Posts Tagged ‘Paul Krugman’


Right now, mainstream economists are both congratulating themselves and bemoaning their fate.

Mainstream economists (such as Justin Wolfers and Paul Krugman) are congratulating themselves for having achieved a virtual consensus on the positive effects of fiscal stimulus. But they’re also complaining about the fact that the rest of the world (such as politicians, central bankers, and others) doesn’t seem to be listening to their expert advice.

Just two quick comments on this approach to consensual economics:

First, of course there’s a consensus among mainstream economics! That’s what their theories and models are supposed to do: produce and reproduce a consensus in terms of the basic analysis of macroeconomic events (although, of course, there can still be disagreements about particular aspects, such as the exact size of the fiscal multiplier and so on). And anyone who doesn’t use those models, and therefore reaches a different set of conclusions, is declared to be outside the mainstream, and therefore not worth reading or being listened to.

Second, how is it possible to declare—in the midst of the Second Great Depression—that mainstream economics has been an unqualified success? To arrive at such a conclusion would mean to overlook, at a minimum, the role that mainstream economics played in creating the conditions for the crash of 2007-08, in failing to include even the possibility of such a crash in their models, and in confining themselves to a package of monetary and fiscal policy measures—and not to even consider the possibility of larger, structural changes—as tens of millions of people lost their jobs, were stripped of their wealth, and were pushed further and further down the economic ladder.

Those engaged in consensual economics are, it seems, too busy congratulating themselves and bemoaning their fate to want to recognize the gorilla in the room.


I know. I wrote I wouldn’t be able to comment on Thomas Piketty’s book, Capital in the Twenty-First Century, until I found the time to read it, which won’t happen until the semester is over.

But the debate about the book is taking off and I simply don’t have the patience to wait until my lectures are over and final grades turned in. So, permit me, for the time being, to comment on the commentary.

Thomas Palley has observed that “Neoclassical economists have always talked of capital (K). The forbidden subject is capitalism.” Yes, but, even in talking of capital, they have a problem, one that was addressed during the 1960s in the Cambridge capital controversy. As Joan Robinson argued (and as my students used to learn in Principles of Microeconomics), capitalist income (total profit as the return on capital) is defined as the rate of profit multiplied by the amount of capital. But the measurement of the “amount of capital” involves adding up quite incomparable physical objects – adding the number of assembly-lines to the number of shovels, for example. That is, just as one cannot add heterogeneous “apples and oranges,” we cannot simply add up simple units of “capital,” unless one knows the price of capital, which is the rate of profit. Thus, you can’t use the amount of capital (as in the neoclassical aggregate production function) to determine the rate of return on capital—unless you already know the rate of profit.

That’s the thorny problem Paul Krugman simply sidesteps in defending Piketty’s use of the aggregate production function. Even Paul Samuelson had to concede the validity of Robinson’s critique.

But Krugman is right in arguing “you really don’t need to reject standard economics either to explain high inequality or to consider it a bad thing.” I agree. What’s interesting is that, as Piketty shows, it’s possible to analyze and criticize inequality using some of the tools of neoclassical economics. Not easy but it’s possible. Which means that neoclassical economists, for the most part, choose not to try to analyze and criticize inequality. In other words, the fact that they don’t spend much of their time—in teaching, research, and offering policy advice—in analyzing and criticizing the grotesque levels of inequality we’ve seen in recent decades is, in part, an ethical question. They could but they don’t.

And that’s perhaps an even more damaging critique of mainstream economics than the capital controversy itself.


Is there any academic economics book that has elicited as much interest in the past decade (and perhaps longer) than Thomas Piketty’s Capital in the Twenty-First Century?

All kinds of friends, colleagues, and former students have been asking me about it and sending me links. And, everywhere I turn, there seems to be a new review of the book.

To be honest, I just received my copy of the book. I haven’t read it yet and probably won’t be able to find the time to do so until the semester is over. (But, as I indicated, I will be teaching it in the fall.) So, while I’ll hold off on commenting on the content of the book itself until I’ve had a chance to carefully work my way through it, I do want to mention a couple of things.

First, my sense is the book is generating so much attention precisely because of a certain nervousness out there, the fact that capitalism is facing a legitimacy crisis right now. The capitalists’ project of becoming a universal class seems to have become derailed in the midst of the Second Great Depression, and Piketty’s discussion of the return of inherited wealth in the second Gilded Age speaks directly to that concern.

