Bill Black: Krugman on the Corruption of Our Nation via Perverse Incentives

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Published jointly with New Economic Perspectives

Paul Krugman April Fools’ Day column launched another attack on Bernie Sanders. In it he announces that he, a strong Hilary Clinton supporter, is “Dad” and gets to set the rules for candidates – “it’s time to lay out some guidelines for good and bad behavior.” This is a lot like John McEnroe giving lectures on tennis etiquette. Two sentences later, Krugman mocks voters for Sanders in “very white states,” which is a pretty clear example of “bad behavior.” Tellingly, Krugman is oblivious to his bad behavior. Krugman ends with this patronizing and insulting sentence: “Sanders doesn’t need to drop out, but he needs to start acting responsibly.” Krugman is obviously itching to instruct Bernie to “drop out” and hand the contest to his candidate.

First, the Sanders campaign needs to stop feeding the right-wing disinformation machine. Engaging in innuendo suggesting, without evidence, that Clinton is corrupt is, at this point, basically campaigning on behalf of the RNC.

There is something quite wonderful to using false “innuendo” to falsely declare a rival candidate guilty of using “innuendo.” But it gets better – for Krugman’s “second” basis for attacking Bernie and his staff is that they have a “conflict of interest.”

It’s important to realize that there are some real conflicts of interest here. For Sanders campaign staff, and also for anyone who has been backing his insurgency, it’s been one heck of a ride, and they would understandably like it to go on as long as possible. But we’ve now reached the point where what’s fun for the campaign isn’t at all the same as what’s good for America.

That too is a paragraph that exemplifies the true meaning of April Fools’ Day. I’ll start with the “conflict of interest.” Under Krugman’s idiosyncratic definition of “conflict of interest” any candidate behind in an electoral contest should drop out, or at least praise his or her opponent. Krugman’s claim is self-refuting – and Hilary or Bill Clinton were both “guilty” of a “conflict of interest” under Krugman’s preposterous definition of that term.

The term “conflict of interest,” however, has a real meaning in political office. Bob Rubin, for example, while acting as Bill Clinton’s Secretary of the Treasury, intervened on behalf of (then) Citicorp and Travelers Insurance’s illegal merger – by setting the wheels in gear to destroy Glass-Steagall. Rubin immediately departed – for a lucrative position at what became Citigroup. That is a “conflict of interest.”

Politicians who take money from corporations and their leaders, whether in the form of contributions, speaking fees, or book deals (like Speakers Wright and Gingrich) create myriad “conflicts of interest.” Here is how one scholar taught about this process in his powerpoint slides:

Most influential approach: Grossman-Helpman

Think of politicians as maximizing weighted sum of overall welfare and campaign contributions

Contributions give an extra “weight” to organized groups

Or, as the public has aptly phrased this process for millenia – contributions “put a thumb on scale.” Today, we say “the system is rigged.” The scholar whose presentation I quoted is Krugman. Krugman’s position on how contributors deliberately create a conflict of interest to sway officials’ policies is well-supported in the literature.

As Nicholas O. Stephanopoulos, an assistant law professor at the University of Chicago, put it in an article last year in the Columbia Law Review: “There is near consensus in the empirical literature that politicians’ positions more accurately reflect the views of their donors than those of their constituents.”

Krugman, over a decade ago, stressed the inherently “corrupt[ing]” influence created by crafting perverse private and public sector financial incentives designed to create conflicts of interest.

The Enron debacle is not just the story of a company that failed; it is the story of a system that failed. And the system didn’t fail through carelessness or laziness; it was corrupted.

The truth is that key institutions that underpin our economic system have been corrupted. The only question that remains is how far and how high the corruption extends.

On December 17, 2015, Krugman published a review, entitled “Challenging the Oligarchy,” of Robert Reich’s new book. Krugman’s review makes clear that he agrees with Senator Warren and Senator Sanders’ fundamental critique that the system is in fact rigged and that the “the corruption extends” to the highest office in the land. Krugman describes Reich’s book as urging “an uprising of workers against the quiet class war that America’s oligarchy has been waging for decades.”

Krugman endorses Reich’s critique (which Bernie shares) that the key to the success of the oligarch’s economic war on the American people is “power.”

