It Should Be Easy
Paul Krugman, End This Depression Now!
WW Norton & Co., 272pp, £14.99, ISBN 9780393088779
reviewed by Sam Caleb
Recently I went to see the excellently timed and executed production of Timon of Athens at the National Theatre. Harsh, unremitting and bleak, this under-read Shakespeare play casts its lead, Timon, as a somewhat profligate benefactor who falls prey to his beneficiaries’ unwillingness to equal his generosity. From fine dining and high-society back-patting Timon slumps to slumming it, pushing a trolley around an inner-city wasteland. After saying some rather misanthropic last words he then dies.
In light of the Libor scandal and Barclays’ fiddling with the inter-bank lending rate, the current dearth of private creditors despite certain government bailouts, and Germany playing out an anti-inflationary endgame with the GIIPS (Greece, Italy, Ireland, Portugal, Spain) Eurozone nations, this production of Timon hit its audience hard. Despite Flavia forewarning ‘What he speaks is all in debt, he owes for ev’ry word’, Timon’s fiscal extravagance is not the whole story. Instead the NT’s production made it very clear that the ensuing tragedy – of Timon’s demise but also of wider fiscal collapse and a military-style coup – could have been staved off if Timon’s debtors were willing to become creditors. Spending could have averted disaster. To slightly alter Paul Krugman’s words: ‘ending [Timon’s] depression should be, could be, almost incredibly easy’.
Krugman, dubbed the Cassandra of economics for predicting the credit crunch, could have been reading Timon as he wrote End This Depression Now! Or he could have at least been reading Marx on Timon, who posits money as ‘that which mediates my life for me’ but that which ‘also mediates the existence of other people for me’. Krugman reiterates Marx’s insight, albeit paring down its darker implications, in stating the obvious: ‘your spending is my income, and my spending is your income.’. Krugman identifies a ‘garden variety’ liquidity trap at the root of the current recession. Despite government-lowered interest rates no-one is willing to invest. If there is less spending and more austere tightening of belts, then there is less income for others. This sets up an ever diminishing loop, those with lower incomes spending less themselves, again providing less income for others and so on and so on. In one stark statistic Krugman flags up how the US private sector reacted to the financial crisis: saving more and investing less, the difference between saving and investment spending going from -$200 billion a year before the crisis to +$1 trillion a year as of now. Those with capital are sitting on their money and crying that nothing can be done. Those without are suffering on a huge scale.
Krugman sees a very simple answer to this problem, one that is hammered home throughout his book in the face of all detractors. What is needed is a huge influx of government spending, much more than Obama’s government initially pumped into the US economy. Austerity and the reining in of budget deficits can wait until national economies are on the mend: Krugman strongly adheres to Keynes’ view that the boom-time is the time for austerity, not the bust. Austerity measures are counterintuitive, Krugman argues, and are if anything deepening the recession. For proof just look up some pictures of George Osborne on hearing that the UK economy had double-dipped in April. Schadenfreude for liberals everywhere, except that we are the ones who are paying for it (well, paying less, and receiving less, and paying less and so on and so on). Forget the austerity rhetoric, listen to Krugman’s solution.
Here though is where Krugman’s book rises or falls. Written in punchy layman’s terms, his arguments are compelling. At a time when economies have stalled because of heavy-handed political dogma – turning the transatlantic crisis into a ‘morality play’ rather than a fiscal reality – Krugman’s book attacks those ‘Very Serious People’ (his humorous cognomen) who oppose his Keynesian line. He does this by, by and large, using the simplest terms possible.
One gets the suspicion that there’s something plaintive about Krugman’s tone. Matthew Bishop, in a review for the New York Times, and Christian Lorentzen, in a profile for the London Review of Books, have both picked at the populist tack this book takes. Bishop identifies two Krugmans: the populist using layman’s terms to preach to his choir of informed readers and the Nobel laureate winning Krugman with his mathematically modelled academic papers. For Bishop, Krugman’s book ‘is not merely stylistically irritating; it is flawed in substance’, citing his occlusion of structural changes and certain unnecessary ‘passing shots’. Lorentzen goes further and portrays the public Krugman as a sad sight to behold. He may hold the answers, and is certainly convinced he does, but doesn’t hold the ear of the Very Serious People he mocks. Unfortunately, it is these Very Serious People who, in the end, control economic policy.
