by das monde
Mon Nov 3rd, 2014 at 11:28:53 AM EST
I was writing a comment to the diary "LQD: How Depressingly Right We Have Been", but the quotation became substantially long even abbreviated. Hence this diary.
There was another recent diary, on Krugman's argument about GDP growth and limiting carbon emissions. A couple of Krugman's posts sparked steady reaction from the Post Carbon Institute and such. I noticed an ongoing series of articles from one blog, particularly. It mixed edgy enmity towards Krugman and liberals with eventually some relevant line of thought.
Sufficient Liberal Stories -- The Krugman Function Part 4 -- Transition Milwaukee
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 [...] Second, Krugman's optimism is clearly dependent on the ability of political liberals to get wrong-headed, fuzzy-thinking conservatives out of the way [...]
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 [...]
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 [...] The results were spectacular: the American economy grew quickly but steadily, the wealth was spread throughout all of society, and the American Dream thrived.
Sounds like music to the "Depressingly Right" diary so far, and for a few more paragraphs.
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. Fictive universe?
... 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 [...]
Is it that simple, really? After some cheap babble, the blogger comes up with one obvious
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 [...] 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 [...] 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 [...]
This oily point is neither a Nobel-worthy rocket science, nor an obvious negligence. Without much ado about Krugman's intellectual consistency, it is indeed remarkable that this important factor is not openly discussed in high public circles. Possibly, the issue is too important for the public...
The quoted article basically gives a reason why the policy elites might have been abandoning Keynesian economics. It is not what is reasoned directly:
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 [...]
Rather, the true
argument comes soon with a picture:
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.
Should be avoided at all costs is a strong statement without further analysis. But perhaps - perhaps - in those 70s of the Club of Rome report, the planet elites might have decided indeed that years of peace and prosperity should eventually be avoided... at all costs. That would explain the basically unopposed march of Chicago school economics, gradual abandoning the Keynesian economics, wussiness or duplicity of liberal leaders (and even the geopolitical changes) as a Kabuki play.
... 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.
The implication is that the other necessary factor of requisite resources overwhelms the equality prerequisite. Or even, equality is not the way to deal with the resource limits - we rather revive our primate instincts for inequality? Is this what Thatcher meant with "There Is No Alternative"?