Krugman’s Failure to Speak Truth to Power about Austerity

By William K. Black

Cross-posted at New Economic Perspectives

In the first column in this series I explained how Hillary Clinton, during the closing 40 days of her campaign, showcased repeatedly her promise to assault the working class with continuous austerity.  I explained that her threat represented economic malpractice – and was insane politics.  I showed that the assault on the working class via austerity was such a core belief of the New Democrats that their candidate highlighted that assault even as the polls showed massive, intense rejection of her candidacy by the white working class.  I also noted that in this second series in the column I would discuss the failure of her campaign team, and her de facto surrogate, Paul Krugman to speak truth to power about the dual idiocy of her campaign promise to wage continuous war on the working class through austerity forever.

The broader point is the one made so often and so well by Tom Frank – it is morally wrong, economically illiterate, and politically suicidal for the New Democrats to continue to assault the working class via austerity, “free trade” (sic) deals, and financial deregulation.  The only thing worse is to then insult the working class for reacting “badly” to being pummeled for decades by the Party that once defined itself as the party of working people.  The New Democrats decided to insult the white working class in response to polls showing that the white working class was enraged at Hillary Clinton.  Arrogance and self-blindness are boon companions.

I grew up in the Detroit-area and saw George Wallace win the Democratic Party primary for the presidential nomination, so none of this is new to me.  We all know that the New Democrats are never going to listen to my warnings or Tom Frank’s warnings.  But the leaks show that Hillary had many competent staff who raised difficult questions.  Why wasn’t any senior campaign staffer willing to tell her that her austerity threats were economically illiterate and politically suicidal?  Krugman warned President Obama several times that austerity was a terrible economic policy.

John Boehner, March 2009:

It’s time for government to tighten their belts and show the American people that we ‘get’ it

Barack Obama, yesterday:

“At a time when so many families are tightening their belts, he’s going to make sure that the government continues to tighten its own,” Obama said. “

We’ll never know how differently the politics would have played if Obama, instead of systematically echoing and giving credibility to all the arguments of the people who want to destroy him, had actually stood up for a different economic philosophy. But we do know how his actual strategy has worked, and it hasn’t been a success

Why did he cease speaking truth to power as the election came down to the wire?

The New Democrats Were Locked Into Austerity

Ever since the birth of the New Democrats, their adherents have embraced austerity.  This act of mutual economic and political self-destruction has become so core to their identity that Hillary unhesitatingly made it one her most important closing pitches during the last 40 days of her campaign against Trump.  At the very moment when her pollsters were warning her that she could lose due to working class hostility, she chose to showcase her hostility to the working class by promising to inflict eight more years of austerity on them.  In your face working class!  This is a political strategy that has no upside, but a toxic downside.  Despite intense criticism from progressives of her austerity threats, Paul Krugman never urged her publicly to promise to end austerity’s assault on the working class.  Similarly, no one on her official campaign team had the courage and strength to tell her to stop and reverse her position.

Part of Krugman’s problem was that while he has come some distance from his long-held support for austerity, his reflexes are still wrong because he does not understand sovereign money.  A November 14, 2016 Krugman column revealed the hold his past dogmas still had on him.

Eight years ago, as the world was plunging into financial crisis, I argued that we’d entered an economic realm in which “virtue is vice, caution is risky, and prudence is folly.” Specifically, we’d stumbled into a situation in which bigger deficits and higher inflation were good things, not bad. And we’re still in that situation — not as strongly as we were, but we could still very much use more deficit spending.

Many economists have known this all along. But they have been ignored, partly because much of the political establishment has been obsessed with the evils of debt, partly because Republicans have been against anything the Obama administration proposes.

Krugman still does not understand sovereign money.  A budget deficit for a government with a sovereign currency is not a moral issue.  Budget surpluses are not a “virtue” and deficits are not a “vice.”  The economic issue is strictly pragmatic – what size budget deficit or surplus is best for the overall economy?  The political issue is the one Krugman made in his criticism of President Obama’s embrace of the self-inflicted wound of adopting your opponents’ economic illiteracy.

But notice that even though he was writing after the 2016 elections, Krugman could not bring himself to be candid about the identity of “much of the political establishment.”  Yes, Republicans always said they favored austerity (except when they held the presidency and had to deal with a recession).  But New Democrats believed in the same terrible economics and, unlike the Republicans, Hillary’s embrace of continuous austerity as a means of waging a unceasing onslaught on the working class was so passionate that she highlighted that embrace during the last 40 days of her disastrous campaign even as ever poll and pundit warned her that she was enraging the white working class.  Krugman cannot identify Hillary and the New Democrats as the most prominent leader of “the political establishment [that] has been obsessed with the evil of debt” without raising the obvious question – why didn’t he speak truth to power?  Why didn’t he advise her to end her obsession with sovereign debt and her economic policies that made war on the working class?

