New York Times
May 3, 2012
Plutocracy, Paralysis, Perplexity
By PAUL KRUGMAN
Before the Great Recession, I would sometimes
give public lectures in which I would talk about
rising inequality, making the point that the
concentration of income at the top had reached
levels not seen since 1929. Often, someone in the
audience would ask whether this meant that another depression was imminent.
Well, whaddya know?
Did the rise of the 1 percent (or, better yet,
the 0.01 percent) cause the Lesser Depression
we’re now living through? It probably
contributed. But the more important point is that
inequality is a major reason the economy is still
so depressed and unemployment so high. For we
have responded to crisis with a mix of paralysis
and confusion — both of which have a lot to do
with the distorting effects of great wealth on our society.
Put it this way: If something like the financial
crisis of 2008 had occurred in, say, 1971 — the
year Richard Nixon declared that “I am now a
Keynesian in economic policy” — Washington would
probably have responded fairly effectively. There
would have been a broad bipartisan consensus in
favor of strong action, and there would also have
been wide agreement about what kind of action was needed.
But that was then. Today, Washington is marked by
a combination of bitter partisanship and
intellectual confusion — and both are, I would
argue, largely the result of extreme income inequality.
On partisanship: The Congressional scholars
Thomas Mann and Norman Ornstein have been making
waves with a new book acknowledging a truth that,
until now, was unmentionable in polite circles.
They say our political dysfunction is largely
because of the transformation of the Republican
Party into an extremist force that is “dismissive
of the legitimacy of its political opposition.”
You can’t get cooperation to serve the national
interest when one side of the divide sees no
distinction between the national interest and its own partisan triumph.
So how did that happen? For the past century,
political polarization has closely tracked income
inequality, and there’s every reason to believe
that the relationship is causal. Specifically,
money buys power, and the increasing wealth of a
tiny minority has effectively bought the
allegiance of one of our two major political
parties, in the process destroying any prospect for cooperation.
And the takeover of half our political spectrum
by the 0.01 percent is, I’d argue, also
responsible for the degradation of our economic
discourse, which has made any sensible discussion
of what we should be doing impossible.
Disputes in economics used to be bounded by a
shared understanding of the evidence, creating a
broad range of agreement about economic policy.
To take the most prominent example, Milton
Friedman may have opposed fiscal activism, but he
very much supported monetary activism to fight
deep economic slumps, to an extent that would
have put him well to the left of center in many current debates.
Now, however, the Republican Party is dominated
by doctrines formerly on the political fringe.
Friedman called for monetary flexibility; today,
much of the G.O.P. is fanatically devoted to the
gold standard. N. Gregory Mankiw of Harvard
University, a Romney economic adviser, once
dismissed those claiming that tax cuts pay for
themselves as “charlatans and cranks”; today,
that notion is very close to being official Republican doctrine.
As it happens, these doctrines have
overwhelmingly failed in practice. For example,
conservative goldbugs have been predicting vast
inflation and soaring interest rates for three
years, and have been wrong every step of the way.
But this failure has done nothing to dent their
influence on a party that, as Mr. Mann and Mr.
Ornstein note, is “unpersuaded by conventional
understanding of facts, evidence, and science.”
And why is the G.O.P. so devoted to these
doctrines regardless of facts and evidence? It
surely has a lot to do with the fact that
billionaires have always loved the doctrines in
question, which offer a rationale for policies
that serve their interests. Indeed, support from
billionaires has always been the main thing
keeping those charlatans and cranks in business.
And now the same people effectively own a whole political party.
Which brings us to the question of what it will
take to end this depression we’re in.
Many pundits assert that the U.S. economy has big
structural problems that will prevent any quick
recovery. All the evidence, however, points to a
simple lack of demand, which could and should be
cured very quickly through a combination of fiscal and monetary stimulus.
No, the real structural problem is in our
political system, which has been warped and
paralyzed by the power of a small, wealthy
minority. And the key to economic recovery lies
in finding a way to get past that minority’s malign influence.