Second, many of the reviews I’ve read imply—and often explicitly state—that “our” views about capitalism are being challenged by the general rise in inequality and, in particular, by Piketty’s focus on the returns to capital. Paul Krugman’s essay in the New York Review of Books is a good example: “The result has been a revolution in our understanding of long-term trends in inequality.” “This is a book that will change both the way we think about society and the way we do economics.” “We’ll never talk about wealth and inequality the same way we used to.” (Emphasis added in all cases.) And so on.

Excuse me but who is this “we” and “our”? I expect I’ll learn a lot from reading Piketty’s book (especially since it includes such evocative phrases as “the past tends to devour the future”) but, please, there are a lot of us who have been writing and teaching about capital and inequality for a very long time. They are central to how we’ve long understood and analyzed the changing dynamics of capitalist economies. I doubt, therefore, that Piketty’s book will contribute to a revolution in our understanding of long-term trends in inequality or in how we think about society and the way we do economics.

But clearly Piketty’s book may have that effect on how other people make sense of capital and inequality—economists who have spent their careers ignoring what their less-orthodox colleagues have been writing and teaching for many, many years.


It’s a sad commentary on contemporary economics that Larry Summers’s belated, poorly thought-out, population-driven “discovery” of the possibility of secular stagnation continues to receive such accolades. Paul Krugman gives him credit for “forcefully” offering such a “radical” idea at “at the most ultrarespectable of venues, the I.M.F.’s big annual research conference.” Jared Bernstein, for his part, finds it “compelling.” And then there’s Gavyn Davies, who considers Summers’s speech “a tour de force that demands to be watched.”

Oh, please!

Let’s give credit where credit is due, starting with Paul Sweezy, who offers an appropriate history lesson, explaining how and why the issue of secular stagnation was raised during the First Great Depression and then “so abruptly interrupted by the outbreak” of WWII. And while I’ve never been entirely convinced by Sweezy’s own explanation of the stagnationist tendencies of “monopoly capitalism,” he certainly offers much more food for thought than we’ll find in the present discussion. In fact, Sweezy’s observation about the state of the debate, offered in 1982, is even more accurate today:

I have the feeling that if you ask an economist how we got into the mess we are in, he or she, while not denying that it is indeed a mess, will reply by giving advice as to how to get out of it but will not have anything very enlightening to say about how we got into it.

For my part, I’m all in favor of resuming the long-interrupted debate over capitalism and stagnation, especially about how we got into the current mess. But, if we’re going to take the discussion seriously, let’s open up the terms of debate, in terms of both the history of economic thought and the range of ideas that exist today, which Summers and his colleagues have worked so long and hard to keep on the “radical fringe.”


My better half has insisted for years that I not be too hard on Paul Krugman. The enemy of my enemy. Popular Front. And all that. . .

But enough is enough.

I simply can’t let Krugman [ht: br] get away with writing off a large part of contemporary economic discourse (not to mention of the history of economic thought) and with his declaration that Larry Summers has “laid down what amounts to a very radical manifesto” (not to mention the fact that I was forced to waste the better part of a quarter of an hour this morning listening to Summers’s talk in honor of Stanley Fischer at the IMF Economic Forum, during which he announces that he’s finally discovered the possibility that the current level of economic stagnation may persist for some time).

Krugman may want to curse Summers out of professional jealousy. Me, I want to curse the lot of them—not only the MIT family but mainstream economists generally—for their utter cluelessness when it comes to making sense of (and maybe, eventually, actually doing something about) the current crises of capitalism.

So, what is he up to? Basically, Krugman showers Summers in lavish praise for his belated, warmed-over, and barely intelligible argument that attains what little virtue it has about the economic challenges we face right now by vaguely resembling the most rudimentary aspects of what people who read and build on the ideas of Marx, Kalecki, Minsky, and others have been saying and writing for years. The once-and-former-failed candidate for head of the Federal Reserve begins with the usual mainstream conceit that they successfully solved the global financial crash of 2008 and that current economic events bear no resemblance to the First Great Depression. But then reality sinks in: since in their models the real interest-rate consistent with full employment is currently negative (and therefore traditional monetary policy doesn’t amount to much more than pushing on a string), we may be in for a rough ride (with high output gaps and persistent unemployment) for some unknown period of time. And, finally, an admission that the conditions for this “secular stagnation” may actually have characterized the years of bubble and bust leading up to the crisis of 2007-08.

