Sufficient Liberal Stories–The Krugman Function Part 4

November 3, 2014

NOTE: Images in this archived article have been removed.

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President Roosevelt signing the Social Security Act in 1935

On the face of it, Paul Krugman appears entirely confident in the future of the American way of life and the growth of a globally inclusive economy.  He is similarly confident in our ability to address climate change by running that economy on renewable energy.

This needs two significant qualifications.  First, it is unclear whether this is what Krugman hopes, or what he expects; whether he is rallying us in an inspirational mode, or lecturing in an analytic one.  In contemporary political culture the roles of coach and analyst are becoming increasingly indistinct and it may not be possible to separate the two.  Second, Krugman’s optimism is clearly dependent on the ability of political liberals to get wrong-headed, fuzzy-thinking conservatives out of the way; it is only by becoming lost in the enthusiasm of a pre-game pep-rally that one could feel all that confident about liberal prospects in upcoming political contests.  A good deal of commentary these days seems to be busy staking out terrain from which the commentator can say, when things have gone very badly indeed one day, “don’t look at me, I told you this would happen if you didn’t listen to me”

Setting aside the various undercurrents that pull at any person putting ink to paper or fingers to keyboard, Krugman’s narrative, itself, is very optimistic, and for reasons that form the major subplot of that same narrative.  As we began to show in our last installment, political efficacy, easy choices, as well as the ever-popular free lunch, are built into the narrative as the ultimate driver of action.  All narratives contain within them a “theory” of cause and effect, whether it is the fate, history, chance, and interconnection we see in Thomas Hardy, or the exercise of individual virtues Jane Austen deploys, to mention two very different narrative theories of cause.  In history, Karl Marx argued that history was driven by class conflict, while in Darwin history is moved by the act of survival and ability to procreate.  Enlightenment philosophers viewed historical change as the conquest of myth by reason.  Krugman is most similar to the latter.  In his story the action is moved by practical insight, the courage to accept its conclusions, and the determination to act upon it.   

But there is, of course, more to the story that that.  Let’s summarize the story he tells in Conscience of a Liberal, a story which underwrites most of his political and economic commentary: during the Great Depression of the twentieth-century liberal thinkers like John Maynard Keynes and political leaders, mainly Franklin Delano Roosevelt, figured out how the economy “really works.”  The lesson of the Great Depression was the peril of unrestrained markets and the way they could concentrate wealth to the point that there weren’t enough people who could afford industrial products being made.  The New Deal, in contrast, taught us the value of high-taxation and government spending, which together solved what liberals have come to believe is the only real threat to economic growth and prosperity for all: namely aggregate demand–consumers with the means to buy industrial products, take out loans, and keep the economy rolling along.  Put stimulus money in the hands of average consumers or create good jobs by way of infrastructure spending, liberals argue, and you can increase aggregate demand and jump-start the economy just as it was jump-started during the Great Depression.  As a bonus, the updated infrastructure will help pave the way to increased economic expansion for years to come, a lesson that the Hoover Dam confirms.

The post-war years  added another layer of confirmation to this theory.  Liberal economists often refer to the economic boom of the fifties and sixties as “the Great Compression,” as top wages were compressed down, towards the middle, by high taxation, on the one hand, while lower wages were compressed up by government programs and strong labor unions, on the other hand.  There was, at the time, substantial agreement among the two major parties in the United States that the key to long-term economic growth and political stability could be based roughly on Keynesian insights and would feature policies that insured relative wage equality and strong investment in the common good. Eisenhower’s Interstate Highway System and Nixon’s expansion of the welfare state and his Environmental Protection Agency are cited as examples of this general consensus.  The results were spectacular: the American economy grew quickly but steadily, the wealth was spread throughout all of society, and the American Dream thrived.

This success might have continued uninterrupted to today, according to Krugman’s narrative, but for the entrance of a villain—the radical conservatives who took over the Republican Party in the late seventies and sabotaged this success on purely ideological grounds, driven by a hazardous mix of zealous ignorance and short-sighted greed.  Fast-forward to 2008, through years of deregulation, union busting, the rise of shadow banking and a culture of speculative risk-taking, and the undermining of the New Deal safety-net through decreased government revenues, and we have all the makings of an economic crisis of epic proportions.  The run-up to the meltdown of 2008, today’s political liberals will explain, looks just like the run up to 1929.   As Robert Reich tells it, in a narrative almost identical to Krugman’s, “it is no mere coincidence that over the last century the top earners’ share of the national income peaked twice, in 1928 and 2007—the two years just preceding the biggest downturns” (Beyond Outrage 43).

