Arguing With Zombies

February 27, 2020

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future (2020), Paul Krugman. The thesis is that a number of ideas have been proved false, but continue to be supported by Republicans, like tax cuts for rich people pay for themselves and global warming is a fraud. Krugman believes that Republicans have been arguing in bad faith for decades (the supply side argument was introduced by Reagan's big tax cuts in the early 1980's) and its been getting worse. It's mainly commentary he's written over the decades, which is a bit frustrating for presenting information from the past (lots of data comes from 20 or 30 years ago as if it was recent), plus the presentations can be redundant. However, he presents a fair bit of economics, which is good to review and get an idea of what's still considered (at least in his opinion) still valid. He presents compelling arguments for Republican corruption and bad faith. It's is useful to review Krugman's arguments, although they seem a bit too glib to me. Opponents at least occasionally have reasonable arguments. A useful quiz is determining which arguments are zombies and which are not. [See below.]


Introduction: The Good Fight. Politicization: "Politics in modern America really is pretty much one dimensional, This is especially true among elected representatives.Tell me where a member of Congress stands on issues like universal health care, and you can predict where he or she stands on climate policy. ... It's basically the traditional left-right continuum: How much role do you believe public policy should have in reducing the risks and inequalities of a market economy? Do you want a society to be like modern Denmark, with its high taxes, strong social safety net, and extensive worker protections, or like America in the Gilded age, when laissez faire ruled? ... People on the left tend to have a concept of social justice along the lines formalized by the philosopher John Rawls: they believe that people should advocate the society they'd choose it they didn't know who they would be [Rawls called this the 'veil of ignorance'] ... People on the right, by contrast, view (or claim to view) government intervention to reduce inequality and risk as immoral. ... Economics can't tell you what values to have. It can, however, shed light on what to expect from policy that reflects any particular set of values. ... In particular, opponents of a larger role for government want to argue that such a role is not just immoral but counterproductive ... If the evidence doesn't agree, they attack both the evidence and those producing it. ... There have been times and places where powerful players refuse to acknowledge, for example, that price controls ever cause shortages, or that printing money ever causes inflation.... Given the realities of money and power, in modern America, most of the politicization of everything reflects pressures from the right. ... The most persistent such zombie is the insistence that taxing the wealthy is hugely destructive to the economy as a whole. ... If you want a low-tax, low benefit state, you want to claim that safety-net programs are harmful and unworkable" (pp. 2-4). "The economic right has sought to win over working-class whites, even as it attacks programs they depend on, by catering to their racial animosity" (p. 5). Krugman introduces his four rules for punditry: stay with easy stuff; write in English; be honest about dishonesty; and don't be afraid to talk about motives (p. 6). His view is from many Republicans "mendacity is the message" (p. 8), people making claims they know are dishonest--creating zombie ideas. 


Part I: Saving Social Security. This chapter seems a bit out of date, with much of it on Bush's attempt to privatize the system after his 2004 reelection. Krugman views Social Security as a government program that works [I agree], while the Republican focus was on a "failing system." Key problems with privatization include funding a new system, the idea that investment banks would charge substantial fees for services, and the future likelihood that the system would be slowly dismantled (possibly through block grants to states). Bush made false claims ("unfair to African-Americans, waiting to fix it costs billions of dollars). "The campaign for privatization provided an object lesson in how the administration sells its policies: by misrepresenting its goals, lying about the facts, and abusing its control of government agencies. These were the same tactics used to sell both tax cuts and the Iraq War" (p. 26). "Centrists desperately want to  believe that there is symmetry between the left and the right, that Democrats and Republicans are equally extreme" (p. 28). In "Where Government Excels" from 2015, he defines public goods and points out that here is where the public sector is needed. Public goods are available to everyone and private firms have no incentive to provide them. Social Security works because it's simple with low operating costs and minimal bureaucracy.


