SRB: The Not-So-Dismal Science

The Conscience of a Liberal by Paul Krugman
W. W. Norton and Company. Reviewed by TERENCE WOOD for the Scoop Review of Books

Writing in 1954 a senior American politician had this advice for his brother. “Should any political party attempt to abolish social security, unemployment insurance…labor laws and farm programmes, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are…[a few] Texas Oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.”

It was a brave claim to make barely two decades after the introduction of the New Deal but the letter’s author, Republican president Dwight Eisenhower, was in as good a position as any to assess the political fortunes of the radical American right.

And yet, while the last eight years have provided plenty of evidence to suggest Eisenhower was broadly correct in his assessment of the its intellectual merits, the very fact of George W Bush’s two terms in power, along with Reagan’s before him, show just how wrong Eisenhower was to dismiss the ‘tiny splinter’s’ political clout.

It is the rise of that splinter, and its consequences for the people of the United States, that economist and columnist for the New York Times, Paul Krugman, covers in his book Conscience of a Liberal. The book is both a ‘who done it’, chronicling the rise and its aftermath, and also a how-it-happened examination of the forces that allowed the coalition of Texas oil men and their allies to turn the tides of history back in their favour.

Krugman starts his tale in the Gilded Age, the US of the late 1800s and early 1900s, when the country was last as economically divided as it is today. These were years not just of economic extremes but also political divisions that reflected and perpetuated them. African Americans were barred from voting by Jim Crow laws. Presidential candidates – both Republican and Democrat – were almost inevitably pro-business, and when they weren’t, they invariably lost to candidates who were, and who received massively greater funding. Ballots were often rigged.

Some of this began to change in the early decades of the twentieth century during the so-called Progressive Era. Yet, as Krugman points out, economic inequality remained at essentially stable levels all the way to the Great Depression and the presidency of Franklin Delano Roosevelt.

There is a tendency amongst some on the left to dismiss Roosevelt’s New Deal as being of little real benefit to working class Americans. It’s certainly true that the New Deal was inadequate in many areas – not in the least in the way that some of its provisions were not afforded to African Americans (exemptions that were sops to conservative Southern Democrats) – but Krugman provides compelling evidence of its positive impact on American society as a whole. By the 1950s after-tax incomes of the wealthiest Americans had fallen by nearly 50% in absolute terms from what they had been a generation earlier. At the same time, the income of the median American family almost doubled between 1929 and 1950. Mansions vanished from Long Island’s north shore while average Americans began to enjoy the benefits of indoor plumbing, telephones and automobiles. By substantially raising taxes on the very wealthy, creating a social safety net and passing union enabling legislation, as well as through their management of the war-economy, Roosevelt and his fellow New Dealers were responsible for much of this change.

Unsurprisingly, given the benefits they brought, the reforms of the New Deal were – as Eisenhower understood – popular with the American public. This popularity led to a new consensus of sorts amongst America’s political elite. In the same way that both political parties had only a generation earlier subscribed to the let them eat cake approach to poverty, by the mid 1950s sheer political necessity meant that mainstream Republicans were compassionate conservatives.

Out on the fringes though, amongst the oilmen and their friends, there were those to whom progressive taxation and government intervention remained anathema. And it was this fringe that gave birth to today’s movement conservatives.

Krugman argues that the movement conservatives’ rise to power over the following decades was aided by two key factors. Firstly, there was money: money to fund think tanks; money to publish journals; money to lobby politicians. Secondly, there was race. From the New Deal onwards the Democratic coalition had always been an uneasy alliance of reforming northern liberals and various segments of the racially divided south. With the passing of the Civil Rights Act in 1964 this coalition began to fall apart. In particular, Southern states turned Republican, as white southerners (and especially wealthy white southerners) showed their disenchantment with the political enfranchisement of their African American neighbours.

Starting with Barry Goldwater movement conservatives actively exploited this divide. Both Goldwater and Ronald Reagan spoke of State’s Rights – a term of tacit support for racial segregation. And when Reagan attacked ‘welfare queens’ voters were left in no doubt as to their race.

Movement conservatives made use of other issues too, not in the least the economic turmoil of the 1970s and rising crime, but Krugman makes a compelling case, drawing on the work of political scientists, that race was the trump card. Even the national security advantage enjoyed by conservatives (or, more accurately, the ability of the drums of war to drum up votes) is only really a relatively recent, post-September 11 phenomenon.

The consequences of the rise and rise of movement conservatism, from the War on Science to the War on Iraq, are for the most part well documented. One of the many strengths of Krugman’s book, though, is that he devotes time to other, quieter, calamities. As an economist, he is on home turf detailing the return of extreme income inequality. The United States is once again as economically unequal as it was in the days of the Robber Barons. There are many reasons to be concerned about this (not the least of them being the corrosive influence it has on politics) but Krugman focuses on one key point: the United States is a considerably wealthier nation than it was in the 1970s, yet, for the median worker wages have, when adjusted for inflation and hours worked, most-likely stagnated or gotten worse. These same years have seen immense technological progress and US workers are now considerably more productive than they were three decades ago. The country is significantly wealthier, but the benefits have accrued almost-exclusively to a tiny section of the very rich.

