What Dr. Krugman, and apparently my friend Keith, conveniently overlook is that for two years following the 2008 elections, like-minded policymakers in fact HAD what, in a democratic society, is about as close as one ever gets to untrammeled power. They controlled both the executive and the legislative branches of our government with significant majorities and what appeared to be a glowing popular mandate. And what did they do with this power? They initiated a feeding frenzy of aimless spending and other legislation that accomplished little but soon drove the federal budget deficit to the highest level, as a percent of GDP, we have seen since World War II, a time of real national emergency. Our central bank, always happy to accommodate nowadays, did their supportive bit by hammering short-term interest rates down to zero and keeping them there. Hence the confluence of fiscal and monetary policies infused the American economy with enough government stimulation that the sainted John Maynard Keynes should have been smiling down with fatherly pride.
Unfortunately, it didn't work and has provided
us with little more than a limp recovery that is about to give way again, if
for no other reason than it is already long-in-the-tooth by historical
standards. While increased tax revenues have allowed us to chip away at the budget deficit, it's
still high after several years of economic recovery and poised to skyrocket
again whenever the next recession indeed hits, or even without a recession
given our demographics and the Ponzi-like logic of our entitlement programs. The
debt burden that increasingly hobbles our economy has done nothing but grow,
since chronic deficits can ipso facto have no other effect over time. If the
burden grows heavier as the economy grows weaker, we would be approaching an
economic black hole. And there are not enough billionaires or Wall Street
tycoons out there for even outright confiscation of their wealth to make a
meaningful dent in the problem.
Dr. Krugman has been chugging away like an
uphill steam engine in his labor to defend the Keynesian legacy. There is something constitutionally dogmatic
about economists of all ideological stripes, not just Dr. K., although he's
among the worst. I believe it's because
they spend most of their time working with abstract economic models which, when cleverly manipulated, have a rewarding way
of always behaving in line with prediction. When confronting the real world,
however, economists become grumpy (notice how Dr. K. is always frowning) because
their models in the end can't account for unintended consequences and for the
chaotic behavior of live human beings and complex institutions.
The problem with dogmatists is that they are, pretty
much by definition, unable to accept the possibility of anything being amiss
with their theories. They instinctively look for scapegoats to blame for
failure, or any reasons other than cracks in their own ideas. Keith himself
inadvertently demonstrates what I mean here with his list of places and times where
Keynesianism has come up short, of course though no flaw in the theory:
(1) Roosevelt in the 1930's failed
because he didn't keep the faith and stopped "prematurely" (even
though he had a largely captive Congress behind him and was in power for an
ungodly long time); (2) The Europeans have failed because of those "parochial"
Germans (who not coincidently enjoy the closest thing to sustainable system in
Europe today); (3) the Japanese have
failed because they have a third-world economy (thank you, Keith - this is the
first time I've heard that one). And I think we might as well add China to the
list too, since in their devotion to state-centered crony-capitalism, fueled by
oceans of fiat money, they are not so different from us today as we generally
like to believe. And currently, they seem to be hitting up against the same
economic stone wall.
The time has clearly arrived that we need to
accept what in my judgment is the obvious conclusion that the dominant economic
ideology governing the capitalist democracies since WWII has reached the limits
of its utility. And if I wanted to put a optimistic spin on all this, I might
try to attribute the budding political instability threatening much of the
world right now to a collective awareness of this impending breakdown and of
the need for fresh thinking to confront it. However, fresh thinking can take
many turns, and not all of them lead to happy places. Based on the evidence before me, I'm not feeling optimistic.
Leaving the rest of the world aside for the
moment, let's just consider the United States. We enjoy the largest economy in the world, control
what is still the world's primary reserve currency, and have a military force
that much of the world, happily or not, still looks to for security. Yet our political system is giving every sign
of an impending implosion. We have a two-party democracy in which one of those parties
- the Republicans - appears to be self-destructing as we speak, having winnowed
their presidential field down to the narcissistic and buffoonish Donald Trump
and a handful of limp-wrists lacking in both charisma and ideas. The once-silly
notion of Trump actually getting their nomination is no longer as farfetched as
it seemed.
On the other side, the Democrats are
self-destructing too, although along a different track. Hillary Clinton, their
leading candidate, is widely viewed as unlikable and untrustworthy, even by many
of her supporters, and there remains a chance she could be indicted for her
negligent handling of classified materials during her stint as Secretary of
State. And her only opponent within the Party is a proud Socialist whose
scatter-brained economic program makes him sound like Hugo Chavez. In fact, towards the end of last year the
Clinton campaign attacked Sanders with precisely this comparison, pointing out his
apparent affinity with the cheeky Venezuelan tough guy. Sanders responded with
such a bitter denial that one had to believe the attack poked sharply into a
nerve.
And while it's too bad for the Venezuelans, it's actually useful
right now to have a contemporary example of what happens when ambitious
politicians promise free stuff to everybody while over-taxing, over-regulating,
and marginalizing the very people expected to produce the stuff. Burgeoning
demand meets shrinking supply, and the system falls apart. Truth-tellers are branded
saboteurs and are sent to jail.
Hillary's nomination
still appears to be the most likely scenario for the Democrats, but the party will become so beholden to the
Bernienistas in their midst that Hillary's economic program is likely to drift
far enough to the left to be largely indistinguishable from what Bernie himself
would have tried to impose. This will mean more than just doubling down on bad
economics, but tripling and quadrupling down, hamstringing the economy with new
taxes and debt while multiplying the obligations this same weakened economy is
expected to meet. This indeed suggests the formation of an economic black hole
in which no amount of political, intellectual or spiritual strength will be
able to resist the entropy.