Economists struggling to make sense of economic polarization are, increasingly, talking not about technology but about power. This may sound like straying off the reservation—aren’t economists supposed to focus only on the invisible hand of the market?—but there is actually a long tradition of economic concern about “market power,” aka the effect of monopoly. True, such concerns were deemphasized for several generations, but they’re making a comeback….

Krugman supports and explains Reich (and Sanders’) analysis that the rise of massive economic power has led to crippling political power which is used to further rig both the economic and political system for the benefit of the plutocrats – a “vicious circle of oligarchy.”

Furthermore, focusing on market power helps explain why the big turn toward income inequality seems to coincide with political shifts, in particular the sharp right turn in American politics. For the extent to which corporations are able to exercise market power is, in large part, determined by political decisions. And this ties the issue of market power to that of political power.

Reich makes a very good case that widening inequality largely reflects political decisions that could have gone in very different directions. The rise in market power reflects a turn away from antitrust laws that looks less and less justified by outcomes, and in some cases the rise in market power is the result of the raw exercise of political clout to prevent policies that would limit monopolies—for example, the sustained and successful campaign to prevent public provision of Internet access.

Similarly, when we look at the extraordinary incomes accruing to a few people in the financial sector, we need to realize that there are real questions about whether those incomes are “earned.”

As Reich argues, there’s good reason to believe that high profits at some financial firms largely reflect insider trading that we’ve made a political decision not to regulate effectively. And we also need to realize that the growth of finance reflected political decisions that deregulated banking and failed to regulate newer financial activities.

Meanwhile, forms of market power that benefit large numbers of workers as opposed to small numbers of plutocrats have declined, again thanks in large part to political decisions. We tend to think of the drastic decline in unions as an inevitable consequence of technological change and globalization, but one need look no further than Canada to see that this isn’t true.

But why has politics gone in this direction? Like a number of other commentators, Reich argues that there’s a feedback loop between political and market power. Rising wealth at the top buys growing political influence, via campaign contributions, lobbying, and the rewards of the revolving door. Political influence in turn is used to rewrite the rules of the game—antitrust laws, deregulation, changes in contract law, union-busting—in a way that reinforces income concentration. The result is a sort of spiral, a vicious circle of oligarchy. That, Reich suggests, is the story of America over the past generation. And I’m afraid that he’s right.

Krugman’s review is most critical of Reich’s book in terms of a remedy for this “vicious circle of oligarchy.” Krugman asks, rightly, how such a corrupted system can escape the “spiral” towards ever greater corruption. It would take someone wildly improbable who would refuse to take funds from the oligarchs and who would fundamentally transform the American economy to end the rigged system. Under Krugman’s own logic, it would take Bernie Sanders.

If Krugman believes that Hilary has the race sewed up, why is she still taking political contributions from the oligarchs? Under Krugman’s logic Bernie is the one acting “responsibly” – and courageously.

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49 comments

  1. Lambert Strether

    Krugman wrote:

    Sanders does well in very white states and in caucuses, not so much elsewhere.

    There really isn’t a polite way to say this, so I’ll just say it: Krugman’s lying. From yesterday’s Water Cooler:

    “Behind #BernieMadeMeWhite”* (with charts) [Jacobin]. “Sanders has now made up so much ground that he’s running neck-and-neck with Clinton among nonwhite registered Democrats younger than fifty.” And:

    Finding these voting blocs inconvenient to its preferred framing, the media has largely ignored them. Instead of articles about the young female, black, Hispanic, Native American, Asian American, and Arab Americans who back Sanders, we get a deluge of articles about the horrifying paleness of Sanders’s base.

    We get absolute silence about Clinton’s especially strong backing from rich white Democrats over thirty.

    Indeed!

    * Hashtag campaign where Sanders supporters who are PoC mocked the stale narrative Krugman is pushing.

    1. Nacho Pepe

      It’s not only polls, and it is not only on ethnicity he is lying.
      Bernie has now won all caucuses but Iowa (if we take Nevada as a victory, which is kind of unfair, but that’s the system, sorry). However winning ALL caucuses doesn’t mean winning ONLY caucuses. So far he has won 5 primaries, including Vermont where his whopping 86% left HRC with 0 delegates.