That’s where Krugman chimes in, basking in the glow of his praise for Summers, expressing for the umpteenth time the confidence that his simple Keynesian model of the liquidity trap and zero lower bound has been vindicated. The problem is, Summers can’t even give Alvin Hansen, the first American economist to explicate and domesticate Keynes’s ideas, and the one who first came up with the idea of secular stagnation based on the Bastard Keynesian IS-LM model, his due (although Krugman does at least mention Hansen and provide a link). I guess it’s simply too much to expect they actually recognize, read, and learn from other traditions within economics, concerning such varied topics as the role of the Industrial Reserve Army in setting wages, political business cycles, financial fragility, and much more.

And things only go down from there. Because the best Summers and Krugman can do by way of attempting to explain the possibility of secular stagnation is not to analyze the problems embedded in and created by existing economic institutions but, instead, to invoke that traditional deus ex machina, demography.

Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.

You would think that a decent economist, not even a particularly left-wing one, might be able to imagine the possibility that a labor shortage might cause higher real wages, which might have myriad other effects, many of them really, really good—not only for people who continue to be forced to have the freedom to sell their ability to work but also for their families, their neighbors, and for lots of other participants in the economy. But, apparently, stagnant wages (never mind supply-and-demand) are just as “natural” as Wicksell’s natural interest rate.

And then, finally, this gem:

The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit.

No, it’s not hard to think of many such reasons. But when the question is asked in the particular way Krugman poses it—in terms of natural rates of this and that, of interest-rates, population, wages, innovation, and so on—the only answers that need be admitted into the discussion come from other members of the close-knit family (and thus from Summers, Paul Samuelson, and Robert Gordon). All of the other interesting work that has been conducted in the history of economic thought and by contemporary economists concerning in-built crisis tendencies, long-wave failures of growth, endogenous technical innovation, financial speculation, and so on is simply excluded from the discussion.

It is no wonder, then, that mainstream economists—even the best of them—are so painfully inarticulate and hamstrung when it comes to making sense of the current economic malaise.

I’ll admit, it wouldn’t be so bad if it was just a matter of professional jealousy and their not being able to analyze what is going on except through the workings of a small number of familiar assumptions and models. They talk as if it’s only their academic reputations that are on the line. But we can’t forget there are millions and millions of people, young and old, in the United States and around the world, whose lives hang in the balance—well-intentioned and hard-working people who are being made to pay the costs of economists like Krugman attempting to keep things all in the family.


No, not the infamous thoroughfare of Washington, D.C.’s lobbying industry. I’m referring, instead, to the theoretical street that runs, in Paul Krugman’s latest [ht: sm], from the Keynesian liquidity trap to Michal Kalecki’s political business cycle.

Krugman, it seems, has overcome his fear of Kalecki’s analysis of why the captains of industry oppose government spending as a way of generating full employment. But the solution he favors still falls far short of the political challenge that derives from Kalecki’s analysis:

1. Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?

2. ‘Full employment capitalism’ will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.


Readers will remember (or at least have heard about) Home Alone, the 1990 film in which Kevin McCallister, an eight-year-old boy played by Macaulay Culkin, is left behind when his family flies to Paris for their Christmas vacation.

Well, it seems a similar fate has befallen Paul Krugman, who by his own admission won’t follow Joseph Stiglitz and couldn’t-be-more-centrist-a-Democrat Barack Obama. Obama, in his Knox College address concerning economic issues, followed Stiglitz in focusing on inequality both as a cause and a consequence of the current economic crises.

Krugman however argues, as he has all along, that inequality is a moral not an economic issue.

What this means is that even other mainstream economists and centrist politicians, in placing inequality at the center of our current economic story, may now be leaving Krugman behind.


I’m intrigued by the increasing references to rent-seeking as a way of making sense of the groteque unequal distribution of income in the United States. What explains this trend?

We now have Joseph Stiglitz, Josh Bivens and Lawrence Mishel, and Paul Krugman all referring to rents or rent-seeking in order to analyze how the 1 percent has managed to capture a larger and larger share of the income generated within the U.S. economy. It seems that, within “polite company” (or at least what passes for polite company within mainstream economics), it’s now permissible to invoke and describe the rent-seeking behavior of the economic elite (in a manner analogous to the way rent was originally used, to describe what landlords received for the use of their land, as the return obtained by virtue of ownership, not because of anything they actually did or produced).