Part II: The Road to Obamacare. The planning for healthcare reform was preserving most of the existing healthcare system, while expanding coverage at a potentially lower cost. Republican plans which included Romney Care. "Healthcare must be paid for mainly by health insurance, because health costs strike unevenly" (p. 36). "Single payer" like expanding Medicare coverage for everyone is not difficult, except politically: the power of special interests plus transferring 150,000+ people off their private insurance. Republicans also claim government is inefficient with gigantic bureaucracies for everything they do. Consequently, what became the Affordable Care Act (Obamacare) became the second-best solution (which Krugman viewed as "ideologically inconvenient"). He noted that rising healthcare costs are primarily because of innovation, but the system is inefficient--he blames the private sector for being bloated and bureaucratic while government is reasonably efficient. The US "has the most privatized, competitive health system in the advanced world; it also has by far the highest costs, and close to the worst results" (p. 40). He refers to the Veterans Administration system (written in 2006), as mediocre, then reformed in the mid-1990's. The results was use of electronic record-keeping and effective treatment. Adequate budgets seems to be the major requirement. [Somewhere in the 21st century that all went away, including the claim that the executive system was horrible.] Krugman noted that Reagan claimed that Medicare would lead to totalitarianism; while lobbyists claimed would result in crushing taxes and poor care. Bush (43) fought against expanding healthcare to uninsured children (Mr. Bush has no empathy for people less fortunate than himself," p. 47). He noted that for 'health insurers' "medical losses" mean having to pay for care. "The emotional core of opposition to reform was blatant fear-mongering, unconstrained by the facts or by any sense of decency" (p. 54); think "death panels" or claiming Democrats of using "totalitarian tactics" (also known as voting). In 2014 he wrote "Obamacare Fails to Fail." This includes an analysis of states accepting the Medicaid expansion versus those that did not (like Texas),; that is, refusing to let the federal government pay for covering their uninsured poor. "No argument is ever dropped, no matter how overwhelming the evidence that it's wrong; imaginary disasters can overshadow real successes" (p. 61). 


Part III: The Attack on Obamacare. Obamacare expanded Medicaid to everyone up to 133% of poverty line, but optional by state: "what kind of state government would turn down an offer to provide health insurance to large numbers of its residents at virtually no cost, while also bringing in federal dollars that would boost the state economy? The answer was, almost every state government controlled by Republicans" (p. 65); now 14 states still refusing--"cruelty for its own sake" (p. 66). Then sabotage by striking down provisions, especially by making insurance harder to get. Krugman compared Tennessee (which rejected Medicaid) to Kentucky (which accepted it--even though this is Mitch McConnell's state). The uninsured in Tennessee went from 14% to 11%, 13% to 6% in Kentucky. California uninsured rate went from 17.2% to 7.2 at the same time. So "Obamacare works where states want it to work" (p. 68). By making insurance premiums higher, uninsured are rising under Trump (e.g., eliminating reinsurance, cut back on outreach, sue to eliminate provisions). Krugman calls it "pervasive bad faith of modern conservatism" (p. 74). 


Part IV: Bubble and Bust. There was the Asian financial crisis of the late 1990's. Then Krugman goes back to Dr. John Snow discovering cholera was caused by one public water pump in 1854, proving the tainted water spread cholera; then London supplied sewage projects. Keynes realized that inadequate spending caused unemployment. The answer was government spending. Japan was an advanced country with competent monetary and fiscal policy, but then the financial bubble collapsed in the 1990's, resulting in stagnation. Housing bubble over from falling sales and rising inventory, rather than plunging prices. Krugman characterized US as "flatland" and "zoned zone." With plenty of land in flatland, housing prices determined by construction costs; zoned zone is mainly coastal with high population density, plus limited land and land restrictions; housing prices can go way up and is subject to housing bubbles. Housing prices rose about 50% from 2000 to 2005, with the big increases in zoned zone. "Bubbles end when people stop believing that capital gains are a sure thing" (p. 87). The economy depended on housing bubble, with consumer spending based on mortgage refinancing and a near-zero savings rate. A major cause was the complex financial system created by investment banking like CDOs (with a lack of understanding by major players). Alan Greenspan claimed "the financial system as a whole has become more resilient thanks to derivatives" (p. 93). Fed chief "Ben Bernanke required a face-to-face refresher course from hedge fund managers" (p. 89). Where is the financial toxic waste buried? It was in places it should not have been, like retirement pools or Citigroup's special purpose entities. The Madoff economy meant Madoff "skipped a few steps, simply stealing his clients money rather than collecting big fees while exposing investors to risks they didn't understand" (p. 93). "Politicians have walked when money talked" (p. 93). 


Part V: Crisis Management. IS-LM framework: investment-savings and liquidity preference-money supply, Keynesian macro model (also called the Hicks-Hansen model) for how economic goods (IS) interact with the loanable funds, interest rates or money market--liquidity-money (LM), a model of several interacting markets. LM cn focus on loanable funds or liquidity preference (especially bonds versus cash). Presumably, this shows why aggregate demand can shift. Higher GDP means more transactions and higher demand for money; interest rates must rise to match supply and demand for money. There are potential combinations of interest rates and GDP, shown as IS-LM curves and equilibrium. Krugman points out that everything changes in a depression. If interest rates fall to zero or below, investors will hold only cash, the liquidity trap. Budget deficits become helpful, such as Obama's stimulus and Fed's expansion of asset holdings. Okun's Law describes the relationship between changes in real GDP and changes in the unemployment rate. If the coefficient is 2, GDP has to increase 2% to reduce unemployment 1%. This sugests how much government stimulus is needed. Economists believe that the multiplier differs by types of spending and tax cuts, with tax cuts much lower. A dollar of public spending may raise GDP by $1.50, with tax cuts lower. Opponents of stimulus suggest deficits increase interest rates and a crowding out effect on private spending, but this is likely only at near full employment. Austerity was tried by Europe with dire results. 