      Plus thee have been non-caucus virtual ties in Illinois (Hillary won in votes, but they’re both taking home 78 delegates as per thegreenpapers.com), Missouri, or Massachussets, where Clinton’s victories only translated in one more delegate for her than Sanders.
      And Sanders is set to win his 6th primary in Wisconsin today, making it over a third of his victories wee not in caucuses. The narrative is so weak it falls apart just by looking at Wikipedia.

      1. Avedon

        And the thing about caucuses is, they are election day votes – no early voting. Which means you have had more time to get to know the candidate. Early voters who’ve made up their mind before the candidates have even started to campaign in their state are less informed.

        Bernie Sanders doesn’t just win caucuses. He has tended to win the election day vote among those who did not vote before they got to learn about both candidates. Clinton wins the early votes in non-caucus states and they are counted before anything else. With no precincts reporting, we saw a Clinton win announced while people were still lined up in four-hour waiting lines in Arizona. Naturally, a lot of people waiting to vote gave up at that point – but he still won the election day vote.

        (Oh, and by the way, we were actually told that the exit polls in Nevada showed Sanders winning the Latino vote, but that this could not be true, so obviously exit polls “don’t work” on Latinos. Wow, you have to be really wedded to the Clinton campaign narrative that Hillary owns the minority vote to fall for that one.)

    2. pretzelattack

      thanks for that info. i keep running into this talking point by clinton supporters/shills.

  2. vlade

    Either Krugman was promised a role in Clinton’s admin, or he’s just a biased idiot with too much ego. Or both.

    1. pretzelattack

      he’s been shilling for obama too. i used to really respect the guy, when he was one of the few voices in the msm telling the truth about iraq.

    2. farrokh bulsara

      Team Blue is just using his “conscience of a liberal” creds in their usual subversive way. He’s this cycle’s designated Hippie puncher.

      1. Brindle

        I googled “Paul Krugman net worth” and $2.5 million was the standard figure. If true he would definitely be in the upper 1%. Not a huge amount for the NYC metro area but not peanuts either.

    3. RUKidding

      Basically, I stopped reading and/or listening to Krugman after Obama was elected. He turned into a courtier then, and nothing has changed. IMO, he’s not much better than idiots like David F*cking Brooks. Yes, I know Brooks doesn’t set himself up as an economist, but really, they’re just both pandering and scolding for their respective “teams.”

      If Krugman truly is only worth $2.5mill, as someone suggests in the comments, then Krugman is really scrounging for his payola. Hate to say it, but $2.5 million these days, when mingling on these high end cocktail circuits, is chump change (really).

      1. diptherio

        Well, he’s getting a quarter mill a year for teaching a course on inequality at some Ivy, for which he’s obligated to put in very little actual time. Or maybe he’s getting paid to study inequality…can’t remember the details, but I’m sure he’s doing just fine, financially.

        1. Tiercelet

          Not even an Ivy. It’s CUNY Grad Center. He’s sucking up plenty from the NYC public college system.

    4. samhill

      He was an honest critic when repubs were in power, while at most a modest critic of the democrats, and since 2008 a total hack. Oddly, it’s never gotten him anywhere politically, from what I can tell Obama doesn’t give him the time of day, doubt Clinton will waste her time. So, looks like “biased idiot with too much ego.” I too can’t read him anymore after the persistent and petty attacks on Bernie, not academic and not professional.

      1. RMO

        The only possibility that makes any sense to me is that he truly believes that the only Democratic candidate who can possibly win the presidency in the election is Hillary Clinton and that Sanders getting the nomination would lead to defeat and a Cruz or Trump administration. It’s not like he has any influence with the Democratic or DC elites or the punditry and the chances of a Democratic administration rewarding him with a job and influence or even listening to him seems about as likely as my dog learning to do differential calculus. I don’t have any reason to believe he’s been paid off and I doubt anyone would bother trying it in the first place. When you look back at his past writings you find he’s repeatedly argued in favor of almost everything that makes up Sanders platform including the corrupting influence of money in politics – as pointed out in this article. Until he started attacking Sanders about the only problem I had with him was his stance on trade agreements which seemed to be that they were not important because they have little effect on actual trade but ignored the huge effects they have in hobbling the ability of nations to undertake policy to better the lives of their citizens and improve the well being of the world in general. I am even willing to believe that his defense of the ACA could have been intellectually honest in that I can understand the viewpoint that it might be better than nothing. Ever since Bernie started to look like he might have a chance though, Krugman has been increasingly attacking views that he recently espoused and making himself look like a total dolt.

