Sam Uretsky

If Krugman is a Disgrace, We Need More of It

On Feb. 28, 2014, Paul Krugman, Nobel Laureate, best seller writer, Ivy League professor, New York Times columnist and perhaps the most visible liberal intellectual in the country, if not the world, announced that he would be leaving Princeton and “In August 2015 I will join the faculty of the Graduate Center, City University of New York, as a professor in the Ph.D. program in economics. I will also become a distinguished scholar at the Graduate Center’s Luxembourg Income Study Center.” He explained in his blog that the decision had been based, in part on a preference for living in New York rather than New Jersey, but also on the fact that “more and more of my work has focused on issues of income inequality, and nobody does more important work producing the hard data on which all of this work relies than the Luxembourg Income Study.”

On July 14, Ralph Benko wrote a column in Forbes, “Is Paul Krugman Leaving Princeton In Quiet Disgrace?” Mr. Benko notes that some people don’t like, and even disagree with Dr. Krugman. From there, he unleashed the brickbats and custard pies. “Is Krugman leaving in disgrace? Krugman really is a disgrace … both to Princeton and to the principle of monetary integrity.” The column was copied in every right-wing blog on the net. While economics is one of the softer sciences, it deals in large part in predictions, and sooner or later you get to look back and see who was right and who was wrong. Prof Krugman has a remarkable record of accurate predictions over the current economic downturn. He has been spot on when it comes to the inflationary impact of economic stimulation through counter cyclic budgeting and the Federal Reserve’s program of buying bonds. While Dr. Krugman has advocated both programs, and written that at this time they would not be inflationary, Mr. Benko writes, “Inflation is a bad thing. Period. Most of all it cheats working people and those on fixed incomes who Krugman pretends to champion.”

Prof Krugman, presumably smiling at the time, published a link to an IMF Staff Position Note “Rethinking Macroeconomic Policy” dated Feb. 12, 2010. The title page summarizes, “The great moderation lulled macroeconomists and policymakers alike in the belief that we knew how to conduct macroeconomic policy. The crisis clearly forces us to question that assessment. In this paper, we review the main elements of the pre-crisis consensus, we identify where we were wrong and what tenets of the pre-crisis framework still hold, and take a tentative first pass at the contours of a new macroeconomic policy framework.“ It pretty much confirms everything Krugman was saying.

Beyond that, inflation is not bad, at least not historically, and not for most of us. It has been a major benefit for working people and as for those on fixed incomes – even then it’s not that bad. Historically, for working people, inflation has been balanced by cost of living adjustments. That meant that fixed-interest loans, such as mortgages, grew more affordable as time passed. The losers were the bond holders who saw the value of their holdings decline – in other words, inflation over the long term reduced inequality. As for the people on fixed incomes, a report from the AARP Public Policy Institute, “Sources of Income for Older Americans, 2012,” writing of income from pensions and retirement savings, “In 2012, 36% of older persons in the middle income quintile and 55.3% in the highest income quintile had pensions and retirement savings income, with median amounts of $5,244 and $30,000, respectively. Only 5.2% of older people in the lowest income quintile had this income, with a median amount of $2,400.” For two-thirds of the elderly, Social Security represents the greatest source of income, and that’s already got a cost of living adjustment.

The recovery, which began in 2009, hasn’t been all that good for working people. While wages have remained stable, most of the growth has turned up in corporate profits which have raised asset prices for those who have assets. While union-busting at the state levels has made it more difficult for workers to get cost of living adjustments, which holds down the demand side of the equation, even a modest increase in demand would create more jobs and improve conditions. Anyone who can write “Inflation is a bad thing. Period,“ has placed himself squarely on the side of the haves. It pays a lot better than being on the side of the “have nots,” but as a matter of social policy, it’s bad news. With Krugman at CUNY we can imagine him meeting Joe Stiglitz at Zabar’s (where lox is $25.98 a pound and up). There’s still hope for the future.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@outlook.com.

From The Progressive Populist, August 15, 2014