The financial crisis of 2008, in other words, confirmed what liberals had suspected all along.  As Krugman puts it, “the crisis of 2008, however, was really an object lesson in the wrong-headedness of conservative economic philosophy. . . . When disaster struck, it became clear that Reagan had been wrong and that Franklin Delano Roosevelt had been right.”  “Textbook economics” may tell us that “equalizing policies would wreak destruction on the economy by destroying incentives.  High taxes on profits would lead to collapse of business investment; high taxes on income would lead to a collapse in entrepreneurship and individual initiative; powerful unions would demand excessive wage increases, leading to mass unemployment and prevent productivity increases” (54).  But if this is what textbook economics say would happen, Krugman quips, the textbooks are wrong:  history shows something quite different.  In fact, the greatest economic boom in the history of the world occurred during an era of high taxes and significant income equality: “the [postwar] era of equality was also a time of unprecedented prosperity, which we have never been able to recapture,” Krugman argues, because we haven’t employed the same policies since movement conservatives began wreaking havoc on equality and the middle class (54).  In Beyond Outrage, Reich reaches the same conclusion from the same historical record: “look back over the last hundred years and you’ll see the pattern.  During periods when the rich took home a smaller proportion of total income.  .  . the nation grew faster and median wages surged” (43). 

When interpreted in this way, there can be little doubt over the policies that would put the economy “back on track” (as everyone from Barack Obama to NPR’s senior economic or business commentator likes to put it): simply repeat the initiatives that got us out of the Great Depression, and reinstitute the long-term policies that fostered the greatest economic boom in the history of the human race.  If, as history shows, the New Deal fostered equality and equality ignited the economy, on the one hand, while inequality precipitates economic crises, on the other, then clearly all we need to do is offer a new New Deal and usher-in a new era of equality and economic expansion. 

This story has struck a chord among liberals and Democrats.  Never before has the necessity of infrastructure spending, a revised tax code, and government spending become such a rallying cry for the indignant progressive classes.  In keeping with this, liberal MSNBC has carried the banner for this neo-Keynesian approach.  It has run a series of ads with anchors like Rachel Maddow at the foot of the Hoover Dam, waxing misty-eyed about the necessity of rebuilding America using lessons learned during the Great Depression.  The pressing issue of equality–forgotten by most liberals during the Clinton-era tech-bubbles and the rise of the hip, liberal, wired-in investor/entrepreneur–has become a new force in American politics with the “Occupy Movement” and a recent and successful New York City mayoral race run on the platform of income inequality.  Income inequality, some have suggested, is the overriding moral and political issue of our day. [i]

While it is true that the conservative illiterati show no signs of getting out of the way of this liberal good sense, there is in principle no reason why another half-century of growth and prosperity is not within our grasp.  As Krugman puts it, describing the post-war boom, “if they could do it then, we should be able to repeat their achievement.”  The issue is one of politics, and thus of insight, belief, and choice, and not, within Krugman’s fictive universe, any sort of larger, structural or immovable objects.   Other historical forces that might complicate this picture have been skillfully pushed aside.  This narrowing of scope and, I would add, almost childlike understanding of cause and effect, unfortunately sells books and gets one a weekly column in The New York Times.  Krugman’s, “if we did it before, we can do it again” narrative has been eagerly embraced by liberals looking for a campaign slogan, a shred of hope, or someone to blame. 

But as compelling as it may be, and as skillfully as Krugman tells it, this narrative works only as long as it creates a very small fictive universe, and thus slices itself off from an exceeding large part of our cultural, historical, and economic reality—a reality that is there and will get in our way, the narratives we tell ourselves notwithstanding.  Just as Krugman cuts short the chain of questioning that might lead to a more systematic understanding of cause and effect, as I argued in The Infinite Toddler Regress, so also does he restrict the field of view to a narrowest swath of reality, creating an imaginary world in which enlightened wisdom and brave leadership might plausibly forge the most fundamental foundations of our lived-existence.  As a preview to our next installment, this has been a feature of Enlightenment and Liberal narratives from their very beginnings, though these narratives are under greater pressure than ever from the excluded parts of the whole-system.