  3. Jerry Denim

    William Black is spot on as usual. I cannot wait until Sanders wins the White House and appoints Bill Black as his A.G. I can only imagine the screams, howls and dire warnings that Krugman will propagate. I lost any shred of respect I had left for Krugman when he attempted to give a paternal political lecture to an honest and classy septuagenarian Senator with 26 years of experience on Capitol Hill who just happens to be mounting the most shockingly successful insurgent Presidential bid of modern times. Krugman came off sounding like a petulant little fool. Who is this newspaper econ pontificator to instruct Senator Sanders on his tone or grant him permission to stay in the Presidential race when Sanders has a strong, energized groundswell of support and is dominating the recent primary process? Who is he trying to fool? Is anybody besides the most die-hard Clinton supporter buying Krugman’s fake indignation and Sanders slander?

    I attended a Sanders campaign volunteer training event in Los Angeles about a month ago and I was extremely impressed by how incredibly diverse the volunteer group was, and I’m a Sanders believer. The group seemed to be perfectly distributed between young and old, male and female, black, latino, white, asian and everything in-between. I didn’t poll anyone about their net worth or current income, but I had the feeling the group spanned the economic spectrum as well. In a room with 25 people I’m not sure that you could count two people from the same age/race/sex demographic more than once. It was an incredible demonstration of how Sanders is building a diverse political coalition unlike anything this county has ever seen. It was like an LA casting call for a “diverse coalition”, except it wasn’t engineered, the group represented a random cross-section of Sanders supporters who just happened to be motivated enough to show up for Sanders on a week night. F*%k Krugman. The same goes double for the NYT, CNN, Washington Post, etc. Sanders doesn’t need them and their behavior is only speeding up their fade to irrelevance. After seeing how Sanders is bringing people together that Washington politicians and the media have taken great pains to pit against one another, I can see what a true threat he is to the established socio-political order.

    1. Donald

      “Who is he trying to fool?”

      NYT readers. I can’t fathom this myself, but there are people who call themselves liberal and who take the paper very seriously. Read the comments after a Krugman Sanders-bashing piece and you will even see some self–proclaimed Sanders supporters taking Krugman seriously. In fairness, he was awful in the 90’s, worse than he is now, but in the Bush era he was one of the few honest people in the MSM. I myself had thought he had changed and was initially shocked when he started this relentless Sanders-bashing campaign. I honestly thought he would be neutral or if he favored Clinton, fair to Sanders, but he’s not. (I’ve heard he was bad in the 2008 campaign, but I don’t remember. Anyway, after a very brief fling I was quickly disillusioned by Obama in the primaries and despised Clinton and didn’t pay much attention to what Krugman said about the campaign then.)

      But Krugman aside, the problem is not just that the Democratic Party is corrupt and pundits are dishonest, but that a great many ordinary voters are enthusiastic about Clinton and resent it when she is criticized. The rot starts at the head, but it doesn’t stay there. So yes, Krugman is convincing to many people, sad to say.

      1. Jerry Denim

        “Read the comments after a Krugman Sanders-bashing piece and you will even see some self–proclaimed Sanders supporters taking Krugman seriously. ”

        Now that is truly sad. Amazing how much clout some people get with a medal, a PhD and a newspaper column. Three different rewards for pleasing the same people.

        1. hunkerdown

          Like unto Union labels or those frivolous seals of approval (New Look – Same Great Taste!) on product labels. Perhaps high honors aren’t markers of friends or enemies, but of interests.

          1. Jerry Denim

            Bernie’s first quasi-celebrity black community booster, Michael Render a.k.a Killer Mike, had a rap lyric that went something like “I don’t give a f*#k about no Forbes list, as far as I’m concerning it’s a muth-f*#king whores list”. Not quite a Harvard Degree or a Nobel prize, but the same anti-establishment sentiment aimed less at credentials and more towards materialism and the skullduggery involved in amassing great wealth. He also said he didn’t “give a f–k about no party in the Hamptons”. I’m pretty sure he and Bernie are on the same page.

