Thursday, May 7, 2015

Salon: Paul Krugman is Wrong about Capitalism

In an essay at Salon, Conor Lynch calls for a neo-radical left movement, with an anti-Keynesian twist:
 The globalized economy gives all of the cards to the capitalist class, and there is no reason for them to form another Keynesian type of compromise...

And if we continue to move in the same direction we have been for 40 years, which neither Barack Obama nor Hillary Clinton seem legitimately opposed to (think of the TPP), and Republicans wholeheartedly support, then our future will indeed become a new global Gilded Age.

That is, of course, unless the left becomes fairly (or fully) radical, as FDR once suggested. And the rise of Elizabeth Warren perhaps shows that there is enough discontent for a new radical movement to form. The capitalist class does not want a compromise, so why not fight it head on? It has done the same to the middle class over the past four decades, after all. Match the neoliberal movement with a neo-radical movement — a call for true democracy, rather than the plutocratic democracy that we currently have.
Putting aside Lynch's Marxist working class egalitarian framework, and that is a lot to put aside, what is fascinating about the Lynch commentary is its attack on Krugman and Keynesianism, and the fact that he uses some pretty sound economics in his attack:
To many liberals, the post-WWII period in America was a time of near economic perfection. The government taxed the wealthy over 90 percent and unions became powerful organizations demanding a fair share for workers. It was a period that progressive economist Paul Krugman has always been quick to praise, writing in his 2009 book, “The Conscience of a Liberal”:

“The political and economic environment of my youth stands revealed as a paradise lost, an exceptional moment in our nation’s history.”

This period, which can be called the Keynesian era, was indeed a time of great economic growth and increased economic equality. Looking back today, it does seem like an exceptional time to be in the working class...

But of course, it was not to be. By the ’70s, the economy had seemingly become diseased, with both inflation and stagnation, or what was coined stagflation. At the time, most economists were dumbfounded. In neoclassical theory, inflation and recession were opposites, they did not happen simultaneously. Hence the monetary policy of low interest rates during a recession, and high interest rates during a period of high inflation....

Another important consideration for its failure is the very nature of a Keynesian economy, which promotes low unemployment and higher wages. During the Keynesian period (1945-1970s), unions had created a strong workforce, which forced capitalists to give in to higher wages, and likely contributing to the high inflation plague. And, of course, Nixon’s dismantling of the Bretton Woods System, which had fixed the international exchange rate to the dollar, and the dollar to gold, created floating currencies, which did not help currency stability.

Like I said, there is a lot wrong with Lynch's  Marxist working class egalitarian framework but anyone who recognizes the failure of Phillips Curve theory and recognizes that Nixon's taking the US off the gold standard contributes to currency instability.

There is hope for this guy. I just ordered a copy of Murray Rothbard's Making Economic Sense, which includes a great take down of the Phillips Curve and of Nixon's taking the US off the gold standard, and am having it sent to him.



  1. Bob,
    Hope the book works. So often an observer sees the problems created by government and thinks the solution is more government. Maybe Rothbard will convince him otherwise. Oh, and BTW, send him the link to EPJ!!!!

  2. I think leftists get hung up on the false notion that laissez faire leads to monopoly and that only government can cure it. We know that the truth is the exact opposite. The elite takes over using the expanded powers of the government that result from "progressive" legislation. Have leftists read and absorb "The Triumph of Conservatism" by Kolko. I assume, however, that most of them will refuse to allow even a sniff of the truth to enter their brains.

    1. "I think leftists get hung up on the false notion that laissez faire leads to monopoly and that only government can cure it. We know that the truth is the exact opposite."

      I agree that leftists get hung up on the idea of monopoly, but I'm not sure that it's good strategy to fight against the notion of "monopoly" itself.

      We have to distinguish between a "voluntary" monopoly(that I'll call "market dominance") and that of coerced/gov't monopoly(not voluntary).

      The waters are further muddied unfortunately because when a company achieves market dominance, they then often engage in manipulating the gov't to maintain that dominance. (barriers to entry, etc. et al)

      So these dominant companies naturally use their market dominance to start maintaining it via non-voluntary methods many times.

      You and I both know that if government didn't have it's monopoly on violence that corporate monopolies would have to maintain their voluntary monopoly/dominance by providing the best product/service for it's price point- but it is very difficult to have the time/get to the stage where you can engage Leftists that far along in discussions on the matter.

    2. This book came out in 1963 and I have owned it since 1973, soon after I discovered Rothbard. It is the definitive historical example showing that the "monopolies" were due to the regulations which had been sought by big business itself. The left always ignores this argument and this history.

      Kolko does an excellent job of making the case that business regulations enacted during the Progressive Era (1900-1916) were due not to liberal reformers, but big business itself! From meat industry regulations to the FTC and the Federal Reserve Board, Kolko shows over and over again how industries sought Federal regulation in order to protect themselves from competition or secure other advantages.

      Whether you're liberal, conservative or libertarian, this book is a must-read for understanding the relationship between government and big business.

  3. Engaging Leftists in an intellectual discussion about economic freedom or civil freedom is a waste of time. They are driven by fear and feel inadequate to meet the demands of competition in a free market. Driven by their own fear they manipulate people for their own advantage with lies and fear. Both the left and the right engage in this behavior in part because when they bother to think of other people at all they view most of them as threatening and ignorant. There is no penetrating this mental framework.

  4. Getting liberals to accept the truth in regards to our current system being of crony capitalism and not actual free market would be just as successful to get conservatives to all of a sudden turn their backs on coproaches. I agree with Brian, it's a waste of them talking to these strains of bacteria.