

Part of Krugman’s problem was that while he has come some distance from his long-held support for austerity, his reflexes are still wrong because he does not understand sovereign money.  A November 14, 2016 Krugman column revealed the hold his past dogmas still had on him.

Eight years ago, as the world was plunging into financial crisis, I argued that we’d entered an economic realm in which “virtue is vice, caution is risky, and prudence is folly.” Specifically, we’d stumbled into a situation in which bigger deficits and higher inflation were good things, not bad. And we’re still in that situation — not as strongly as we were, but we could still very much use more deficit spending.

Many economists have known this all along. But they have been ignored, partly because much of the political establishment has been obsessed with the evils of debt, partly because Republicans have been against anything the Obama administration proposes.

Krugman still does not understand sovereign money.  A budget deficit for a government with a sovereign currency is not a moral issue.  Budget surpluses are not a “virtue” and deficits are not a “vice.”  The economic issue is strictly pragmatic – what size budget deficit or surplus is best for the overall economy?  The political issue is the one Krugman made in his criticism of President Obama’s embrace of the self-inflicted wound of adopting your opponents’ economic illiteracy.

But notice that even though he was writing after the 2016 elections, Krugman could not bring himself to be candid about the identity of “much of the political establishment.”  Yes, Republicans always said they favored austerity (except when they held the presidency and had to deal with a recession).  But New Democrats believed in the same terrible economics and, unlike the Republicans, Hillary’s embrace of continuous austerity as a means of waging a unceasing onslaught on the working class was so passionate that she highlighted that embrace during the last 40 days of her disastrous campaign even as ever poll and pundit warned her that she was enraging the white working class.  Krugman cannot identify Hillary and the New Democrats as the most prominent leader of “the political establishment [that] has been obsessed with the evil of debt” without raising the obvious question – why didn’t he speak truth to power?  Why didn’t he advise her to end her obsession with sovereign debt and her economic policies that made war on the working class?

Of course, Krugman did something worse than simply fail to speak truth to power.  He joined in the reprehensible effort to trash the reputation of a well-respected economics scholar, Professor Gerald Friedman.  Friedman had donated to Hillary’s campaign, who dared to point out that Bernie Sanders’ economic stimulus proposals were far superior to her proposals.  On what basis did Krugman seek to destroy the scholar?  Krugman complaint was that the economist was insufficiently “obsessed with the evils of debt.”  Friedman’s study made a point that Krugman had long made (and I quoted above).  The 2009 fiscal stimulus was far too small and that the federal government had made a dire mistake in moving toward austerity in 2010 rather than increasing substantially the size of the stimulus package.

What was really going on, of course, is that Krugman was out to defeat Bernie’s candidacy for the nomination.  Had Bernie won that nomination he would now be President-elect.  Sanders was the one candidate for the nomination that embodied what Krugman said the Democratic Party desperately needed – ending the hold of “the political establishment obsessed with the evils of debt.”  Krugman simply viewed truth and Friedman as collateral damage in his zealous fight to defeat Bernie.  Krugman has been unable yet to summon the integrity and courage to admit how badly he served the Nation and the millions of Americans that rejected that “political establishment.”  I hope he will reach out to Friedman and begin to offer his apologies.

9 Responses to Krugman’s Failure to Speak Truth to Power about Austerity

  1. Bernie Sanders will be too old to contest the next presidential election. There are two women capable of filling the top two roles in the USAs presidential situation.
    They are Michelle Obama and Dr Stephanie Kelton, the best communicator of economic truths in the USA today.
    Dr Skepton has just finished service as economic advisor to Sanders during his time in the Senate and his campaign for the presidency.

    • I would add Elizabeth Warren to that list. She is not up to speed on MMT, but there are about 2 to 3 years to tutor her, and she has the taste for combat that is sorely needed.

  2. The King never apologizes for his mistakes, that would be admitting fallibility.
    The divine is infallible.

  3. He had some bizarre blog post earlier this year talking about how the Obama Whitehouse wanted to go with Romer’s stimulus proposal, though all contemporaneous accounts were that she barely escaped being burned as a witch, and the reset of the crew only peeled themselves off the ceiling once Orszag came up with the under-size proposal full of Bowles-Simpson-y goodness. It was bizarre. Also, I think Orszag has already apologized for this thing that according to PK never happened,

  4. I am encouraged to see that Bill Black puts quotation marks around the phrase “free trade”. I can imagine a legitimate use for this phrase, but that has little to do with what is usually meant behind the glib fig-leaf label which, like the phrase “pro-business”, specifically boils down to “pro-monopoly”. Within an environment that tolerates economic bullying, trade is not free and and many other sorts of business enjoy no benefit, but suffer. Democracy itself is the loser when a top law enforcement officer blandly acknowledges that financial monopolies have grown so large as to hold the nation hostage (” if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”).

    “Austerity” is another very general term that hides a multitude of sins, but could also have a legitimate application. However, modern political “austerity” serves to faux legitimize prioritizing the agendas of Wall St. over the needs of Main St. That’s not really “government of the people, by the people, for the people”, it’s the tail wagging the dog. Many, if not most of our most troubling national problems are subsidiary to ongoing disintegration of democracy and the epic corruption we are allowing to replace it.

  5. I wonder if Bill Black is going to talk about the FBI. Particularly the director. Wasn’t he intimately involved in corporations who are notorious for “breaking the law”? He certainly “helped” the election.

  6. Ray LaPan-Love

    The following is quote from Doug Irwin taken from an article by Tim Taylor:

    “Although imports have put some people out of work, trade is far from the most important factor behind the loss of manufacturing jobs. The main culprit is technology. Auto­mation and other technologies have enabled vast productivity and efficiency improvements, but they have also made many blue-collar jobs obsolete. One representative study, by the Center for Business and Economic Research at Ball State University, found that pro­ductivity growth accounted for more than 85 percent of the job loss in manufacturing between 2000 and 2010, a period when employment in that sector fell by 5.6 million. Just 13 percent of the overall job loss resulted from trade, although in two sectors, apparel and furniture, it accounted for 40 percent.”

    http://conversableeconomist.blogspot.com/2016/07/international-trade-as-scapegoat.html

  7. I have two questions.
    Did Hillary actually talk about austerity?

    I love Michelle Obama but it appears to me that her husband was an austerity president. Do you think she would be any different?

    My dream: Warren immersing herself in MMT and forming a partnership with Kelton.

    Thank you Bill Black for your point of view.