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The Politics of ‘Back to the Future’ Economics



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Of the dozen or so American economists who have received the Nobel Prize for Economics in recent decades, at least two currently play prominent roles in the public conversation regarding America’s future. Together these public intellectuals represent one half of a critical conversation concerning the nation’s fiscal policy in the near term and sustainability in the longer term. Representatives of various conservative and Republican Party organizations offer the opposing view in the exchange.

As for the economists, Professor Paul Krugman of Princeton University writes a twice-weekly column for the New York Times Opinion page in which he routinely pulls no punches on how the nation should proceed to address its economic woes. He is a leading voice for Keynesian premises and for the role that government can play in stimulating our slow growing economy. He has lately been calling for continued and increased national government spending to kindle the economy in the face of GOP and conservative organization claims that the nation “cannot afford” its current expenditures and must reduce those by very large amounts (at least for social expenditures; they do not call for cuts in most tax expenditures and defense spending) and soon. Krugman has labeled such arguments nonsense and suggested they would slow the economy and perhaps throw it back into recession in addition to removing important services from millions of the poor and needy at a time when their options to receive aid otherwise are extremely limited. He also has lately been contending, however, perhaps with tongue firmly in cheek, that he is tired of playing a Cassandra role, while Republican Party leaders and conservative organizations simply ignore his learned counsel. In a recent interview with the Guardian newspaper in London, for example, he expressed deep frustration that GOP leaders are offering rhetoric that echoes uncannily that offered by Herbert Hoover as the nation faced the Great Depression in the early 1930s. He has argued strongly that such a policy stance is not only deeply mistaken, but also pernicious, and he has asked pugnaciously if these leaders have learned anything from America’s bitter experience in the Great Depression. Hoover was once a reviled figure for misunderstanding so deeply the nation’s needs, but his beliefs and policies are indeed very much alive in current conservative and GOP rhetoric.

Meanwhile, Nobel winner Joseph Stiglitz of Columbia University, who served as Chair of President Clinton’s Council of Economic Advisors, has just released a book arguing America’s large and growing income inequality threatens not only its continued economic growth, but also its very capacity for democratic governance. Stiglitz points out that the United States has the highest level of income inequality of all of the advanced nations. To illustrate the currency of this point, he shows that the top 1% of US income earners garnered 93% of the income growth of the economic recovery of 2009-2010. As such, he suggests the American dream has become a myth and unless elected leaders begin to demand otherwise, those advantaged by this situation will continue to ensure that the nation’s tax and expenditure policies serve their particular interests, rather than those of the broader nation. They will do so, Stiglitz contends, via effective advocacy in elections and in legislatures at all levels. One prominent example of the phenomenon to which the professor points is the mobilization of hundreds of millions of dollars by a small group of wealthy libertarian ideologues who gather in secret periodically to decide where and how to invest in campaign politics at all levels of governance. Overall, Stiglitz argues that inequality results in lower economic growth and less efficiency and therefore constitutes a large and rising cost to society. Nonetheless, he notes the situation will not change until those advantaged by it are effectively countered in the political process.

Taken together, these Nobel winners offer not only economic arguments for their views, but also important political ones. Stiglitz in particular suggests that a share of the wealthiest Americans have been increasingly successful in lobbying and campaigning politically for their positions and capturing the lion’s share of the nation’s income growth for themselves. The result is a less democratic society. And those who challenge that group’s status and the emerging situation are routinely vilified. Indeed, when President Obama raised the issue of inequality in recent weeks, GOP leaders quickly accused him of “class warfare.” Stiglitz’ argument suggests one would expect just such claims from those so strongly advantaged by deep and continuing income disparity.

Beyond these observations, three conclusions seem apt. First, Krugman and Stiglitz suggest that if nothing is done, or if the current GOP agenda of draconian cuts in federal domestic/social expenditures occurs, the nation now runs the very real danger of hollowing democratic governance out from the inside without the broader population realizing it has evanesced. The danger is real.

Second, a significant share of the money supporting the very conservative positions of many Tea Party and Republican Party campaigns and organizations is coming from a fairly small group of business people who believe deeply, as a matter of ideology, in libertarian politics. Their advocacy seeks not only the realization of their vision for governance, but also their continued privileged place in society. The nation, Stiglitz reminds us, must find a way to counter the growing power of this group in campaign and legislative politics. That will require a turn that is not now the case: that broad swathes of the population come to understand what is occurring.

Finally, as Krugman has argued, the coming election constitutes a bellwether of sorts for whether the citizens of the United States are prepared to continue to deepen inequality and to blame government for their woes, or whether they will view governance as the only representation of their commons and their best hope to move out of their current situation. The stakes in the coming election are indeed very high. The troubling question is whether that choice will be made on the basis of the concerns Krugman and Stiglitz have rightly raised, or on the basis of claims that ultimately serve the specific interests of those advancing them.

Publication Date

June 10, 2012