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April 26, 2013

Paul Krugman: The 1 Percent’s Solution

Does evidence matter?:
The 1 Percent’s Solution, by Paul Krugman, Commentary, NY Times: Economic debates rarely end with a T.K.O. But the great policy debate of recent years between Keynesians, who advocate sustaining and, indeed, increasing government spending in a depression, and austerians, who demand immediate spending cuts, comes close... At this point, the austerian position has imploded; not only have its predictions about the real world failed completely, but the academic research invoked to support that position has turned out to be riddled with errors, omissions and dubious statistics.
Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics?
On the first question:... the two main studies providing the alleged intellectual justification for austerity ... did not hold up under scrutiny. ... Meanwhile, real-world events ... quickly made nonsense of austerian predictions.
Yet austerity maintained and even strengthened its grip on elite opinion. Why?
Part of the answer surely lies in the widespread desire to see economics as a morality play... We lived beyond our means ... and now we’re paying the inevitable price. ... But... You can’t understand the influence of austerity doctrine without talking about class and inequality,... a point documented in a recent research paper... The ... average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. ... The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.
You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do. ...
And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?
I hope not; I’d like to believe that ideas and evidence matter... Otherwise, what am I doing with my life? But I guess we’ll see just how much cynicism is justified.

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