Part VI: The Crisis in Economics. "Keynes had a very good run in the years that followed the global financial crisis" (p. 123), but anti-Keynesians were inland (e.g., Chicago). The point of Keynes was capitalism (during and after the Great Depression) was not a failed system, but the depression had very narrow causes that could be corrected by technocratic solutions: low interest rates for mild recessions and deficit spending for deeper downturns. Beyond that, much of the economy would be left to the market ("free-market Keynesianim"), a perspective popularized by Paul Samuelson. Conservatives disliked this, assuming that increased government would lead to a more expansive view of government in general. Milton Friedman became their champion with a more narrow technocratic policy: require the Federal Reserve to maintain a slow, steady rise in the money supply. The stagflation of the 1970's was viewed as a vindication of Friedman's monetarism and free-market economists. The disinflation of the 1980's brought recession. Keynesianism needed updating, focusing on real research (Krugman accuses the free-marketers of relying on hacks and misinformation). Modern Monetary Theory (MMT) was an alternative, describing currently as a public monopoly for the government which overtly restricts the supply of financial assets to pay taxes and savings.


"The Mythical Seventies" describes the 1970's crisis myths as too much debt and coddling the welfare state, requiring the 1979-82 high interest rates and recession as necessary payback. He states there was no deficit problem, but rather a wage-price spiral, causing firms to raise prices and big oil shocks. Vigorous productivity growth did not happen until the mid-1990's. "The Eighties Show" was "proving" supply-side economics. But the big factor was Fed actions that eventually led to low inflation and high unemployment (then the stimulus of tax cuts and budget deficits). Krugman more or less views the 1970's as a set of anomalies, and the 1980's a vindication of Keynesianism. Bernanke celebrated the "Great Moderation" in 2004 of the previous two decades, which he attributed to economic policy making; presumably without a thought of catastrophic failure (because markets were inherently stable as assets were priced right, ignoring institutions that run amok and various market imperfections). "Economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth" (p. 131); then there were regulators not believing in regulations. Then the vision of financial markets as a casino was replaced by efficient markets, then rational behavior (viewed by Krugman as "Panglossian behavior from the Voltaire character believing we live in the best of all possible worlds). Then there was Schumpeter's idea of creative destruction suggesting recessions as a good thing for required change. Michael Jensen of agency theory fame suggested the best thing for CEO's to do was maximize stock price. Then the capital asset pricing model tells you how to choose a portfolio and how to price financial derivatives. Lots of statistical evidence supported efficient markets. One result was the refusal to rein in subprime lending (leading to "shocked belief") as real world markets collapsed. Neoclassical purists were followed by behavioral economists such as Robert Shiller who warned against housing bubbles (not a concern for efficient markets). When the crash hit the response was dropping interest rates to zero which was not enough ("Monetary policy lost all traction")--just like Keynes said (still called a fairy tale by Chicago economists) and behavioral economists. Krugman moves to "bad faith conservatives infecting right-leaning economists" (p. 149), aka, "propagandists." With a democrat in the White House, Republicans opposed anything that might get us out of a recession (including many claiming to be economists), declaring the horrors of deficits, inflation and other "irresponsible actions;" then reversing themselves when Trump became president ("assembled the worst and the dimmest"). 


"What's Wrong With Functional Finance?" Back to modern monetary theory (MMT). Similar to Abba Lerner's function finance from 1943: countries with fiat countries they control and don't borrow in other currency don't face debt constraints, but do face inflation. Policy should be on getting level of aggregate demand right: full employment without inflation, interest rate set to produce most desirable level of investment. This neglects the monetary/fiscal policy trade-offs, plus problems of tax hikes and spending cuts. Problems with political choices rather than correct deficit spending. If interest rates are lower than the growth rate, debt is not much of a problem. Debt is a problem is interest rates are greater than growth. 