  4. El Guapo

    This screed from Krugman was so pathetic that I didn’t even get angry reading it, I just chuckled at the absurdity. How much of a shameless hack does one have to be to vomit up something like this? I wonder how some people are able to look at themselves in the mirror.

  5. allan

    Krugman has become the Very Serious Person he warned us about.
    I don’t think it’s about an appointment – he knows what Washington is
    and would prefer to (at least in his eyes) stay an outsider.
    It’s all about being at the grown ups table. What a sad way to end a career.

    A runner whom renown outran.

  6. cnchal

    Either Mr Krugman is a sublime comedian where only he get’s his own joke or the epitome of a useless eater.

  7. divadab

    Hackery in service of Hillary

    Dark fuckery – but –

    Black smackery !

    After all, the NY Times is a propaganda outlet, despite the quality of its writers. Krugman has shown himself to be just another paid propagandist. It’s really fucking terrible how dishonest and malignant the 4th estate has become. As bad as Pravda – except everybody knew Pravda was anything but. People still rely on the Times – not wanting to believe how corrupt the media is. Very bad.

  8. P

    Hahahahahahaha!

    The shark has been jumped, everybody. Tune in next week. There will be another program on in place of Krugman’s “Dad” ramblings.

  9. ScottW

    Krugman, as well as the entire mainstream media pundit class, has been silent on how personally taking hundreds of millions (yes hundreds) from special interests does not make Hillary completely captured by those same special interests. Not a single word. It was interesting to write about and analyze the bought and paid for culture in D.C. when no one was seriously challenging it, but now that we have a candidate who is not bought and paid for, the pundit class doesn’t know what to do. Well they actually do–support the bought and paid for candidate.

    One of Bernie’s greatest feats is exposing the fraudulent Democratic party and its preferred candidates. They are all awash in money and the party loves it that way. Citizens United is to Dems like Roe v. Wade is to Repubs. A symbol for rallying the troops, but no real interest by either party in overturning those decisions.

  10. craazyman

    Don’t worry. Come November PK is outta there and Professor Kelton’s gonna be the op-ed columnist at the New Yawk Times. They’ll banish PK to a library somewhere, just like Ovid was banished to the Black Sea by Augustus, maybe waaay back in the stacks where nobody goes anymore now that we have the internet. There might be some books back there by dudes from 19th century economics. PK can keep busy until he can go home in the afternoon.

    That’ll be amazing, to see Professor Kelton analyze the budget. Nobody will be able to remain conscious after they read that stuff in the New Yawk Times where PK used to be.

    Bernie Bernie
    QED!
    Bernie Bernie
    QED

    Bernie’s gonna win. It seems incredible to think how close Randy Wray is to being the biig dude behind the scenes who knows how the money machine works and knows how to crank the levers. Professor Kelton, she’ll be the public face of MMT but behind the scenes you need some big dude who can really throw a mental punch at all the critics who just won’t get what she’s saying.

    I don’t know where Robert Reich will be in all this, but he was pretty funny on Saturday Night Live — that was a number of years ago. But maybe he can be the “sherriff” of the Sanders administration. If there’s a threat of an intellectual altercation, Robert Reich can show up and try to calm things down. If he can’t, despite his best effort, that’s when you bring in Professor Wray, and let him end all discussion.

    1. Jim Haygood

      Speaking of “perverse public sector financial incentives,” our Randy Wray probably stayed up all night partying after reading this unusually stark confession in an ECB paper (on page 14, footnote 7):

      “Central banks are protected from insolvency due to their ability to create money and can therefore operate with negative equity.”

      http://www.ecb.europa.eu/pub/pdf/scpops/ecbop169.en.pdf

      Sounds like exorbitant privilege without accountability — COOL! What could go wrong?

      Fed staffers published a paper in 2013 detailing how they would handle accounting for negative equity. So far they haven’t needed to, since Treasury yields have stayed low.