Lorentzen is a little too harsh in suggesting that Krugman ‘go back to making the models that won him his Nobel Prize’, leaving the Keynesian argument for others to make. End This Depression Now! is a powerful message that needs a mouthpiece, and why not from a Nobel laureate? If not always cogent, his book’s message is pertinent. The one hope is that someone is found to implement what Krugman advocates. If not, our economic prospects won’t be as bad as Timon’s, but they sure won’t be pretty.
In light of the Libor scandal and Barclays’ fiddling with the inter-bank lending rate, the current dearth of private creditors despite certain government bailouts, and Germany playing out an anti-inflationary endgame with the GIIPS (Greece, Italy, Ireland, Portugal, Spain) Eurozone nations, this production of Timon hit its audience hard. Despite Flavia forewarning ‘What he speaks is all in debt, he owes for ev’ry word’, Timon’s fiscal extravagance is not the whole story. Instead the NT’s production made it very clear that the ensuing tragedy – of Timon’s demise but also of wider fiscal collapse and a military-style coup – could have been staved off if Timon’s debtors were willing to become creditors. Spending could have averted disaster. To slightly alter Paul Krugman’s words: ‘ending [Timon’s] depression should be, could be, almost incredibly easy’.
Krugman, dubbed the Cassandra of economics for predicting the credit crunch, could have been reading Timon as he wrote End This Depression Now! Or he could have at least been reading Marx on Timon, who posits money as ‘that which mediates my life for me’ but that which ‘also mediates the existence of other people for me’. Krugman reiterates Marx’s insight, albeit paring down its darker implications, in stating the obvious: ‘your spending is my income, and my spending is your income.’. Krugman identifies a ‘garden variety’ liquidity trap at the root of the current recession. Despite government-lowered interest rates no-one is willing to invest. If there is less spending and more austere tightening of belts, then there is less income for others. This sets up an ever diminishing loop, those with lower incomes spending less themselves, again providing less income for others and so on and so on. In one stark statistic Krugman flags up how the US private sector reacted to the financial crisis: saving more and investing less, the difference between saving and investment spending going from -$200 billion a year before the crisis to +$1 trillion a year as of now. Those with capital are sitting on their money and crying that nothing can be done. Those without are suffering on a huge scale.
Krugman sees a very simple answer to this problem, one that is hammered home throughout his book in the face of all detractors. What is needed is a huge influx of government spending, much more than Obama’s government initially pumped into the US economy. Austerity and the reining in of budget deficits can wait until national economies are on the mend: Krugman strongly adheres to Keynes’ view that the boom-time is the time for austerity, not the bust. Austerity measures are counterintuitive, Krugman argues, and are if anything deepening the recession. For proof just look up some pictures of George Osborne on hearing that the UK economy had double-dipped in April. Schadenfreude for liberals everywhere, except that we are the ones who are paying for it (well, paying less, and receiving less, and paying less and so on and so on). Forget the austerity rhetoric, listen to Krugman’s solution.
Here though is where Krugman’s book rises or falls. Written in punchy layman’s terms, his arguments are compelling. At a time when economies have stalled because of heavy-handed political dogma – turning the transatlantic crisis into a ‘morality play’ rather than a fiscal reality – Krugman’s book attacks those ‘Very Serious People’ (his humorous cognomen) who oppose his Keynesian line. He does this by, by and large, using the simplest terms possible.
One gets the suspicion that there’s something plaintive about Krugman’s tone. Matthew Bishop, in a review for the New York Times, and Christian Lorentzen, in a profile for the London Review of Books, have both picked at the populist tack this book takes. Bishop identifies two Krugmans: the populist using layman’s terms to preach to his choir of informed readers and the Nobel laureate winning Krugman with his mathematically modelled academic papers. For Bishop, Krugman’s book ‘is not merely stylistically irritating; it is flawed in substance’, citing his occlusion of structural changes and certain unnecessary ‘passing shots’. Lorentzen goes further and portrays the public Krugman as a sad sight to behold. He may hold the answers, and is certainly convinced he does, but doesn’t hold the ear of the Very Serious People he mocks. Unfortunately, it is these Very Serious People who, in the end, control economic policy.
Lorentzen is a little too harsh in suggesting that Krugman ‘go back to making the models that won him his Nobel Prize’, leaving the Keynesian argument for others to make. End This Depression Now! is a powerful message that needs a mouthpiece, and why not from a Nobel laureate? If not always cogent, his book’s message is pertinent. The one hope is that someone is found to implement what Krugman advocates. If not, our economic prospects won’t be as bad as Timon’s, but they sure won’t be pretty.