Part VII: Austerity. In 2009 people obsessed about budget deficits rather than mass unemployment, delaying the recovery in the US and much of Europe. It helps explain both Brexit and Trump. Reinhart and Rogoff suggested that a debt level greater than 90% of GDP causes problems (an assertion that Krugman says is not supported by evidence, saying much of the problem was an excel error by Reinhart/Rogoff). Policy focus shifted to lack of needed skills as the reason for long-term unemployment, which Krugman identifies as a zombie idea, as unemployment remained high at all education levels; plus if skills are demanded employers should pay higher wages. 

Part VIII: The Euro. The recovery of Europe after World War II was "the most decent societies in human history" (p. 175). The "European project brought together politically and in increasing economic links: Coal and Steel Community in 1952, Common Market in 1959, then the European Union. Then came the euro in 1992, which had problems more or less ignored when created. Not a problem for the first eight or so years because of a boom in Southern Europe, which also resulted in Germany expanding exports. The individual countries cannot adjust their money to solve local problems ("asymmetric shocks"), no safety net for banks. The solution was a painful slog reducing wages and creating high unemployment. Spain had a housing bubble at the same time as the US, but using the euro meant it had a debt crisis causing high interest rates--meaning "internal devaluation." Republicans basically wanted the same for the US to "keep the dollar strong." In Europe the political answer was austerity.


Part IX: Fiscal Phonies. "The Gullibility of the Deficit Scolds." Obama's stimulus expired in 2010, when Republicans took over Congress. Krugman views Paul Ryan as a phony rather than a deficit hawk. Ryan, after all, rammed through the tax cuts of 2017. His focus was the right-wing political agenda. Paul Ryan, also called the "Flimflam Man," wanting steep cuts in taxes ($4 trillion for the decade, 117% for the wealthy, other taxes would go up) and spending (for middle class and poor people, mainly by ignoring inflation and population growth, plus replacing Medicare with vouchers), convert Medicaid to block grants (with lower funding), assume tax cuts won't lower revenue, and still get a substantial deficit. Krugman did not like to Bowles-Simpson plan for long-term balance, which capped revenue at 21% of GDP (including tax cuts for wealthy), raise retirement age for Social Security, and assumed lower health care costs. Krugman notes that Trump views the major menaces for America are "scary brown people" and socialism.


Part X: Tax Cuts. Already covered in some detail. Details history of tax cuts beginning with Reagan's cuts. [I would have gone back to the Civil War, where the Union imposed an income tax.] The recovery was Federal Reserve created, not tax cuts. Clinton raised taxes and the economy boomed. Bush 43 cut taxes resulting in a lackluster recovery, Part of these expired under Obama without an economic effect. Then Trump tax cuts added to the deficit. Tax cuts at the state level in Kansas resulted in a budget crisis. Krugman saw "zombie ideas" in reference to false claims on the Canadian health care system. Therefore, the Republican obsession with tax cuts for the rich and corporations seemed the most egregious zombie idea. Right wing think tanks and partisan media try everything to promote the idea. Polls show voters want the rich to pay more, not less. Turns out, workers can be treated fairly and the economy still booms (the top tax rate was 91% in the 1950's). Median income doubled between 1947 and 1973. Krugman views the Trump tax cut as "the biggest tax scam in history" and "even worse than you've heard." Part of the plan is to "starve the beast;" after the cuts, the only way to curb the deficits is to cut spending on entitlements and other parts of the safety net. "GOP cynicism also involves a lot of contempt for the mainstream news media. Historically, media organizations have been remarkably unwilling to call out lies" (p. 226). The Trump tax cut was a "fizzle," because tax cuts on corporations (using it to buy back shares) and rich folk does not help the economy. Effective spending like on infrastructure and education would. Cutting corporate rates does increase earnings, benefiting the stock market. Note that about a third of stocks are owned by foreigners, with profits flowing abroad. According to economist Peter Diamond (plus Emmanuel Saez), the optimum top tax rate is 73% (based on diminishing marginal utility and competitive markets); Christine Romer thinks 80%. The focus should be in incentives and how much can be raised, not the interests of the rich. Elizabeth Warren would add a wealth tax: 2% over $50 million, 3% over a billion, affecting some 75,000 households to raise $2.75 million over a decade. 


Part XI: Trade Wars. Krugman is an expert on international trade, especially economic geography, trade and location across space (the area for which he won the Nobel Prize--which he referred as the "Swedish thingie"). Trade usually benefits both sides. Low-productivity countries can benefit from concentrating on things they do least badly. Rich countries can buy labor-intensive goods cheaply. He views the current system as "one of the triumphs of international diplomacy. ... More of the world joined a rules-based system with negotiated tariffs and established quasi-judicial procedures" (p. 244). The diplomatic idea is to replace war with peach and prosperity. He accuses many pundits and others of "globaloney;" focusing on negative aspects like downward pressure on blue-collar wages. Ross Perot railed against NAFTA; Trump seems to believe that every US trade deficit means someone is stealing from us. Because the president has huge discretionary powers, he can devastate the world trade system; in the words of Krugman, Trump is all about "belligerent ignorance." Trade agreements limit special interest politics and corruption (started as part of FDR's New Deal, eventually leading to the World Trade Organization), which "Trumpocrats don't see as problems" (p. 246). The Trump push is toward influence-peddling and bribery.


