Paul Krugman is wrong about capitalism

[Starry Messenger]

http://www.salon.com/2015/05/07/paul_krugman_is_wrong_about_capitalism/

To many liberals, the post-WWII period in America was a time of near economic perfection. The government taxed the wealthy over 90 percent and unions became powerful organizations demanding a fair share for workers. It was a period that progressive economist Paul Krugman has always been quick to praise, writing in his 2009 book, “The Conscience of a Liberal”:

“The political and economic environment of my youth stands revealed as a paradise lost, an exceptional moment in our nation’s history.”

This period, which can be called the Keynesian era, was indeed a time of great economic growth and increased economic equality. Looking back today, it does seem like an exceptional time to be in the working class. (As long as you were white, of course.) It was an age of compromise, between the capitalist class and the working class, and perhaps the most democratic period in our liberal capitalist society. During that epoch, it certainly looked as though a form of socialism was on the horizon, with the middle class growing and forming a previously unimaginable kind of egalitarian society within capitalism.

But of course, it was not to be. By the ’70s, the economy had seemingly become diseased, with both inflation and stagnation, or what was coined stagflation. At the time, most economists were dumbfounded. In neoclassical theory, inflation and recession were opposites, they did not happen simultaneously. Hence the monetary policy of low interest rates during a recession, and high interest rates during a period of high inflation.

<snip>

The stagflation crisis, along with increasing globalization, created an opening for the capitalist class, who embraced the thinking of Milton Friedman. The crisis of Keynesianism created a wave of propaganda, which ultimately resulted in the election of Ronald Reagan. At the same time, the high interest rate policies of Fed chairman Paul Volcker attacked inflation head on, and drove the American economy into a deep recession, while undermining the working class. To top this off, the major tax cuts for the wealthy and the war on unions during the Reagan presidency dismantled what was left of the Keynesian-era middle class.

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[Warpy]

1. The 60s saw 4% inflation, devastating to retirees living on fixed incomes

but certainly tolerable and within the inflation built into any fiat currency. That's one thing they simply didn't understand then, the necessity to index wages and benefits to it. The "stagnation" wasn't in wages, it was in the paper value of stocks and bonds, which generated income even as they failed to generate increased net worth on paper.

That's what the Republicans used to convince the WWII generation that the economy was in the toilet. Combined with the oil shocks, wages that didn't keep up with the double digit inflation, and bracket creep into high tax rates in a progressive system that hadn't been indexed to inflation, it was an easy sell for Reagan and his cronies to come along and dismantle the New Deal.

The New Deal had been the best deal labor had ever had. It was a terrible deal for retirees on fixed pensions and rich men who wanted to get richer faster. The former could have been solved by indexing benefits to inflation. The latter didn't need a solution as much as it needed a sales campaign to convince the rich that they were doing just fine on interest and dividends, and they were. Anyone who paid even cursory attention to his portfolio did well. It was those who ignored it while they joined the jet set who found themselves having to work for a living.

[hfojvt]

2. the "stagnation" was in the unemployment rate

traditionally the trade-off was called the Phillip's curve. A curve that showed unemployment increasing while inflation decreased or inflation increasing while unemployment decreased. So presumably our economy could have low unemployment or low inflation but not both.

Except in the latter 1970s we sort of got both - of the worst. We had relatively high unemployment and high inflation, which the policy didn't know how to deal with.

[merrily]

3. Almost immediately post World War II, we had the Korean War.

(In the days when, you know, war helped the economy).

Though the Eisenhower administration, the World War II war tax, to pay for war was still in effect. Also, we had bombed the hell out of our biggest manufacturing competitors, Germany and Japan, so US manufacturing was riding high. So was big oil. And building the US highway system conceived of by FDR put a lot of people to work (as well as literally and figuratively paving the way for a very different way of life in America, building in the suburbs and exurbs, etc., including veteran's housing). So heavy construction, residential constructions and all the industries and sectors that profit from new home construction were booming, too.

These factors and others combined to give us the "guns and butter" economy for which the Golfer in Chief, Eisenhower, gets so much credit. But, given the potential it had, it didn't last all that long.

We had a 'go-go" stock market in the 1960s that reminded some of the market before the 1929 crash. And then we had stagflation in the 1970s. Since the 1970s, real wages have risen very little.

Created an opening for the capitalist class? LMAO.

The capitalist class has been in charge since the days of the East India Company, John Hancock, slave traders, carpetbaggers and weapons and war profiteers like Samuel Prescott Bush (born 1863).

http://en.wikipedia.org/wiki/ Founding_Fathers_of_the_United_StatesFounder's finances, at 1787, were good to excellent, though, as a group, those loyal to the King were wealthier. (Duh)

http://en.wikipedia.org/wiki/Samuel_P._Bush


Why do we act as though the 1% just grabbed hold? (or the 15% or whatever percent they have been at various times since 1607). Why are we perennially brand new? The percentage of the top keeps getting smaller, but the plutocracy is as old as Jamestown.

As for Krugman, he is a good Democratic spokesperson/partisan neoliberal economist.

[TBF]

4. Re Paradise -

People forget the timing - post WWII. Countries were in shambles (particularly those that had atomic bombs dropped on them ...). It took awhile to recover. As soon as global competition ramped up again the owners in this country tired of the philanthropy and directed their funds back to business.

And here we are.

[F4lconF16]

6. Yes.

If you haven't already read this, Piketty's "Capitalism in the 21st Century" does a good job covering this idea.

[F4lconF16]

9. I agree with that.

I think it's a fair criticism, too. He is definitely not for abolishing capitalism, and he even states so explicitly in the beginning of the book, if I remember correctly. However, the data he presents is exceptionally well organized and thorough. Very useful information for us Marxists as well.

I personally think he doesn't quite appreciate the scale, severity, and immediacy of the problems we are facing. For instance, climate change (and its causes, effects, and possible solutions) is very hard to understand from the standpoint of wealth and income. That is a problem that will not and cannot be solved by reforms to the system. I think he doesn't quite realize that yet, though he may in time.

I also think he may suffer from a more privileged point of view, but that is more speculation. He does an okay job of addressing some of the different types of attacks on different classes. As it is not his lived experience, though, I think it is harder for him to grasp the oppressions mandated by capitalism and the inherent immediacy of the issues to those affected.

[spooky3]

5. "As long as you were white" AND male.

Not too many economic opportunities for women in the 50s, either.

[F4lconF16]

7. And a number of other qualifications.

There was still a huge working class under oppressions of various forms. We need to remember that the middle class is not the be-all end-all of economics.