By Marie Burns:
As I wrote in my last NYTX column, way back in 1998 and before Paul Krugman had a gig of his own at the New York Times, he wrote a scathing review of a book by Times columnist Tom Friedman. Krugman’s brief review of Friedman’s The Lexus and the Olive Tree was crammed with words and phrases like “very debatable,” “misses the point,” “shaky ground,” “wrong,” “certainly … wrong,” “bizarre.”
The conventional wisdom is that the New York Times “has this rule where you aren’t allowed to call out a colleague by name when you think he or she is full of shit.” Ergo, when they want to criticize one another, they must employ the “anonymous source” method. So in Paul Krugman’s columns, Tom Friedman becomes a “’centrist’ pundit” and David Brooks becomes a “usual suspect.” As Alex Pareene of Salon showed in the linked post, Krugman’s “anonymous” “pundits” and “suspects” are not hard to identify.
In his January 9 New York Times column, Friedman wrote,
I am struck by how many liberals insist on reducing carbon emissions immediately, but, on the deficit, say there is no urgency because no interest rates rises are in sight. (Emphasis added here and elsewhere.)
One of those “liberals” – in fact, the most prominent one of those “liberals” who “say there is no urgency because interest rates rises are in sight” – is Paul Krugman. Again, not hard to guess whom Friedman was dissing here.
Krugman has argued extensively that we are now in what economists call a “liquidity trap, in which big increases in the monetary base don’t matter.” Krugman’s evidence: since 2008, the Federal Reserve has tripled the monetary base, and interest rates have remained steady. That is, the Fed “printed” a lot of money, yet there was no rise in commodity prices (generally speaking) or in interest rates; there was no inflation. Moreover, it isn’t just the U.S. that has been in a liquidity trap during this period: “essentially the whole advanced world, accounting for 70 percent of world GDP at market prices, is in a liquidity trap,” Krugman wrote in early 2010. We’re still there. As Krugman explained to Bill Moyers last week, in a liquidity trap, the Fed “pour[s] this extra liquidity [money] into the economy and it just sits there. And that’s the liquidity trap. It’s a situation in which the ordinary monetary policy thing doesn’t work.”
There is, however, a bit of an upside to this particular trap. Krugman added:
A side consequence of that is it also means that if the government goes out and borrows more, it’s not going to drive up interest rates because there’s all this cash sitting out there looking for a place to go. So the rules change. And liquidity traps are really rare. I mean, we had one in the 1930s and we’ve had another one since 2008. And aside from that, we had one in Japan in the 1990s, and that’s about it. But when they happen, boy, they change all the rules. You find yourself in a different universe for economics.
This of course allows the government to borrow at extremely low interest rates and to use that “cheap money” to employ people: teachers, engineers, construction workers. In other words, when the economy is in a liquidity trap and interest rate are at or near zero, there is little the Fed can do to pull the economy out of recession. Banks aren’t lending, businesses aren’t borrowing – or hiring – and consumers aren’t spending. But the government can serve as “the employer of last resort.” It can step in and turn the economy around by taking advantage of the low cost of borrowing, then pumping that borrowed money into teachers’ and engineers’ and road workers’ salaries. When people are working, they are spending – and paying taxes.
Tom Friedman, who most certainly does not understand economics, just doesn’t get that. You might say Friedman is in a “Pete Peterson trap”: he belongs to that cadre of Very Serious People who are in the thrall of – and very often employed by – the billionaire deficit hawk Pete Peterson. As Kevin Brown writes (and others have written), Peterson
is now beginning his fourth decade of arguing that there is no alternative to enacting ‘entitlement reform” (read: cut Social Security and Medicare) and ‘tax reform’ (read: raise regressive taxes and lower progressive ones) in the name of curbing the country’s ‘unsustainable’ debt and deficits. An essential and successful element of the Peterson strategy is to create an environment where it is widely if not universally believed that there is no alternative to his vision.
I don’t recall that Krugman has ever criticized another New York Times columnist by name in his regular Times columns. But he evidently does not feel he has to follow the reputed Times “rule” when writing on his New York Times blog. So yesterday in a blogpost, he “respectfully” let Friedman have it:
… you [might] … say that liberals concerned about the future of the environment should be equally concerned about the long-run budget outlook. Tom Friedman recently made that argument, so it’s worth pointing out, respectfully, why I disagree. And I think that explaining what’s wrong here helps make the broader point that we are spending far too much time worrying about long-term budget projections.
