Arguing with Zombies by Paul Krugman

  • “positive economics” — analysis of how the world works, not “normative economics” — prescriptions for how it should work
  • modern conservatism relies less on philosophical persuasion than on the fact there are people who would gain a lot personally if we were to retrace our steps toward the Gilded Age
  • zombie ideas: ideas that should have been killed by contrary evidence, but instead keep shambling along, eating people’s brains
  • most persistent is the insistence that taxing the wealthy is hugely destructive to the economy as a whole, so that cutting taxes on high incomes will produce miraculous economic growth
  • four rules for punditry: stay with the easy stuff, write in english, be honest about dishonesty, don’t be afraid to talk about motives
  • hard questions won’t go away, but the op-ed page isn’t a good place to argue about them
  • use plain language and not presume that people already understand unfamiliar concepts
  • when you’re confronting bad faith arguments, public should be informed not just that these arguments are wrong, but that they are in fact being made in bad faith
  • honest about dishonesty that pervades political debate
  • don’t be afraid to talk about motives — “movement conservatism”, keeps zombie ideas, like the belief in the magic of tax cuts, alive
  • SOCIAL SECURITY
  • most retirees depend on SS for the majority of their income, and for around a third it’s almost their only source of income
  • SS is a government program that works, a demonstration that a modest amount of taxing and spending can make people’s lives better and more secure — that’s why the right wants to destroy it
  • privatization leaves many retirees in poverty
  • more than 99 percent of SS’s revenues go toward benefits, and less than 1 percent are overhead
  • one example of government doing it better is health insurance
  • Medicare and Medicaid are substantially cheaper and more efficient than private insurance
  • government superiority — providing retirement security
  • most working Americans are saving much too little for their retirement, and investing savings badly
  • SS is simple, clean, low operating costs and minimal bureaucracy
  • ROAD TO OBAMACARE
  • a universal, integrated system — the V.H.A.
  • lifetime relationship with patients
  • success of V.H.A., despite limitations, is that it is a government run agency can deliver better care at lower cost than the private sector, which runs counter to the pro-privatization, anti-government conventional wisdom that dominate’s today’s Washington
  • overall cost of health care in countries with universal coverage is much lower than it is here
  • Reagan famously argued that Medicare would mean the end of American freedom — but always popular once enacted
  • decline in uninsured residents has been three times as large in Medicaid-expansion states as in Medicaid-expansion rejectors; not the economy, it’s the policy
  • Obamacare went fully into effect at the beginning of 2014, private sector job growth actually accelerated, to a pace we haven’t seen since the Clinton years
  • ACA, almost by design, has had almost no effect on those who already had good health insurance
  • ATTACK ON OBAMACARE
  • June 2012, Supreme Court made the expansion of Medicaid to everyone up to 133 percent of the poverty line optional for states
  • as of mid 2019 there were still 14 states that have refused to provide essential medical care to some of their most vulnerable citizens even though it wouldn’t cost them anything
  • refusing free money that would help the poor is cruelty for cruelty’s sake
  • ACA is a hybrid public-private system rather than a simple government insurance program — has a number of moving parts
  • law’s functioning depends a lot on cooperation from state governments
  • where states have cooperated, by expanding Medicaid, operating insurance exchanges, promoting enrollment and competition among insurers, it’s done well
  • it works where states want it to work
  • GOP can’t come up with an alternative because no such alternative exists
  • if you want to preserve protection for those with pre-existing conditions, Obamacare is the most conservative policy that can do that
  • BUBBLE AND BUST
  • years of financial deregulation and financial “innovation” created a banking system that was, in a modern, high tech way, just as vulnerable to panics as the banking system on the eve of the Great Depression
  • innovations of recent years were sold on false pretenses
  • promoted as ways to spread risk, making investment safe
  • all it did was spread confusion, luring investors into taking on more risk than they realized
  • policymakers, committed to the view that the market is always right, simply ignored the warning signs
  • how different is what Wall Street in general did from the Madoff affair?
  • money managers got rich, investors saw money disappear
  • how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest into investment banking, at the expense of science, public service, and just about everything else?
