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.

  1. Magpie says:

    Prof. Ruccio,

    Wow! That’s all I can say.

  2. elwoods says:

    The macroeconomists with their models have concluded that interest rates need to be negative to restore a healthy economy. But this is not possible. Let’s examine what this means in terms that a layman can understand. The economy needs demand and investment to produce goods and services. Demand and investment come from the same source, income. If more income is saved, there is less available to create demand and vice versa. Production will be restrained if investment is not sufficient to produce the goods and services that are demanded. The solution to this problem is to raise interest rates so more of the national income is directed to savings and less to spending, which creates demand. Now what if demand is too low because too much income is going to savings? Savings need to be reduced to increase demand. The means to do this would be to lower interest rates. But this measure is limited, since rates near zero won’t cause savers to start spending. So what will cause more spending? Taking money from the savers and giving it to people who want to spend. So what is the mechanism to do this? Tax the savers, and reduce the taxes on spenders, to zero, if necessary. Or, provide the infrastructure, free health care, education, and retirement benefits to the spenders, so more of their income can go to spending. This is essentially what was done in the decades immediately after WWII, when the highest marginal tax rates were near 100% and the government was spending on roads, education, the GI Bill, and Social Security and Medicare were implemented. Instead, what we have done since the 1980’s is reduce high marginal tax rates and taxes on capital gains, allow offshore tax havens, privatize education, let our infrastructure deteriorate, bust unions, and deregulate business to allow more of the rewards of productivity to go to savers. And, now the austerity advocates are on a path to destroy Social Security and Medicare. Isn’t it clear that all we have to do is restore the conditions that existed the fifties and sixties?

    • Benedict@Large says:

      Fine, except under a sovereign fiat, taxes simply reduce aggregate demand. One does not tax one party (reduce their demand) to give to a second party (increase their demand). One simply gives to the second party, and then if and only if there is too much aggregate demand does one begin to tax.

  3. […] David Ruccio (Professor of Economics) […]

  4. Jan says:

    Krugman & Co. — totally flabbergasting neoclassical apologetics-professor Lars Pålsson Syll at Malmö University.

  5. Sebastian says:

    Interesting. Where can I find the original network chart?

  6. Wad says:


    there is a lack of information that Mario Draghi’s doctoral thesis supervisors were Solow and Modigiliani. Source of info:

  7. […] began with the critique Stiglitz leveled at the notion of “secular stagnation,” which Summers has championed starting in 2013 as an explanation for the slow recovery of the U.S. economy after […]

  8. […] debate began with the critique Stiglitz leveled at the notion of “secular stagnation,” which Summers has championed starting in 2013 as an explanation for the slow recovery of the U.S. economy after […]

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