      But if the next admin decides to go “full MMT” on us, the ECB has their back with their bold proclamation, “No equity, no problem.” Which is sort of a riff on Bob Marley’s “No woman, no cry.”

      p.s. Don’t ask what hairy-handed Krugthulhu’s gonna be doing back there in the stacks with nobody watching.

      1. Alejandro

        fiscal and monetary are like…

        “Love and marriage, love and marriage
        Go together like a horse and carriage
        This I tell you brother
        You can’t have one without the other

        Love and marriage, love and marriage
        It’s an institute you can’t disparage
        Ask the local gentry
        And they will say it’s elementary

        Try, try, try to separate them
        It’s an illusion
        Try, try, try, and you will only come
        To this conclusion…

        Dad was told by mother
        You can’t have one, you can´t have none
        You can’t have one without the other”

      2. craazyman

        I remember when we used to sit
        in the library yard in Grinchtown
        Oba observing the hypocrits
        as they would leech off the good people we meet
        good friends we had, our good friends they lost
        their jobs each day
        In this bright future you can’t forget your past
        so dry your tears I say

        No money no cry
        No money no cry
        Little darlin don’t shed no tears
        No money no cry

        Said, said, said I remember when we used to sit
        In the library yard in Grinchtown
        And then we saw, we saw the money light
        Debt burning through the night

    2. craazyboy

      What budget? Once you realize money is just fake made up stuff, you don’t need a budget! That’s just like piling more fake ideas on top of made up stuff!!!! Enough of this fakery. Just connect up the printing press to the internet and let everyone order their own money. Who needs a middleman getting in the way? They just ask the lobbyists who needs money anyway. They are useless as tits on a 2×4, IMO. I can understand Profeser Wray’s frustration with it all.

    3. uahsenaa

      I’d like to see Krugman made a page at the NYPL, then maybe he’d get a sense of what the working world is actually like for most people.

      Also, he’d finally be doing something useful for a change.

  11. ng

    krugman’s article on monday was about building affordable housing in nyc. he says how it’s difficult to get zoning variances for things like the height of buildings, which is the only problem he mentions, and then goes on to praise di blasio’s recent plan, which mixes luxury, middle income and affordable in five locations in poor neighborhoods in the city. he says that despite some carping from the city council it’s a good idea. what you don’t get at all is that the reason the city council is upset and asking for changes is that the “affordable” part of the buildings are, in every case, too expensive for the neighborhoods they’ll be put in or the people the buildings will displace.
    it’s like a column last week where he praised a rise in employment but wasn’t interested in the pay of the new jobs. he’s got his head in some sort of wonky cloud, and is increasingly out of touch with people, with real suffering.

    1. RUKidding

      Krugman, like any of these punditry courtiers, doesn’t give one iota of a sh*t about the “little people” that he so loves to scold. He’s only interested in who he can fellate next to get more payola. No doubt, the Clintons pat him on the head and go “good boy, good doggie” whilst handing him some filthy lucre. Maybe DiBlasio does, too.

  12. Keith

    Clinton represents the old Neo-Liberal way (it just doesn’t work and it’s as dead as a dodo) and Sanders the new Keynesian way.

    Today Capitalism is portrayed as a homogeneous system that has always been the same.

    In 1989 Francis Fukuyama said it was the end of history.

    What was he smoking?

    We were less than 10 years into another experiment with unfettered Capitalism, this time dressed up in the Emperor’s New Clothes of Neo-Liberal economics.

    Capitalism has already been through numerous versions that have all failed.

    Capitalism mark 1 – Unfettered Capitalism
    Crashed and burned in 1929 with a global recession in the 1930s

    Capitalism mark 2 – Keynesian Capitalism
    Ended with stagflation in the 1970s

    Capitalism mark 3 – Unfettered Capitalism (Part 2)
    Crashed and burned in 2008 with a global recession in the 2010s.

    It has followed the same path as Unfettered Capitalism (Mark 1).

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

    1929/2008 – Wall Street crash

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    We’ve done Neo-Keynesian stimulus.

    After eight years of pumping trillions into the top of the economic pyramid, banks, and waiting for it to trickle down.
    It didn’t work, hardly anything trickled down.

    The powers that be are now for Keynesian stimulus.

    Carry out infrastructure projects that create jobs and wages which will be spent into the economy and trickle up (pumping money into the bottom of the economic pyramid).