  • there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume they know what they are doing
  • that’s why so many people trusted Madoff
  • economy isn’t like an individual family that earns a certain income and spends some other amount, with no relationship between the two; my spending is your income and your spending is my income
  • if we both slash spending, both of our incomes fall
  • the government is not in competition with the private sector
  • austerity policies have greatly deepened economic slumps almost everywhere
  • an individual family owes money to other people; the world economy as a whole owes money to itself
  • CRISIS MANAGEMENT
  • IS-LMentary — everything changes when an economy is deeply depressed
  • doing too little is a much bigger risk than doing too much
  • after 2008, massive budget deficits didn’t drive up interest rates, money printing on an enormous scale wasn’t inflationary, and governments that tried to be prudent by cutting spending suffered much worse slumps as a result
  • in normal times, it’s good to worry about the budget deficit
  • when depression economics prevails, this virtue becomes a vice
  • in normal times modesty and prudence in policy goals are good things
  • if a stimulus plan turns out to be more than needed, the economy might overheat, leading to inflation
  • on the other hand, if a stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall
  • Obama stimulus did a vast amount of good, but the perception that it failed have haunted economic policy — political disaster
  • with it perceived as a failure, job creation almost disappeared from inside the Beltway discourse, replaced with obsessive concerns over budget deficits
  • spending began falling with public investment hit the worst
  • anti stimulus has destroyed millions of jobs
  • CRISIS IN ECONOMICS
  • macroeconomics, subfield that studies recession, recoveries, inflation, other economy-wide events, is a sharply divided field
  • “saltwater” vs. “freshwater” — coastal vs. inland, Keynesians vs. anti Keynesians
  • Keynes: slumps could be fought with low interest rates for relatively mild recessions, deficit spending for deeper downturns, much of the rest of the economy could be left to markets
  • free market Keynesianism became more or less the standard view of U.S. economists
  • conservatives, though, once you accepted a government role in fighting recessions, you might adopt a more expansive view of government in general
  • Friedman was their champion
  • big disinflation of the early 80’s in fact brought along with it a very severe recession
  • political conservatives prefer to get their advice from outright hacks rather than real researchers of any stripe
  • wage price spiral: workers demanding large increases because they expected lots of inflation, firms raising prices because of rising costs, all exacerbated by big oil shocks (70's)
  • 80’s — central banks drastically tightened monetary policy to bring inflation down
  • inflation did come down, deep recessions and soaring unemployment
  • vindication of more or less Keynesian views — monetary policy as a tool to stabilize the economy
  • profession’s blindness to the very possibility of catastrophic failures in a market economy (2000's)
  • as a group, mistook beauty, clad in impressive looking math, for truth
  • central cause of the profession’s failure was the desire for an all encompassing, intellectually elegant approach
  • blind eye to limitations of human rationality, problems of institutions run amok, imperfection of markets
  • dangers created when regulators don’t believe in regulation
  • Smith — Wealth of Nations — trust the market, economic theory
  • faith was shattered by the Great Depression
  • Keynes wanted to fix capitalism, not replace it
  • active government intervention to fight unemployment during slumps
  • 1970 or so, discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse
  • only WWII brought the Great Depression to a definitive end
  • freshwater economists at inland schools, think people are rational and markets work, overall failures of demand can’t happen
  • Lucas argued that recessions were caused by temporary confusion; activist policies would just add to the confusion
  • Prescott, in the 80’s, said that unemployment is a deliberate decision by workers to take time off
  • “real business cycle” theory
  • between 1985–2007, debate between freshwater and saltwater economists were mainly about theory, not action
  • general belief that bubbles don’t happen, based on the a priori assertion that there simply can’t be a bubble in housing
  • 2008, interests rates at “zero lower bound”, conventional monetary policy had lost all traction
  • fiscal stimulus is the Keynesian answer to the kind of depression type economic situation we’re currently in (late 2000's)
  • Friedman believed that Fed policy rather than changes in government spending should be used to stabilize the economy, but he never asserted that an increase in government spending cannot, under any circumstances, increase employment
  • never bought into the idea that mass unemployment represents a voluntary reduction in work effort or the idea that recessions are actually good for the economy
  • economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system
  • a market economy that has many virtues but that is also shot through with flaws and frictions
  • behavioral finance — apparent irrationality of investors to known biases in human cognition
  • financial markets fall far short of perfection, they are subject to extraordinary delusions and the madness of crowds
  • Keynesian economics remains the best framework for what we have for making sense of recessions and depressions
  • incorporate realities of finance into macroeconomics
  • professional conservative economists make a living by pretending to do actual economics, but just propagandists
  • after years of hysteria about the evils of debt, establishment Republican economists enthusiastically endorsed a budget busting tax cut
  • modern GOP doesn’t want to hear from serious economists, whatever their politics