… the deficit scolds are pushing for … things like a gradual rise in the retirement age and a change in the formulas used to compute benefits – things that will cut future rather than present outlays. Or to put it differently, they aren’t really trying to cut debt; they’re simply trying to lock us in now to the spending cuts they think we’ll eventually have to make anyway. And they never, as far as I can tell, really ask why it’s important to do this now.
This, you’ll notice, is right in line with Kevin Brown’s analysis of the Pete Peterson trap – a web of Very Serious People who live in “an environment where it is widely if not universally believed that there is no alternative to [Peterson’s] vision.” Using Social Security as an example, Krugman writes in his post,
So the threat, if you like, is that future benefits will fall short of what people now expect. To avert this threat, the usual suspects insist that we must gradually reduce the program’s generosity. That is, in order to guard against cuts in future benefits we must … cut future benefits. Huh?
That’s right. The deficit hawks’ argument does not make one iota of sense. E. J. Dionne of the Washington Post made the same point a short while ago about Medicare and Medicaid benefits: “Is it either sensible or humane to decide in 2013 on the basis of such limited knowledge to toss future seniors and low-income Medicaid recipients under the bus?”
The reader can sense Krugman’s becoming more irritated as he writes his post. He may have begun by “respectfully” disagreeing with Friedman, but by the end of the post, he is seething. His tone is dismissive and sarcastic:
… there’s a pretty good case for letting the future of entitlements take care of itself. It’s not a slam-dunk case, but the case for urgency right now is quite weak, and nothing at all like the case that we need to stop pouring all that CO2 into the atmosphere as soon as possible.
Now, you might ask whether it’s really possible that the whole Serious consensus about the budget is based on such weak logical underpinnings. Don’t the great and the good think things through before getting all committed to their views?
Hey, who said I don’t have a sense of humor?
Krugman’s post reminds me of John Belushi describing the weather to shut-ins. “R-E-S-P-E-C-T”? Not so much.
In the blogpost, Krugman does not specifically cover Friedman’s alleged concern for our economic future. But in Krugman’s view, what Friedman proposes would more likely hurt rather than help the long-term outlook for the economy. As Krugman told Moyers, “… there’s a pretty good case, actually a pretty strong case, that if you think about the long run fiscal impact, spending more right now is actually positive even in terms of the long run budget situation because a stronger future economy will mean stronger revenue down the pike.”
Indeed, in his regular column today, titled “The Dwindling Deficit,” Krugman demonstrates that the deficit is on track to take care of itself:
Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that … isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.
The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming. Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But … why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
The fact is that deficit scolds – whether they be billionaires or CEOs or members of Congress or New York Times columnists – really have an entirely different goal: to cut programs that benefit poor and middle-class Americans. Most of these scolds are very well-to-do themselves. Friedman, who married an heiress, is a millionaire many times over. He and Mrs. Friedman live in an embarrassing 11,000-square-foot mini-Versailles (how green is that?). If not rich themselves, deficit hawks work in the service of the rich – lobbying firms fund their Congressional campaigns, billionaires fund their think tanks and those policy forums where they sit around scowling and grumbling about the “out-of-control deficit.” Some of these hawks, as Kevin Brown suggests, may really believe that deficits, even in a time of recession, are immoral. Some may really believe in trickle-down economics – the completely-discredited idea that cutting taxes on the rich will float all boats. But their overriding prescription – absolutely the only way they can think of to reduce the deficit or stimulate the economy– is to take from the poor and give to the rich. Not surprisingly, when Republicans control the Congress and the presidency, no matter how deeply they claim to abhor deficit spending, somehow they always manage to vote for it.
Watch what they do, not what they say.
And you might want to watch Paul Krugman, too. The title of Krugman’s post sounds like an 18th-century philosophical tract: “On the Non-equivalence of Greenhouse Gases and Entitlement Spending.” But the content of the post makes clear what he really thinks: “Tom Friedman Is an Ignoramous.”
Marie Burns blogs at RealityChex.com