http://www.nytimes.com/2013/04/26/opinion/krugman-the-one-percents-solution.html?_r=0
The 1 Percent’s Solution
by PK
Economic debates rarely end with a T.K.O. But the great policy debate
of recent years between Keynesians, who advocate sustaining and,
indeed, increasing government spending in a depression, and
austerians, who demand immediate spending cuts, comes close — at least
in the world of ideas. At this point, the austerian position has
imploded; not only have its predictions about the real world failed
completely, but the academic research invoked to support that position
has turned out to be riddled with errors, omissions and dubious
statistics.
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Yet two big questions remain. First, how did austerity doctrine become
so influential in the first place? Second, will policy change at all
now that crucial austerian claims have become fodder for late-night
comics?
On the first question: the dominance of austerians in influential
circles should disturb anyone who likes to believe that policy is
based on, or even strongly influenced by, actual evidence. After all,
the two main studies providing the alleged intellectual justification
for austerity — Alberto Alesina and Silvia Ardagna on “expansionary
austerity” and Carmen Reinhart and Kenneth Rogoff on the dangerous
debt “threshold” at 90 percent of G.D.P. — faced withering criticism
almost as soon as they came out.
And the studies did not hold up under scrutiny. By late 2010, the
International Monetary Fund had reworked Alesina-Ardagna with better
data and reversed their findings, while many economists raised
fundamental questions about Reinhart-Rogoff long before we knew about
the famous Excel error. Meanwhile, real-world events — stagnation in
Ireland, the original poster child for austerity, falling interest
rates in the United States, which was supposed to be facing an
imminent fiscal crisis — quickly made nonsense of austerian
predictions.
Yet austerity maintained and even strengthened its grip on elite opinion. Why?
Part of the answer surely lies in the widespread desire to see
economics as a morality play, to make it a tale of excess and its
consequences. We lived beyond our means, the story goes, and now we’re
paying the inevitable price. Economists can explain ad nauseam that
this is wrong, that the reason we have mass unemployment isn’t that we
spent too much in the past but that we’re spending too little now, and
that this problem can and should be solved. No matter; many people
have a visceral sense that we sinned and must seek redemption through
suffering — and neither economic argument nor the observation that the
people now suffering aren’t at all the same people who sinned during
the bubble years makes much of a dent.
But it’s not just a matter of emotion versus logic. You can’t
understand the influence of austerity doctrine without talking about
class and inequality.
What, after all, do people want from economic policy? The answer, it
turns out, is that it depends on which people you ask — a point
documented in a recent research paper by the political scientists
Benjamin Page, Larry Bartels and Jason Seawright. The paper compares
the policy preferences of ordinary Americans with those of the very
wealthy, and the results are eye-opening.
Thus, the average American is somewhat worried about budget deficits,
which is no surprise given the constant barrage of deficit scare
stories in the news media, but the wealthy, by a large majority,
regard deficits as the most important problem we face. And how should
the budget deficit be brought down? The wealthy favor cutting federal
spending on health care and Social Security — that is, “entitlements”
— while the public at large actually wants to see spending on those
programs rise.
You get the idea: The austerity agenda looks a lot like a simple
expression of upper-class preferences, wrapped in a facade of academic
rigor. What the top 1 percent wants becomes what economic science says
we must do.
Does a continuing depression actually serve the interests of the
wealthy? That’s doubtful, since a booming economy is generally good
for almost everyone. What is true, however, is that the years since we
turned to austerity have been dismal for workers but not at all bad
for the wealthy, who have benefited from surging profits and stock
prices even as long-term unemployment festers. The 1 percent may not
actually want a weak economy, but they’re doing well enough to indulge
their prejudices.
And this makes one wonder how much difference the intellectual
collapse of the austerian position will actually make. To the extent
that we have policy of the 1 percent, by the 1 percent, for the 1
percent, won’t we just see new justifications for the same old
policies?
I hope not; I’d like to believe that ideas and evidence matter, at
least a bit. Otherwise, what am I doing with my life? But I guess
we’ll see just how much cynicism is justif
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