    It looks as though we are headed into Capitalism mark 4 – Keynesian Capitalism (Part 2)

    Keynesian Capitalism certainly looks more promising, and worked very well in the 1950s and 1960s, a few tweaks will be needed to deal with the problems that we saw in the 1970s.

    You don’t get so much of that “crash and burn” stuff you get with unfettered Capitalism.

    Clinton represents the old Neo-Liberal way and Sanders the new Keynesian way.

    1. Keith

      When you know what it is, the solutions become apparent.

      1) Understand the problem
      2) Find the answer

      A failure to recognise the true nature of Capitalism has led to the slump in demand through ever rising inequality.

      The true nature of Capitalism has obviously been forgotten over time.

      Today we think it brings prosperity to all, but that was certainly never the intention.

      Today’s raw Capitalism is showing its true nature with ever rising inequality.

      Capitalism is essentially the same as every other social system since the dawn of civilisation.

      The lower and middle classes do all the work and the upper, leisure Class, live in the lap of luxury. The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure.

      The nature of the Leisure Class, to which the benefits of every system accrue, was studied over 100 years ago.

      “The Theory of the Leisure Class: An Economic Study of Institutions”, by Thorstein Veblen.

      (The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.)

      We still have our leisure class in the UK, the Aristocracy, and they have been doing very little for centuries.

      The UK’s aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.

      Feudalism – exploit the masses through land ownership
      Capitalism – exploit the masses through wealth (Capital)

      Today this is done through the parasitic, rentier trickle up of Capitalism:

      a) Those with excess capital invest it and collect interest, dividends and rent.
      b) Those with insufficient capital borrow money and pay interest and rent.

      All this was much easier to see in Capitalism’s earlier days.

      Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living.

      This was the way it had always been and always would be, the benefits of the system only accrue to those at the top.

      It was very obvious to Adam Smith:

      “The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

      Like most classical economists he differentiated between “earned” and “unearned” income and noted how the wealthy maintained themselves in idleness and luxury via “unearned”, rentier income from their land and capital.

      We can no longer see the difference between the productive side of the economy and the unproductive, parasitic, rentier side. This is probably why inequality is rising so fast, the mechanisms by which the system looks after those at the top are now hidden from us.

      In the 19th Century things were still very obvious.

      1) Those at the top were very wealthy
      2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
      3) Slavery
      4) Child Labour

      Immense wealth at the top with nothing trickling down, just like today.

      This is what Capitalism maximized for profit looks like.

      Labour costs are reduced to the absolute minimum to maximise profit.

      The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour.

      The function of the system is still laid bare.

      The lower class does the manual work; the middle class does the administrative and managerial work and the upper, leisure, class live a life of luxury and leisure.

      The majority only got a larger slice of the pie through organised Labour movements.

      By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce.

      They knew that if wealth concentrated too much there would not be enough demand.

      Of course the Capitalists could never find it in themselves to raise wages and it took the New Deal and Keynesian thinking to usher in the consumer society.

      In the 1950s, when Capitalism had healthy competition, it was essential that the Capitalist system could demonstrate that it was better than the competition.

      The US was able to demonstrate the superior lifestyle it offered to its average citizens.

      Now the competition has gone, the US middle class is being wiped out.

      The US is going third world, with just rich and poor and no middle class.

      Raw Capitalism can only return Capitalism to its true state where there is little demand and those at the bottom live a life of bare subsistence.

      Capitalism is a very old system designed to maintain an upper, Leisure, class. The mechanisms by which parasitic, rentier, “unearned”, income are obtained need to kept to an absolute minimum by whatever means necessary (legislation, taxation, etc ..)

      Michael Hudson’s book “Killing the Host” illustrates these problems very well.

      When you realise the true nature of Capitalism, you know why some kind of redistribution is necessary and strong progressive taxation is the only way a consumer society can ever be kept functioning. The Capitalists never seem to recognise that employees are the consumers that buy their products and services and are very reluctant to raise wages to keep the whole system going.

  13. flora

    Bill Black brilliantly fisks Krugman’s article.
    ” [Krugman’s article] is a lot like John McEnroe giving lectures on tennis etiquette.”
    Yes.

  14. