Krugman’s missing link

Posted: 29 June 2010 in Uncategorized
Tags: , , ,

Paul Krugman needs some help. He can’t quite figure out what the links are between inequality and capitalist crises.

Let’s start by giving him credit: he actually believes that inequality matters (unlike most mainstream economists who largely ignore or explain away issues of economic inequality, now as in the past). And he does seem to understand that there’s a link between inequality and politics, an influence that runs in both directions. But, like most mainstream economists, his understanding of the relationship between inequality and politics falls short. And that’s because he doesn’t have a theory of the state, or at least a class-based theory of the state.

Then, when it comes to the relationship between inequality and financial instability, he seems to be at a complete loss. It’s a giant question mark.

Krugman’s clearly in trouble, and his mainstream economics training is not much help. So, let’s offer him some assistance: First, he needs a theory of inequality, a theory of value that explains the conditions and consequences of the growing gap between wages and productivity. Call it a theory of exploitation. Then, he needs to trace the effects of growing exploitation on both wage-earners (who go into debt to maintain consumption) and profit-takers (who funnel one portion of those profits into the salaries of managers and another portion into new financial instruments). Call it a theory of financial fragility based on capitalist exploitation.

That would give Krugman the beginnings of the theory of the link between inequality and capitalist crises he and his mainstream colleagues are missing. The real question is, do they have the intellectual honesty to learn about, utilize, and build on such a theory, or will they just throw up their hands and leave the link with a giant question mark?

Comments
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  3. […] those (like Paul Krugman) who are floundering around trying to understand whether or not there’s a link between inequality […]

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  5. […] Reich is in about the same position as Paul Krugman, in that he notices a parallel between “America’s surging inequality” in relation […]

  6. […] attempts to make sense of the role of inequality in causing the current crises by Robert Reich and Paul Krugman look better once you consider the Chicago-style explanation offered by Raghu Rajan. His latest, […]

  7. […] attempts to make sense of the role of inequality in causing the current crises by Robert Reich and Paul Krugman look better once you consider the Chicago-style explanation offered by Raghu Rajan. His latest, […]

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  9. […] major problem with Johnson’s argument (like Krugman’s before him) is the only link he can imagine between inequality and the current crises passes […]

  10. […] Most mainstream economists don’t even mention the problem of inequality. And when they do, they explain it away as the natural consequence of changing technology, education, and globalization. And even if they consider it to be important, they can’t figure out how it helps to explain the current crises in capitalism (except, perhaps, through politics). […]

  11. […] Most mainstream economists don’t even mention the problem of inequality. And when they do, they explain it away as the natural consequence of changing technology, education, and globalization. And even if they consider it to be important, they can’t figure out how it helps to explain the current crises in capitalism (except, perhaps, through politics). […]

  12. […] had my disagreements with Paul Krugman over the years (e.g., here, here, and here) but, in comparison to most of what passes for mainstream economics there days, and […]

  13. […] Unfortunately, while the essay is focused on inequality, it is still the case (as I argued back in 2010) that they can only make the link between inequality and the current crises via the political […]

  14. […] of their models is still an open question—is to pass through politics (much in the way Paul Krugman attempted in […]

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  16. […] mainstream economists, especially those on the more liberal wing (such as Paul Krugman, Joseph Stiglitz, and Thomas Piketty), hold the exact same utopian horizon—of just deserts based […]

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