All this becomes all the more evident if we broaden Krugman’s context ever-so slightly.  Suppose, for instance, we take Krugman’s statement, “if they could do it then, we should be able to repeat their achievement,” and turn it into a question instead: If they could do it then, why couldn’t we do it again?  This of course may seem to the liberal onlooker like a rhetorical question.  But what happens if we take it seriously and try to answer it?  Why might we not be able to “do it again?”  What differences are there between the Great Depression and the 2008 crash?  How would our world be different from the post-war era, even if we did implement the same policies once again?  Simply asking the question, I think, begins to show the fundamental weakness of Krugman’s argument, and with it the popular liberal one that suggests we might expect another American century of growing prosperity and global leadership, that we might renew the Promise of America, revive the American Dream, and (because if the Republicans get out of the way it can certainly be done) solve the problem of global warming while doing it.  If we defeated the Nazis and stared down the Soviets, after all, we should be able to create a clean green low-energy knowledge economy for the future.  This is what Americans do when our genius, unique spirit, and democratic traditions are allowed to flourish.  Alas, this is mainly nonsense, though simply perusing the “social criticism” section at the local bookstore will reveal the dominance of this formula—an  American way of life in jeopardy, sabotaged by those on the other side who have failed to understand the true roots of our past triumphs. . . 

But let’s ask the question, why might we not be able to repeat the postwar achievement of explosive economic growth?  Consider just this one difference: in 1945 the United States was sitting on the world’s largest and most easily accessible supply of crude oil, with plenty of other natural resources to accompany it.  While largely settled from coast to coast, our nation was still filled with vast and undeveloped spaces that could accommodate a fast-growing population without immediately discernible consequences to natural resources.  Our oil supply was only rivaled at the time by that of the Soviet Union, our only global rival also being blessed with similar resources and space.   As an oil exporter throughout World War II, our cheap and plentiful energy in the United States not only made our own industrial projects easy to fuel (in great contrast to the eventual energy starvation of the German and Japanese industrial machines), our oil brought in massive amounts of revenue.  The rebuilding of Europe after the war only further boosted the U.S. oil industry (20% of the Marshall Plan aid came in the form of oil and related equipment, according to Daniel Yergin), while at the same time the rising demand aided in the development of American and European oil interests in the Middle East.

This situation of oil creating revenue for the United States, and an inflow of the dollars with which oil has been traded, has long since reversed, our three million barrel a day increase in production notwithstanding.   While we used to lend the world dollars so that it could buy our oil, now we borrow money from other nations in order to buy their oil.  Instead of an oil-led positive trade balance of the mid-twentieth century, in 2011 $327 billion of our total trade deficit of around $564 billion can be attributed to oil imports (about 58%).  Although American consumption of oil would slowly outpace its production levels through the first two and a half decades after the war, our daily output did increased steadily until 1971, an increase necessary to fuel the great industrial projects of the mid-twentieth century without bankrupting the country.

This isn’t to say that our post-war economic expansion didn’t also require hard-working people with good ideas, as well as a financial system that was prepared to grow with our energy supply, supported by a set of laws and policies that could manage this abundance.   But to the question, “Why can’t we repeat this achievement?” a rather obvious and pressing answer should therefore be vying for attention: the energy used to fuel it last time will no longer be available in the quantities and at the price it was the first time round;  the cheap domestic oil that fueled this great expansion peaked in 1971 may have foreshadowed a reversal in national; this dark cloud undermined our national confidence, perhaps, and it,  as much as anything else, may have led to the radical conservative take-over of the Republican Party, which, we should bear in mind, orchestrated an eventual landslide in popular sentiment as we collectively recoiled from Carter’s call for moderated lifestyles built around conservation, and instead indulged (liberals and conservatives alike) in a borrowed and bullied twenty-five year orgy of consumption.    

The economic expansion that Krugman and other mainstream liberals expect can and will put the country “back on track,” would not only require lots of oil; it will require steadily increasing supply of energy at the very moment we are facing the likelihood of a plateau and, eventually, permanent declines.  A quick glance at the record of global C02 emissions, which quadrupled during the era idealized by Krugman and Reich suggests that “getting back on that track” should be avoided at all costs.  We need a new track, and therefore a new set of expectations, but these, sadly, may not be liberal expectations.  At the very least, they will not be narrated in the mode used by Krugman, Reich, Obama, or MSNBC.