Typically, economists have explained this rise in inequality as a result of inevitable economic forces – either globalisation or technological change – but Krugman shows much of the rise actually stems from political decisions. Union busting under Reagan, and tax cuts for the wealthy under both Reagan and Bush have played major roles exacerbating America’s economic divide.

At the same time as their wages have stagnated, more and more American’s have found themselves deprived of health care. Not just stuck on waiting lists but simply unable to afford the insurance needed in the U.S’s private system. Insurance without which even treatable conditions can be life threatening.

If Conscience of a Liberal sounds like a depressing read it’s not, because Krugman also argues persuasively that the high water mark has been reached for the movement conservatism. Along with the obvious failures of George W Bush’s two terms in power and the impact of this on the movement’s credibility, the United States is becoming not only more multicultural but also less racist. “In 1978,” Krugman writes, “as the ascent of movement conservatism to power was just beginning, only 36 percent of Americans polled by Gallup approved of marriages between whites and blacks…By 2002, however, 65 percent of Americans approved of interracial marriages; by June 2007, that was up to 77 percent.” Slowly, dog-whistle politics are loosing their traction.

If Barack Obama can win the U.S. presidential elections later this year not only will he be the country’s first African American president but he will also be in a position to undo much of the damage done by movement conservatism. It is likely that after the November elections the Democrats will have majorities in Congress and the Senate, making legislation easier to pass. Obama would also be riding the tide of change.

What should he do with that momentum? For Krugman one change is important above all others – the public provision of health insurance to Americans. Not only would a publicly funded system guarantee provision to those currently denied it, as well as putting paid to some of the more dubious practices of the insurance industry, but it would also be much more efficient. US citizens spend considerably more than their OECD counterparts on health care yet they receive less cover. Ensuring health care is one area where, for all its faults, the state does an unambiguously better job than markets.

Krugman would also have Obama roll-back tax cuts for the wealthy and increase state funding of social services. If political processes led to the rise of inequality in the U.S., they can also reverse it.

For Krugman, America’s future lies in Europe – or, at least, in the European social model. This is not, it has to be said, a particularly utopian vision. And one potential criticism that could be levelled at Krugman is that his proposals would hardly rid the US of its social problems. This much is obvious to someone living in a country which is at least part the way to where Krugman would like the United States to be. Yet, at the same time, a United States with public health care, committed to multilateralism and doing something to tackle climate change, would be an immeasurably better country than it is at present. And, for the time being, perhaps, that is all that can be hoped for.

Another criticism that could be levelled at Krugman is that with his economist’s love of parsimony he simplifies the complex history of the United States into a neat narrative shorn of some of the complexities of history as well as some of the failings of the post war Democrats. But set against this is the elegant way in which he highlights real issues and also his ability in most instances to muster convincing evidence to bolster his arguments. Woolly thinking is rare in Conscience of a Liberal.

One final criticism is simply that in all of Krugman’s explanations of America’s rightwards lurch, economists get off surprisingly lightly. A couple of pages are given over to rightwing luminaries Milton Friedman and George Stigler but they are treated as outliers, and Krugman largely ignores the cover provided to movement conservatism by the rapid rightwards shift of the economics profession that took place as Rational Expectations, Public Choice Theory and Monetarism took hold in the 1970s and 80s. It is true that the economic mainstream never endorsed the supply-side extremes favoured by some of Reagan and Bush’s confidants but it is also true that the same mainstream did provide much of the impetus for the roll back of the state.

It is a pity that Krugman doesn’t discuss this more because the travels of the economics profession, as well as Krugman’s own journey are an interesting accompaniment to the political shifts of post war America. Krugman himself, it might surprise readers only familiar with his Bush era writings, has spent most of his career barely a liberal at all. He actually served on Ronald Reagan’s team of economic advisers (in a technical role) and spent the better part of the Clinton years attacking not only people such as Ralph Nader but also Clinton’s own economic team when they flirted with ideas for mitigating the worst impacts of globalisation on US workers. Yet, all this has changed in recent years. Krugman, who used to deride liberal luminary and fellow economist John Kenneth Galbraith now cites him favourably. He worries about the impacts of competition with China and the same man who once claimed that the rise in US inequality was not a consequence of politics now argues that it is.

It would be an exaggeration to say that a similar change has occurred amongst economists in general but the centre is once again shifting. Perhaps not quite so clearly as it did in the wake of the Great Depression but with the rise of game theory and behavioural economics as well as an increasing empirical focus and more attention being paid to the welfare impacts of unmitigated markets, the profession is, in the words of former union economist Thomas Palley, “coming [back] from a black hole”.

John Maynard Keynes once wrote, "it is ideas, not vested interests, which are dangerous for good or evil." Recent history would suggest that Keynes was gravely mistaken in dismissing the power of vested interests. But ideas do matter, and the changing ideas of the economics profession are another reason, perhaps, for liberals to be hopeful.

LINKS

New York Times Review
Krugman's Blog
Official Krugman website
Salon Review

Terence Wood is a Wellington writer and reviewer.

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