“Arguing with Zombies: Economics, Politics, and the fight for a better future,” by Paul Krugman, WW Norton, NY, 2020. This 444-page hardback is a collection of New York Times columns (2004-2018) grouped by subject. Krugman is a Nobel prize winning economist at Princeton University. He is especially critical of those who ignore the laws of economics to promote political positions. But he notes that saltwater and freshwater economists continue to debate the finer points.
Krugman favors the Democrat’s approach of taxing the rich to support civil rights. The Republicans are strongly opposed. Right wing billionaires are a powerful force propping up zombie ideas.
The number one zombie idea is that cutting taxes on the wealthy–usually by cutting benefits on the middle class and poor–results in economic growth. They claim that safety net programs like universal healthcare are harmful and unworkable even though other advanced countries have them. Why do billionaires oppose climate change or government spending to address a slump? Why are policies on taxing and spending so closely associated with racial attitudes?
Conservatives say cutting taxes on corporations will cause them to reinvest in America. This premise keeps failing in practice. Bush’s tax cuts didn’t produce a boom; Obama’s tax hike didn’t cause depression. Neither did tax cuts in Kansas or tax hikes in California have that impact.
The huge sums US companies have invested in Ireland have yielded few new jobs and little income for the Irish. That’s because the investments are mostly accounting gimmicks.
Alexandria Ocasio-Cortez advocates a tax rate of 70 to 80% for the highest incomes. Nobel laureate Peter Diamond agrees. His optimum rate is 73%. Why do Republicans adhere to non-sense economics with no support from economists and refuted by available data. The party coffers demand adherence to nonsense economics. The party prefers economists who are obvious frauds and can’t even fake their numbers effectively.
In 2016, data leaked from a Panamian law firm that specialized in helping people hide their wealth in offshore havens. It showed that wealthy tax payers go far beyond exploiting tax loopholes to reduce their taxes. On average they pay 25% less than they owe.
A section describes health care reform and especially universal healthcare. Lyndon Johnson pushed Medicare through Congress over the howls of conservatives. Clinton’s reform program in 1993 was blocked by the insurance industry. Obamacare or the Affordable Care Act came about as a compromise keeping the insurance industry in place and allowing employer based health insurance.
The US has the most privatized, competitive health system in the advanced world; it also has by far the highest costs, and close to the worst results. Krugman cites the Veterans Health Administration as an example of cost effective health care. It demonstrates that a government agency can deliver better healthcare at lower cost than the private sector.
Obamacare achieves near universal coverage through a combination of insurance regulation, subsidies, and public-private competition. This is more complex than a simple single payer system such as Medicare for All, but had better prospects for approval in Congress.
Polls show that voters want protection for preexisting conditions and subsidies for insurance for the low income. Preexisting conditions is an essential part of Obamacare. Getting healthy people to sign up for insurance is needed to make the coverage affordable. Participation must be required and coverage must meet minimum standards. Subsidies are provided for those who can’t afford insurance. He cites Kentucky as an example of a state that followed the plan and cut its uninsured rate to 6%.
Americans for Prosperity, backed by the Koch brothers, undertook a search for those impoverished by Obamacare. None stood up to scrutiny. The law was challenged in court, but that was unsuccessful. The court did allow that expansion of Medicaid to 133% of the poverty line was at the option of the states. In 2019, 14 states still refused to authorize expanded Medicaid.
After the 2016 election, Republicans planned to repeal Obamacare, but that would take coverage away from tens of millions. The Trump administration sabotaged the ACA by eliminating the penalty for failure to insure and removal of the tax on Cadillac plans to pay for it. They also eliminated reinsurance that helped insurance companies manage their risk and they cut back on outreach. Their efforts have driven up premiums but the plan has survived due to subsidies.
Krugman notes that the left in the US should be considered center-left by most measures. When safety net programs are proposed, they are usually called socialism. In contrast socialism is defined as government control of the economy. Europeans call social democracy a market economy but with a strong public social safety net and regulations that limit the range of actions business can take in pursuit of profit.
Success of Trumpism is based largely on racial antagonism. Democrats became the party of civil rights, while the Republicans learned to attract the support of working class whites by catering to their social and racial illiberalism even while pursuing policies that hurt ordinary workers. The Democrats are more unified around social democratic goals than in the past.
Movement conservatism is discussed. Democrats have moved only slightly to the left, but Republicans have moved very far to the right. They are influenced by wealthy advocates. The trend is to mobilize voters with social issues at election time and then after the election serve the interests of the corporations.