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But the primary narrative of Krugman, Reich, and the whole Liberal enterprise today is a  narrative of perpetual repeatability with regard to past accomplishments.  Worst of all, from the standpoint of our inevitable involvement with a much broader and impersonal reality, it hinges upon a rather simple logical fallacy, namely the confusion between necessary and sufficient conditions.  This confusion is an occupational hazard of anyone who resists thinking in terms of systems.  A necessary condition is one that must be present or true for the realization of something else. Thus, as Krugman, Reich, and nearly every other clear-headed liberal correctly conclude, a certain level of equality is probably necessary for a prolonged economic expansion and a well-functioning democracy.  I think there is a lot of merit to this argument about the societal and economic benefits of equality.  These liberal economists are correct when they show how poor an understanding of our economic realities the conservative anti-government position employs.  It never did work and almost certainly never will, even if we did reproduce all the conditions of the past. 

But even if equality and a few related policies is a necessary condition, it is a great leap to suggest that it is a sufficient condition.  A sufficient condition, recall, is one that requires no assistance from other supporting conditions—conditions like plenty of cheap energy, available foreign markets, a large standing army ready to keep the world safe for trade, and so on.  Sufficient conditions are rare in a historically dynamic and complex world.  As a necessary but not sufficient condition, equality alone cannot ensure economic expansion.  But that is what Krugman argues: he implies that equality, and a few related policy choices is all that is required, at least in the United States, for us to achieve the same sort of positive economic results that we have enjoyed in the past; that equality is a sufficient condition for the economic situation he’d like to see; that if we simply reinstitute policies of equality, good economic times will follow.  That, after all, is the only way he can say “if we they did it before, we can do it again.”  Simply, is the keyword, and not one that I am imposing on Krugman from the outside.  The solutions to our problems Krugman suggests in the final paragraphs of The Return of Depression Economics, are simple.

If we cornered him at a party, I’m guessing that Krugman would likely admit that there are other conditions necessary for economic growth; but I also think he assumes these other conditions are relatively intact and are an inherent part of our modern condtion; he is pretty explicit that they are not in need of discussion or concern.   This probably explains why Krugman (and almost every other liberal) is so zealously and unquestioningly faithful in the power of wind and solar as a substitute for fossil fuels, and confident that technology will create exponential increases in efficiency, a position that can be maintained as long as you never consider what, in particular, this might mean.  But as long as the only obstacle keeping us from our duly deserved wind and solar economy are the same conservatives preventing equality and continued economic growth, the issue can be bracketed into the “taken care of in the course of our Liberal progress” category and thus are in need of no further discussion.  This elegant resolution of all loose strands would make Dickens jealous. This may also explain Krugman’s defensive and dismissive response to the Post-carbon institute.  Taking it remotely seriously starts an intellectual unravelling that probably cannot be stopped.

The introduction just of oil supply and carbon emissions into the liberal field of view pretty much undoes the main story told by mainstream Democrats today.  Imagine if we viewed that history, our present, and our likely future according to a broader systems approach!  Of course, one can do so simply by dusting off The Limits to Growth, which is why true Liberals usually do notTrue, Democrats could begin to talk about equality purely in moral terms, or about environmental stewardship in terms of our ethical duty to others.  But, we will see in our next installment, Liberal systems are not moral systems, a distinct moral aspect notwithstanding. Rather, they are the combination of a reasonable (or vague) adherence to a moral code along with a track record of visibly manifested successes lubricated by a limited amount of  day to day interference with the wants and predilection of the people—and of course a simple narrative formula with which we might cheer ourselves on.  It is with these that Liberalism has, to this point, managed to maintain the consent of the governed.

[i] For the record, I strongly believe in equality, especially international equality in which a good majority of Americans form a part of a global 1%.  I just don’t  believe equality will, should, or can be employed to create economic growth.



Erik Lindberg

Erik Lindberg received his Ph.D. in English and Comparative Literature in 1998, with a focus on cultural theory. After completing his degree, Lindberg began his career as a carpenter, and now owns a small, award-winning company that specializes in historical restoration. In 2008 he started Milwaukee’s first rooftop farm, and was a co-founder of the Victory Garden Initiative, as well as a member of Transition Milwaukee’s inaugural steering committee. He lives in Milwaukee with his wife and young twin boys.

Tags: economic growth, liberalism, Paul Krugman