  • functional finance has a lot going for it, not the kind of axiomatically true doctrine that modern MMTers imagined it to be
  • deficits and debt can matter, and not just because of the effects of the deficit spending on aggregate demand
  • AUSTERITY
  • fact that governments are a much bigger share of the economy than they were in 1930, and that their deficits therefore grew a lot more in the face of a global slump, is probably the biggest reason the Great Recession didn’t turn into a full replay of the Great Depression
  • Trump/Bush even Obama era, pivot from fighting unemployment to fiscal austerity, mainly spending cuts
  • negative correlation between debt and economic performance need not mean that high debt causes low growth
  • between high debt and low growth, with no indication of which is causing which, but no sign at all of that 90 percent threshold (once debt exceeds 90 percent of GDP) — austerity sold on false pretenses
  • skills gap = zombie idea
  • by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate
  • THE EURO
  • travails of it signify the problems of having a unified currency without a shared safety net for banks
  • road to hell was paved with good intentions
  • Spain much achieve internal devaluation: must cut wages and prices until its costs are back in line with its neighbors
  • worsens private sector’s debt problems
  • currency union without political union was a very dubious project
  • idea of euro sounded good, forward looking, European minded, exactly the kind of thing that appeals to the kind of people who give speeches at Davos
  • trying to deal with austerity alone has never worked
  • FISCAL PHONIES
  • rapid fading out of stimulus was one reason unemployment remained high through 2011
  • people who made a big deal about the deficit, suckers for people whose actual interests had nothing to do with government debt and everything to do with a right wing political agenda
  • what matters for government solvency isn’t the absolute level of debt but its level relative to the tax base, which in turn basically corresponds to the size of the economy
  • debt obsession led to less, not more, public investment
  • with GOP in power, deficit surges thanks to a huge tax cut for corporations and the rich, no mention of debt
  • never cared about debt, pretended to be deficit hawks as a way to hamstring Obama
  • mistake to focus on deficit reduction when unemployment is high and interest rates are low
  • GOP rails against budget deficits when they’re out of power, then drop all their concerns and send the deficit soaring once they are in a position to cut taxes
  • Obamacare was financed with revenue component almost entirely from taxes on high incomes
  • investment can and should be debt financed, benefit enhancements can be largely paid for with high end taxes
  • TAX CUTS
  • 1982, Fed relented, sending interest rates sharply down, monetary easing, not the Reagan tax cut that mostly explained the 1982–1984 boom
  • few economic doctrines have been as thoroughly tested, and thoroughly refuted, as the claim that low taxes on the rich accomplish great things for everyone
  • between the 1920’s and the 1950’s real incomes for the richest Americans fell sharply, not just compared with the middle class but in absolute terms
  • high tax, strong union decades after WWII were in fact marked by spectacular, widely shared economic growth
  • economic growth and economic justice aren’t incompatible
  • “starve the beast” — cut taxes on the rich, then use the resulting deficits as an excuse to hack away at the safety net, been the GOP strategy for decades
  • basic result of lower taxes on corporations is that corporations pay less in taxes — full stop
  • 90 percent of America might be poorer because of Trump tax cut
  • induced some accounting maneuvers, but nothing to promote capital flows to America
  • paying more money to foreigners
  • big break for corporations, federal tax receipts on corporate income have plunged
  • diminishing marginal utility is the common sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes
  • we shouldn’t care what a policy does to the incomes of the very rich
  • optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue
  • TRADE WARS
  • for big countries like the U.S. what we do with regard to trade, right or wrong, is a lot less important than, for example, the mess we’ve made of health care
  • trade generally benefits both sides of the transaction
  • reason we have international trade agreements, to protect us from ourselves: to limit the special interest politics and outright corruption that used to reign in trade policy
  • conflicts of interest are overwhelmingly between groups within each country, rather than between countries
  • FDR’s reciprocal agreement evolved from the reciprocal tariff approach greatly reduced tariff rates around the world
  • Trumpian trade policy has, almost casually, torn up rules America itself created more than 80 years ago — rules intended to ensure that tariffs reflected national priorities, not the power of special interests
  • INEQUALITY
  • rising inequality was mainly about highly educated workers doing better than less educated, as opposed to a small subset of well educated pulling away from everyone else
  • declining fortunes of blue collar workers reflected growing social problems like the decline in family values
  • result, not the cause, of declining opportunity
  • tech has a lot less to do with rising inequality than many want to think, and power relations matter a lot
  • one should never confuse the rapid growth that takes place during a recovery with an improvement in the economy’s long term performance: once the economy is near capacity, growth is bound to slow down
  • when all is said and done, mobility in the 80’s was neither increasing, nor high enough to make any difference to the overwhelming picture of growing inequality
  • both history and modern experience tells us that highly unequal societies also tend to be highly corrupt
  • we have become a society in which less educated men have great difficulty finding jobs with decent wages and good benefits