The Federal Reserve Board’s ability to control interest rates lets them manage the economy through its ability to create a boom-bust cycle in the housing market. In “flatland” it’s easy to build houses when there is demand. That is less so in coastal areas that often have high population density and land use restrictions. Prices rise faster and bubbles are more likely. Interest rates also impact the value of the dollar, which in turn affects the competitive position of US products in world markets.
A section reviews the collapse of 2008. Mortgage derivatives rated triple A sold as a means to diversify risk turned out to be junk due to extensive inclusion of no-doc loans. At the Fed, Greenspan failed to address subprime lending in the belief that modern financial markets would make the correction. Efficient market theory is flawed. Real world investors are subject to herd behavior ranging from irrational exuberance to unwarranted panic.
The Fed drives interest rates down by buying Treasury bills. That worked repeatedly in the 1990s, but in 2008 reducing interest rates to zero didn’t end the recession.
Debt hawks seem not to understand that spending cuts deepen a recession. Austerity is the wrong solution to an economic slow down. Stimulus works but must be large enough and continue long enough. The budget deficit should be large enough to produce full employment but not so large to produce inflation. Budget deficits don’t drive up interest rates. Printing money isn’t inflationary.
Okun’s Law is discussed for its implications for Obama’s plan to reduce unemployment from 7% in 2009 with programs to boost the GDP. Krugman estimates $300B in govt spending and tax cuts would be needed to reduce unemployment by 1%. He doubted Obama’s recovery programs were large enough. The resulting American Recovery and Reinvestment Act did much good, but was not sufficient. The result was taken by some as evidence that government stimulus is ineffective.
In 2010, Harvard economists claimed that once debt exceeds 90% of GDP, growth drops sharply. Although celebrated by debt watchers, there is no evidence of a threshold.
Milton Friedman of the University of Chicago argued that major slumps could be avoided by a slow steady increase in money supply. Keynesian economics seem to fit better with recent results. Money supply worked for a while and they declared victory. But that ended with the crash of 2008.
Another zombie idea says that America suffers from a “skills gap.” That idea should have been disproved but refuses to die.
Progressive programs fall into three broad categories: investment, benefits enhancement, and major system overhaul. Investments like infrastructure or research should not require detailed payback analysis. When interest rates are low, borrow and take action.
Better healthcare such as Medicare for All falls in the benefits enhancement category. That is more difficult to justify funding by borrowing. Better to arrange some payback. The numbers are within range to fund by raising taxes on high income Americans.
Major system overhauls might include adoption of a single payer national health insurance plan or major expansion of Social Security. They would require much more revenue. That might include higher payroll taxes or a value added tax.
Free Trade/Tariffs
Free trade makes the world richer and promotes peace. Raising tariffs to protect domestic business goes against the grain. Candidates like Ross Perot cited the “great sucking sound” from Nafta. Donald Trump is badly misinformed and has potential to damage world trade. FDR learned that lower tariffs created exporters as special interests. They balanced the special interests seeking protective tariffs.
In 1947, the US and partners created the General Agreement of Tariffs and Trade, GATT. Tariffs are negotiated by the countries involved. Exceptions are allowed in a few cases. Market disruption, National security, Unfair practices, or Dumping.
Income Inequality
A section addresses income inequality. Data show that income increases in recent years have gone to the wealthy with little or no benefit to the lower income brackets. Krugman cites failure of the minimum wage to keep up with inflation and the decline in union participation as major factors. The decline of good paying blue collar manufacturing jobs is one part. Off shoring to China (or even to Mexico under Nafta) is another. He cites a book that found that businesses with highly educated workers (such as IT and software) are doing better. And that these jobs tend to collect in some regions. Regions with knowledge intensive industries attract even more educated workers.
Climate change
On climate change, many worry that limiting greenhouse gases will damage the economy. Econ 101 suggests a carbon tax is one approach. Some now call for the Green New Deal that would include other objectives in the mix.
The GOP has a history of some moves for the environment. George HW Bush used cap and trade to address acid rain. John McCain called for a similar program to address greenhouse gases in 2008.
The GOP feels no allegiance to democratic principals. It will do whatever it can get away with to entrench its power.
Nancy Pelosi played a major role in stopping efforts to privatize Social Security.
When William Buckley wrote God and Man at Yale, one of his complaints was Yale taught Keynesian economics.
This is a broad brush description of economic principles–especially Keynesian economics, with a generous discussion of Republican policies. Index. Charts. References.