"We now basically have an Environmental Protection Agency run on behalf of polluters, an Interior Department run by people who want to loot federal lands, an Education Department run by the for-profit schools industry" (p. 248). The classic war of protectionism was sugar, benefiting the sugar growers to maintain a high domestic price. This was doable because the extra costs were spread over all consumers. [Environmental damage in Florida and elsewhere was not mentioned by Krugman.] Presumably the General Agreement on Tariffs and Trade and later World Trade Organization was designed to stop this kind of practice an enhance global cooperation. Because flexibility was needed, considerable discretion was given to the president (additional tariffs and other restrictions could be added by on market disruptions, national security, unfair practices, and dumping). Trump used the national security issue for no good reason. "Making Tariffs Corrupt Again"  under Trump to benefit special interests. This undermines US influence; much of the tariffs is on raw materials which can be a net negative for US business. "What Trump did was lash out based mainly on a vague sense of grievance, with no endgame in sight" (p. 255). 


Part XII: Inequality. The inequality-denial industry was a zombie, just like climate-denial. Misperceptions included highly-educated workers doing better ("Graduates versus Oligarchs"), declining social values rather than declining fortunes of blue-collar workers, and technology, with knowledge-based industry demanding educated workers. Regional divides exist, as poorer parts of America getting worse off. [This was a big issue in my book on Executive Compensation, with compensation exploding for CEO's from the 1990's and before.] Academic research considered global competition, government policy, and changing technology. Conservatives denied that income inequality existed, which Krugman viewed as "the moral and intellectual decline of American conservatism" (p. 262). Conservatives also claim that income mobility makes income distribution at any given point meaningless. Krugman turns to Census Bureau numbers because they are not controversial. Unfortunately, this is from a 1992 article, with number now 30 years old. Alice Rivlin refers to the 1947-1973 period as the "good years" of the post-war boom with broad-based prosperity. !973-9 was stagflation, with top end incomes rising faster from 1980, 6% annually for the top 1% (basically, from 1980-90). Krugman put 70% of the rise in family income to the top 1% (not counting capital gains), while median income rose 0.4% a year. Productivity growth also dropped from 3% to 1% after 1973 (before the tech boom from the mid-1990's).


A common refrain is the 80-20 "fallacy," it's this large group of winners (20%) that succeed because of their skills. Krugman sees a "narrow oligarchy. Income rose 34% at the 90th percentile from 1972-2001, about 1% a year; at the 99th percentile is was 87%, 497% at the 99.99 percentile (which averaged $1.67 million in 2001). It's not education but power relationships. "Highly unequal societies also tend to be highly corrupt" (p. 283). Conservatives say it's about morals, not money, the collapse of working-class family values; somehow the fault of liberals. Krugman refers to Charles Murray; note that teen pregnancies fell since 1990, as did violent crime (not mentioned by Murray or other conservatives). Krugman's obvious answer is work opportunities. The rise in incomes in the lower classes is mainly because of women in the workforce and the narrowing gap in pay between men and women; it's all negative for lower-educated men, both wages and benefits fell. David Ricardo wrote about the disruptive effects of machinery in 1821. Rising productivity meant rising raises during much of the 20th century, until the 1970's, caused mainly by workers declining bargaining power--given a political environment hostile to organized labor. Part of the income inequality story is geographic, with big coastal cities getting richer. The economy favored industries employing hgihly educated workers. Before World War II, there were millions of poor farmers, but the disparities narrowed until the 1970's, when they reversed; made worse by growing social problems. Kansas and Oklahoma, doing well in the 1970's, went for radical tax cuts and cutting education; rejecting Medicaid expansion did not help. 