  • from an economic point of view, a robot is anything that uses tech to do work formerly done by humans — been happening for centuries
  • what’s new is the failure of workers to share in the fruits of that change
  • until the 70’s rising productivity translated into rising wages for a great majority of workers
  • key factor in wage stagnation has been workers declining bargaining power, min. wage, decline of unions
  • CONSERVATIVES
  • “movement conservatism” — only kind of conservatism that matters (90's)
  • rightist radicals basically are the republican party
  • Thomas Frank’s book What’s the Matter with Kansas, in which republicans would mobilize voters with social issues, but invariably turn post-election to serving the interests of corporations and the 1 percent
  • SOCIALISM
  • “social democracy” — a market economy, but with a strong public social safety net and regulations that limit the range of actions businesses can take in pursuit of profit
  • daily experience of tens of millions of Americans is one of constant dependence on the good will of employers and other more powerful economic players
  • full guarantee of health coverage would make our society visibly freer
  • Denmark has embraced an expansive government role, redistribution, 2/3 unionized
  • Denmark is social democratic, market economy where the downsides of capitalism are mitigated by government action, including a very strong social safety net
  • far more misery in America than there needs to be
  • every other advanced country has universal health care and a much stronger social safety net than we do — doesn’t have to be this way
  • Nordic countries are not hellholes, somewhat lower GDP per capita, but that’s largely because they take more vacations
  • higher life expectancy, less poverty, higher overall life satisfaction
  • high levels of entrepreneurship, willing to take the risk of starting a business when they know that they won’t lose their health care or plunge into abject poverty if they fail
  • CLIMATE
  • like the economy, global climate is a complex system; like economic policy, climate policy is an area where some people are sincerely trying to understand how the world works, but others have a vested interest in promoting their views whether or not they’re supported by the evidence
  • strange it is that conservatives have total faith in the power and flexibility of the market economies, but claim that these economies will be completely destroyed if the government creates incentives to reduce greenhouse gas emissions
  • almost all prominent climate deniers are on the fossil fuel take
  • ideology is also a factor — if you take environmental issues seriously, you are led to the need for government regulation of some kind, so rigid free market ideologues don’t want to believe that environmental concerns are real
  • econ 101: a pollution tax or equivalent creates broad based incentives in a way less comprehensive policies can’t
  • encourages people to reduce their carbon footprint in all possible ways, from using renewable energy, to conservation, to shifting consumption away from energy intensive products
  • upsets people who have to pay for it
  • TRUMP
  • movement conservatism has depended on white resentment to win elections despite following policies that benefit a wealthy elite at the expense of most Americans
  • segregationists fighting civil rights routinely blamed “outside agitators” — especially northern Jews — for African American protests
  • Panama Papers — tax evasion is a big thing at the top
  • truly wealthy end up paying a much lower effective tax rate than the merely rich, not because of the loopholes in tax law, but because they break the law
  • wealthiest taxpayers pay an average of 25 percent less than they owe — many individuals pay even less
  • peddling political snake oil, whether it’s about the economy, race, effects of immigration, or whatever, is to an important extent a way to peddle actual snake oil, magic pills that will let you lose weight without ever feeling hungry and restore your youthful manhood
  • Dems are a loose coalition of interest groups, modern GOP dominated by “movement conservatism”, monolithic structure held together by big money, often deployed stealthily, and the closed intellectual ecosystem of Fox News and other partisan media
  • apparatchiks, political loyalists who can be counted on not to stray from the party line
  • MEDIA + ECONOMIC THOUGHTS
  • false equivalence — giving two sides of a dispute equal treatment even when one is clearly telling lies
  • listen to the gentiles — pay attention to what intelligent people are saying, even if they do not have your customs or speak your analytical language
  • economic models are metaphors, not truth
  • question the question — as long as you ask “system” questions like how welfare and world income are distributed, it is possible to make very simple and neat models
  • in general, if people in a field have bogged down on questions that seem very hard, it is a good idea to ask whether they are really working on the right questions
  • dare to be silly — if a new set of assumptions seems to yield a valuable set of insights, then never mind if they seem strange
  • simplify — always try to express your ideas in the simplest possible model, “minimum necessary model”
  • Samuelson — approach that combines the grand tradition of microeconomics with its emphasis on how the invisible hand leads to generally desired outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention
  • Dark Age of macro — large numbers of economists literally knew nothing of the hard won insights of the 30’s and 40's
  • very success of central bank led stabilization, combined with financial deregulation, set the stage for a crisis too big for the central bankers to handle
  • Minskyism: long period of relative stability led to greater risk taking, greater leverage, and a huge deleveraging shock
  • crypto has no backstop, no tether to reality
  • value depends entirely on self fulfilling expectations, which means that total collapse is a real possibility — what problem does it solve?

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