Thursday, June 07, 2012

Getting Dazed and Confused With Paul Krugman

From CounterPunch:

Mr. Krugman’s confusion lies in the term ‘investment.’ Companies ‘invest’ by borrowing money to increase production enough to repay the loan and earn a profit. Students take student loans to, with apologies for the terminology, ‘increase their human capital.’ And workers take mortgages to buy houses so that they have a place to live while they work. And workers take out auto loans to buy cars so that they have a way to get to work and back. In an economic sense, borrowed money must be part of the productive process for the system to function.

Because most loans take years to repay, they in a sense draw against future production. If too much money is borrowed against future production, the risk increases that if it fails to materialize, a financial and economic calamity will result. Add outright lender fraud on an industrial scale and this is what happened in the 2000s.


Second, prior to the 2000s the American economy was structurally set up for stable, if cyclical, labor markets as evidenced by the types of loans offered (30-year fixed rate). By setting into motion a long-term decline in wages and by increasing employment insecurity, the capitalist reformers (neo-liberals) set the household debt crisis into motion at least a decade before it became evident in the financial crisis. With existing mortgage payments taking an increasing share of household income, household debts became more burdensome even without the amount of debt increasing.

More here.

So, of course, anybody who stops by here regularly knows that I post a lot of Paul Krugman. That's because what he writes generally fits in very well with my admittedly limited understanding of macroeconomics. I also like that he's a well established economist in the top ranks of his field: reading his stuff and commenting on it puts me right in the middle of things, as it were, in terms of establishment economics, that is, the mainstream public discourse on the economy.

But Krugman isn't the only guy I read on economics. Indeed, most of the economics reading I do comes from pretty far out in left field, you know, guys working in more of a Marxist tradition, and the vast majority of that is a pretty harsh systemic criticism of capitalism itself. Krugman, as much as he infuriates the Tea Party crowd, Libertarians, and free market fundamentalists, you know, moronic folk who think he's a socialist, is himself pro-capitalist, and everything he writes is intended to make capitalism a functional, efficient, albeit socially kind, system for allocating goods and resources throughout society. That is, you'll never find Krugman writing the same kind of systemic critique of capitalism that guys like Richard Wolff do.

So how do I reconcile my affection for Krugman with my affection for the Marxists who like to blast him from time to time? Well, I don't; such a reconciliation is beyond my intellectual abilities at this time. I mean, really, capitalism and Marxist analysis of capitalism just come from entirely different universes as far as the underlying philosophy is concerned. A reconciliation between the two points of view may very well not be possible. But Krugman makes some very good observations from within his view of how the world works, just as the Marxists I read do from within their world. I feel intellectually richer for trying to understand both points of view, even though they're both ultimately incompatible. Well, probably incompatible.

The good news, for me anyway, is that I don't have to reconcile these points of view. I mean, I'm not an economist, just a guy with a blog trying to understand the world and bring along anybody who wants to come. So I'm working both an inside and an outside game on economics, and I think that's just fine.

I will say this, though: when I'm recycling Krugman's views in facebook debates and elsewhere, I don't tend to get the same kind of shock and disbelief I get when I'm recycling Marxist views. I mean, asserting that labor is just as integral to any sort of business enterprise as capital and management, and therefore deserves a bigger slice of the pie, recently made a few of my friends think I have absolutely no idea what I'm talking about.

But we know better, don't we?