Here’s my sense: the obscene amounts of income going into the pockets of the top 1 percent and the fact that much of that income is associated with what are increasingly seen as economically useless activities (such as returns to stock ownership, serving as Chief Executive Officers of large corporations, and the financial sector) have put the final nail in the coffin of neoclassical marginal productivity theory. It’s simply become increasingly difficult to square the concentration of income among those at the very top (and the stagnation of incomes for pretty much everyone else) with the idea that everybody gets what they deserve, according to their marginal contributions to production.

So, what’s the alternative? Well, clearly the idea of surplus extraction and distribution is one way of making sense of the problem. But such a theory of income distribution brings with it notions of class and exploitation—and, of course, a critique of capitalism. The idea of rent-seeking is thus a way out. It represents a critique of the marginal-productivity theory of distribution but it refuses the idea that the incomes of the those at the top can be explained by their capturing a larger and larger share of the surplus produced by those who labor at the bottom.

As for me, I’m curious to see in which directions this debate will go in the coming months and years, as the top 1 percent continue to grab the money and run.


Apparently, Paul Krugman and I crossed paths—way back in 1976.

According to his “maudlin memories of youth,” Krugman was one of five MIT graduate students sent to Portugal during the summer to work on the national accounts and to offer economic advice to the folks running the central ban—in a continuation of a long line of mainstream economic advisers from the United States to the Portuguese government stretching back to the 1960s.

Me, after graduating from college, I went with a Watson Fellowship to study the prospects for socialism after the Carnation Revolution of 24 April 1974, with a project titled “The Political Economy of the Portuguese Revolution 1974-1976″ (which I mention briefly in this interview).

Krugman found a country that was “fascinating, lovable, and still very poor.” I found a country that, from north to south, was struggling to explore and expand its new-found freedoms and to debate its future after the end of fascist regime of Marcelo Caetano and the Portuguese Colonial Wars in Africa and East Timor. That summer, liberal Mário Soares was elected Prime Minister of a weak minority government (in coalition with the Social Democratic Party), and proceeded to impose austerity measures that were criticized by the opposition Communist Party and the Armed Forces Movement, while collective farms continued to operate on millions of acres of occupied lands in the Alentejo.

1976 was also the year I decided to return to the United States and to apply for a graduate program in radical economics. Places like MIT held no interest for me. Instead, I applied to Stanford (where Paul Baran had taught), the New School, and the University of Massachusetts Amherst and ended up, in 1977, enrolling at UMass.

Today, the right-wing Social Democratic Party led by Pedro Passos Coelho, elected in 2011, is hellbent on imposing the troika-sponsored austerity policies that have resulted in a shrinking economy and 18 percent unemployment.

And, while to my knowledge Krugman and I have never crossed paths again, the Portuguese people have been forced to take to the streets once again to find a way out of the economic crisis.


There’s no surer sign that someone has achieved pop star status than that they are the target of a satire. And so it is with Paul Krugman.

But, according to Joshua Clover, pop has its particular tensions and contradictions:

In December, Krugman wrote two blog entries in swift succession: “Rise of the Robots” and “Human Versus Physical Capital.” Inequality, his charts informed him, was itself a consequence of the opposition between capital and labor—specifically the increasing domination of capital in the form of machines—as labor is expelled from the production process. That ratio turns out to be basically the same measure as productivity, sine qua non of economic progress.

Moreover, in a development Krugman couldn’t quite bring himself to declare, his charts suggest that a generally declining labor share since the 1970s has also spelled bad news for overall profitability outside the finance sector. The productivity race wasn’t just unfortunate for the unemployed; it was for capital a poison pill of its own making. Thus Krugman’s comedy: always on the verge of discovering the arguments of a 150-year-old book; always turning away at the last second. In Krugman’s words, “I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism—which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.”

Does it? I suppose so. And that uncomfort is what pop, for all its pleasures, must defer. Pop must affirm the way things are, no matter how often it choruses the word “change.” You cannot be Paul Krugman, Pop Star, and at the same time discover that capital is built to break us, and itself—even if your charts so testify. So you will not be shocked to discover Krugman stepped back from this realization and continued about his business, scarcely speaking of it again. There are some things you do not say. They are not popular.