Of course, Krugman did something worse than simply fail to speak truth to power.  He joined in the reprehensible effort to trash the reputation of a well-respected economics scholar, Professor Gerald Friedman.  Friedman had donated to Hillary’s campaign, who dared to point out that Bernie Sanders’ economic stimulus proposals were far superior to her proposals.  On what basis did Krugman seek to destroy the scholar?  Krugman complaint was that the economist was insufficiently “obsessed with the evils of debt.”  Friedman’s study made a point that Krugman had long made (and I quoted above).  The 2009 fiscal stimulus was far too small and that the federal government had made a dire mistake in moving toward austerity in 2010 rather than increasing substantially the size of the stimulus package.

What was really going on, of course, is that Krugman was out to defeat Bernie’s candidacy for the nomination.  Had Bernie won that nomination he would now be President-elect.  Sanders was the one candidate for the nomination that embodied what Krugman said the Democratic Party desperately needed – ending the hold of “the political establishment obsessed with the evils of debt.”  Krugman simply viewed truth and Friedman as collateral damage in his zealous fight to defeat Bernie.  Krugman has been unable yet to summon the integrity and courage to admit how badly he served the Nation and the millions of Americans that rejected that “political establishment.”  I hope he will reach out to Friedman and begin to offer his apologies.

New Issue!


Our November/December 2016 issue is out!  I just posted the cover story, Jerry Friedman’s Nativism: As American as (Rotten) Apple Pie.

Here is this issue’s editorial note:

Liberty in a Time of Crisis

It is both apt and ironic. The most “American” symbol of liberty is an immigrant.

The Statue of Liberty—or, as it is formally known, “Liberty Enlightening the World”—stood assembled in France (see photo this page) before packing, shipping across the Atlantic, and reassembly at its permanent home in New York Harbor. Of course, the pedestal also bears the famous lines:

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!

The irony should be evident in today’s vile frenzy of nativism—the fulminations against Mexican immigrants, the fantasies of border walls and mass deportations, the disturbing calls for a ban on Muslim immigration and registration of those already here. From economic historian (and regular D&S columnist) Gerald Friedman, we have a historical account of America’s long history of anti-immigrant outbursts—from Benjamin Franklin before the United States even existed to the KKK of the 1920s (which, in addition to its white supremacism, gave voice to the ugliest anti-Jewish, anti-Catholic, and anti-immigrant impulses). He explains how present-day nativism fits the patterns.

The aptness may not seem so obvious, but Friedman’s account also belies a view of U.S. history as one of unrelenting xenophobia. Between episodes of nativist rage, there were periods of openness to immigration; during the high tides of anti-immigrant sentiment, also noble defenses of equal rights and civil liberties; in their wake, an eventual reopening, and a reaffirmation of belief in this as an “immigrant nation.” Even today, the vocal anti-immigrant minority notwithstanding, most U.S. residents express positive views about immigrants and what they bring to the country.

Of course, the nativist eruption is only part of a wider turmoil gripping the United States and the world. Polly Cleveland reviews Arlie Hochschild’s Strangers in Their Own Land, the sociologist’s account of her foray into Louisiana Tea Party country. Hochschild’s attempt to understand and empathize with Tea Party supporters, Cleveland argues, reveals people jealously defending their place in the social pecking order—as is typical of high-inequality and low-mobility societies.

Biola Jeje’s “Active Culture” turns our attention to the Movement for Black Lives. This is a country, she reminds us, where Black people’s personhood has often been acknowledged more grudgingly than that of capitalist corporations. Activists are confronting a reality of police violence and mass incarceration, crises of housing and education, inadequate infrastructure and environmental degradation—all of which disproportionately impact African Americans. The disparities, of course, are not new. The movement’s bold vision confronting racism and neoliberalism today is an encouraging development.

Crossing the Atlantic, we see another continent where the future is uncertain.

Alejandro Reuss continues his series on the eurozone crisis and European social democracy. In this installment, he addresses the rise of “Third Way” figures—who turned their backs on class-struggle politics and counseled reconciliation with neoliberalism—to leadership of the social democratic parties in the largest European countries.
Two other articles on Europe explore similar themes. William Saas,

Jorge Amar, David Glotzer, and Scott Ferguson consider the economic program of Spain’s leftist Podemos party, and ways in which it has failed to embrace the changes necessary to pull Spain out of its current crisis. The authors point to the necessity of a universal job guarantee, a “left exit” (or “lexit”) from the euro, and an understanding of Modern Monetary Theory (MMT) in transcending conventional balanced-budget thinking.

Nina Eichacker, meanwhile, considers the ramifications of this past summer’s Brexit vote on the UK economy and especially its financial sector. She weighs factors pointing both toward stability and toward instability. Pro-Brexit voters, she concludes, might not get the populist outcome they hoped for, in an economy heavily reliant on finance and with a state committed to protecting financial interests.

The cover image for this issue shows Liberty under construction. (It is actually a model, on display at the Musée des Arts et Métiers in Paris.) That is an apt metaphor, in the United States, in Europe, and the world over. The version of “liberty” offered by those in power has been, at best, incomplete; at worst, a cruel hoax.

It’s high time for a redesign.