Thursday, December 6, 2012

Krugman on the Fiscal Cliff

Nobel Laureate Paul Krugman
With the "fiscal cliff" frenzy building, Nobel Laureate Paul Krugman weighs in describing how those that gravely warn about the deficit are now trying to have it both ways.  In the New York Times, Krugman takes to task those that concern themselves more with the deficit than they do with unemployment.   

Per Krugman:  "Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now — except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused.  Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now — namely, mass unemployment. Yes, we’ve made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year."

Ultimately, the fiscal cliff debate, as did most of the Presidential election rhetoric, boils down to different economic approaches to government spending.  The campaign debate focused on trickle down economics versus trickle down government, to paraphrase the two candidates for President.  Krugman describes a Keynesian approach to difficult unemployment and deficit spending panic:

Again, Krugman argues:  "So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it’s impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus. . . . So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.

Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.  No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.  

So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It’s a vast tragedy — and it’s also an outrage." 

Paul Krugman sees the fiscal cliff as problematic, but not for the reasons that so many pundits and politicians do.

[Photo of Paul Krugman courtesy of Wikimedia Commons and Prolineserver]

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