XIII: Conservatives. "The Democratic Party isn't necessarily hapless or ineffective, but it has always been a loose coalition of interest groups. ... The Republican Party, by contrast, is best seen as just one part of a highly organized movement that includes the Murdoch media empire, a dizzying array of think tanks and advocacy groups that are mostly funded by the same group of billionaires" ... "movement conservatives ... that didn't fully take over the GOP until the 1990's. ... Republicans moved very far to the right. ... There are, of course, leftist radicals in America, but they don't control the Democratic Party, rightist radicals basically are the Republican Party. ... "Virtually every politician one might call a centrist is a Democrat" (p. 297). "Agencies have been left with the worst of both worlds--demoralized and disorganized public officials and unaccountable private contractors." [Then there was the] "Bush administration's general incompetence. But disinterest in good government has long been a principle of modern conservatism. ... In 1960, Barry Goldwater wrote that 'I have little interest in streamlining government or making it more efficient, for I mean to reduce its size' (p. 300). There was the Bush Justice Department authorizing torture, Iran-Contra under Reagan. Voter suppression (in the name of combating voter fraud) has been a Republican mandate. Press intimidation goes back to Nixon and Dick Cheney, with a shout out the Roger Ailes; attempting to equate dissent with treason. Goldwater supported Joe McCarthy.    


Krugman defined movement conservatism as" "an interlocking set of institutions and alliances that won elections by stoking cultural and racial anxiety but used these victories mainly to push an elitist economic agenda" (p. 302). During the 2004 election: "George W. Bush won re-election by posing as a champion of national security and traditional values--as I like to say, he ran as America's defender against gay married terrorists" (p. 302). Republicans mobilized voters with social issues, but invariably turned post-election to serve corporations and the 1%. Thus "being a conservative loyalist was a seemingly low-risk professional path ... motivated more by careerism than by conviction" (p. 303). One of the results was abundant, cheap labor. One thing that doesn't seem to exist is "socially liberal, economically conservative voters" (p. 308), presumably the Howard Schultz (Starbucks) voters. Krugman refers to economically liberal, socially conservative politicians as "racist populists." No one has a platform for socially conservative voters who want to tax the rich and save Social Security. "As Democrats became the party of civil rights, the GOP could attract working-class whites by catering to their social and racial illiberalism, even while pursuing policies that hurt ordinary workers" (p. 309). 


Part XIV: Eek! Socialism! Socialism: government ownership of the means of production. Social democracy is a market economy with a strong public social safety net and regulations that limit the range of actions businesses can take in pursuit of profit (p. 313). Public programs of any kind (especially healthcare) are conflated to socialism. Neo-liberalism includes low taxes and minimal regulations; the claim is free markets translate into personal freedom and the "tyranny of bureaucracies," ignoring, for example, government-mandated employee protections. The Cato Institute claims Florida is the freest and New York the least free (the uninsured rate in Ne York is 8%, it's 18% in Florida). Denmark is described as an example of the horrors of socialism according to a Fox News host. Denmark embraced an expansive government role, with public spending more than half of GDP and two-thirds of workers are unionized. Krugman defines social-democratic as: "a market economy where the downsides of capitalism are mitigated by government action, including a very strong social safety net" [that is: less nasty, brutish and short] (p. 320). Democratic goals seems unified around social-democratic goals. A disagreement is whether to have Medicare for All or the right to buy into an enhanced Medicare program. Medicare came about in the 1960's, a mortal threat according to Republicans; socialized medicine would destroy American freedom according to Ronald Reagan. 


Part XV: Climate. "Like the economy, global climate is a complex system, 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 ... [resulting in] serious research and politically motivated fake scholarship" (p. 327). One argument is serious attempts to limit greenhouse gases would damage the economy. An efficient way to deal with pollution is to put a price on it, like a carbon tax. A Christmas tree approach of lots of things for various interests is an alternative. "Donald and the Deadly Deniers: climate change is a hoax" (p. 329). Krugman notes the stages of denial as the stories change (cockroach ideas, false claims that keep coming back): false (concocted by the Chinese), to nothing happening, to climate models are not successful, greenhouse gases are not the cause (and there is a climate scientists conspiracy), maybe it exists, but it's not caused by humans, plus is too expensive to fix and will hurt the economy. Note that logic or evidence are not part of the argument. Denying climate change is a core Republican principle. Of course, the Trump administration is "anti-objective reality." The climate change strategy follows that of tobacco, where the companies knew smoking caused lung cancer long ago. "Republicans don't just have bad ideas; at this point, they are, necessarily, bad people" (p. 334). Historically, the GOP was not anti-environment: Bush 41 introduced cap-and-trade to end acid rain, John McCain wanted a similar program for greenhouse gases. Krugman encourages a green new deal focusing on investments and subsidies. Economists likely prefer a cap-and-trade system that puts a price on emissions, but not Krugman who indicates that it causes too many losers (e.g., coal miners). 


XVI: Trump. "Trumps' victory required a lot of things to go wrong--mainly the toxic combination of misbehavior by James Comey and the pettiness of the media, which sniped at Clinton in the belief that she couldn't lose. But America's right wing has been moving toward Trump-style governance for a long time. ... How could white nationalism not be on the rise, when movement conservatism has depended on white resentment to win elections despite following policies that benefit a wealthy elite at the expense of most Americans? How could the paranoid mind-set of Trump followers not emerge from a political movement that sees everything that doesn't confirm its preconceptions--from the reality of climate change to low inflation--as the product of vast conspiracies" (p. 343). "The political fringe blame shadowy forces [George Soros, "outside agitators," but] people who hold power do the same things, this isn't a delusion, it's a tool. ... That's why conspiracy theories have been central to the ideology of so many authoritarian regimes, from Mussolini's Italy to Erdogan's Turkey. ... The GOP is an authoritarian regime in waiting" (p. 346). "Trump would like to go full authoritarian, ... and who's going to stop him?" (p. 347). Then there is the Trump family history of tax fraud. Affinity fraud: "once you establish a persona that appeals to angry, aging white guys, you can sell them stuff" (p 356), like Alex Jones with diet supplements. "The modern GOP feels no allegiance to democratic ideals; it will do whatever it thinks it can get away with to entrench its power" (p. 359).  


Krugman speaks highly of Nancy Pelosi: "by far the greatest speaker of modern times and surely ranks among the most impressive people ever to hold that position. And it's interesting to ask why she gets so little credit with the news media" (p. 361). She stopped Bush's attempt to privatize Social Security, was crucial for Obamacare, financial reform and Obama's stimulus plan. On the other hand: "Newt Gringrich was a blowhard who shut down the government. .. Dennis Hastert had a history of molesting teenage boys. ... John Boehner didn't do much except oppose everything Obama proposed. ...And Paul Ryan is a flimflam man: a fake deficit hawk whose one legislative achievement is a budget-busting tax cut" (p. 362). "Trump and his allies don't accept the very notion of objective facts. 'Fake news' doesn't mean actual false reporting; it means any report that hurts Trump, no matter how solidly verified. ... Any vote count that might favor a Democrat is bad for them; therefore it's fraudulent, no evidence needed. ...  A genuine hero like John McCain, who was critical of Trump, gets dismissed as a failure" (p. 364). "Rule of law depends not just on what is written down, but also on the behavior of those who interpret and enforce that rule" (p. 367). "The Democratic Party is a loose coalition of interest groups, but the modern Republican Party is dominated by 'movement conservatism,' a monolithic structure held together by big money--often deployed stealthily--and the closed intellectual ecosystem of Fox News and other partisan media" (p. 368).


Motives behind Trumpist policy: "manhood, McConnell, and moola: ... Tax cuts for the donor class, with cuts in social programs to make up for some of the lost revenue. It also includes deregulation, especially for polluters but also for financial institutions and dubious players like for-profit colleges" (p. 370); plus undermine healthcare. "Trump's foreign policy has made a break , not just with previous Republican practices, but with everything America used to stand for" (p. 371). "It's hard to escape suspicion that Moola--financial payoffs to Trump personally via the Trump Organization--plays an important role. ...Dictators and absolute monarchs can direct lots of cash to Trump properties and offer the Trump family investment opportunities" (p. 371). "I've been tracking the adventures of Tariff Man. ... There doesn't see to be any large constituency demanding a confrontation with our trading partners. Who wants a trade war? ... Belligerence on trade, it turns out, is pretty much a one-man affair" (p. 371). "Even when he leaves policy mostly the same he insists on a name change. ... The US-Mexico-Canada Agreement" (p. 372) is an example. Create a problem, surrender but declare a victory, give it a name change. 


Part XVII: On the Media. Fake news: "conspiracy theories and false claims spreading through social media. ... Trump and his followers quickly hijacked the term 'fake news' to mean any reporting, no matter how factual, that reflected badly on the Trump administration. ... The major news outlets (other than those owned by Rupert Murdoch) are pretty careful about getting their facts right, and the constant attacks they face for doing their job should scare you" (p. 375). Problems with the media include: "false equivalence--giving two sides of a dispute equal treatment even when one is clearly telling lies. ... ('Triumph of the Trivial'): factually accurate reporting can still be effectively biased against a candidate who for whatever reason reporters don't like, which happened both to Al Gore in 2000 and Hillary Clinton in 2016" (p. 376). "Somewhere along the line, TV news stopped reporting on candidates' policies, and turned instead to trivia" (p. 381). "Politicians seek out economists who reinforce their prejudices; news media are either propaganda organs or desperately afraid of declaring, in any straight-forward way, that politicians are wrong" (p. 385). "George W Bush was dishonest in a way that was unprecedented in US politics. Most notably, he proposed big tax cuts for the rich while insisting, in raw denial of arithmetic, that they were targeted for the middle class. ... He took America to war on false pretenses. ... Mot media coverage gave the impression that Bush was a bluff, straight-forward guy, while portraying Al Gore--whose policy proposals added up--as slippery and dishonest. ... Donald Trump is ... being graded on a curve. ... Meanwhile, we have the presumption that anything Hillary Clinton does must be corrupt, most spectaclarly illustrated by the increasingly bizarre coverage of the Clinton Foundation" (p. 387).   


Part XVIII: Economic Thoughts. Krugman's research: small mathematical models using simplifying assumptions that made them tractable. Monopolistic competition models of Dixit and Stiglitz and apply it to international trade. Economies of scale could be an independent cause of international trade, even in the absence of comparative advantage. Economic blind spots: we don't see what we can't formalize. One way to deal with difficult problems is to change the question; plus accepting assumptions of symmetry of Dixit-Stiglitz models, then see where the assumptions lead. "Trade theorists had failed to address the role of increasing returns not out of empirical conviction, but because they thought it was too hard to model" (p. 397); result was Market Structure and Foreign Trade. Then international finance, small models inspired by current policy issues, then economic geography, the location of activity in space. Rules for research. "Pay attention to what intelligent people are saying, even if they do not have your customs or speak your analytical language" (p. 399), such as trade between countries with similar factor endowments and intra-industry exchanges; importance of economies of scale and imperfect competition; imperfect understanding of comparative advantage and no coherent model; geographers have evidence on the nature and importance of localized external economies. Economic models are metaphors; you may have gotten the metaphor wrong. Limited literature on external economies and international trade before 1978, messy with traditional models. Ask "system questions like how welfare and world income are distributed, it is possible to make simple models" (p. 401). Utility maximization is ludicrous concept, ditto perfect competition, but simple assumptions help produce models as helpful metaphors (like Arrow-Debreu model). Help understand the nature of economic efficiency and achieving efficiency under a market system. Simplify: "strategy does double duty: it both helps you keep control of your own insights,and makes those insights accessible to others" (p. 403).


The Instability of Moderation: let markets work, but government is needed to reign in excesses and fight slumps. Samuelson in 1948 combined traditional microeconomics (invisible hand usually leads to desirable results) with Keynesian macroeconomics, requiring policy intervention. This is intellectually unstable and strategic inconsistency (frictions and ad hoc behavioral assumptions creep in for macro). Can a conservative be a Keynesian? Monetarism failed, replaced by the powerful central bank. Minskyism: long period of stability leading to greater risk and leverage, then a shock. Krugman as a cryptocurrency skeptic: transactions costs and lack of tethering; that is, no relationship to reality--gold has value for jewelry [key functions of money are store of value and medium of exchange]. They work for black markets and tax evasion.


Quiz: Which conservative arguments are zombies and which are potentially valid? I have a major problem with Krugman's government deficit arguments. I absolutely agree that expanded deficit spending is necessary after an economic downturn. He doesn't seem to think deficits are a problem, even during the boom (relying on research by Olivier Blanchard): "If you can raise funds cheaply and apply them to high-return projects, you should go ahead and borrow" (p. 211). As a fiscal conservative, a balanced budget/surplus is needed at the top of the business cycle (consistent with the concept of inter-generational equity). A business cycle is a CYCLE, with the deficit going up and down as part of that cycle. Some level of net deficit is okay through most of the cycle (say, to average one percent of GDP), with big deficits at the bottom but some level of surplus at the top. Clinton achieved a modest surplus around the turn of the century. This is sustainable. When you're running a trillion dollar deficit at the top of the cycle, what fiscal stimulus can you supply when the economy crashes?


Krugman claims that Republicans rely on bad faith and lies. I don't necessarily disagree with this, only that ignorance and incompetence are not out of the question. It's hard to blame Bush 43 for the subprime meltdown, because he didn't seem to have a clue what was going on (or care); that he should have and still responsible are true. My point is, he was ignorant and incompetent rather than evil (it is easier to make the case that Cheney was evil).


Obvious zombies are anti-climate change arguments, the importance of tax cuts for the rich, health care belongs in the private sector (if it's socialized medicine, it has to be bad), and government spending is always wasteful and ineffective. Republican argue that austerity is important when Democrats are in power (e.g., 2009 on during the Great Recession), but deficits not a problem when Republican are in power (true under Reagan, especially the case under Trump--"nobody cares"). 






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© 2016 Gary Giroux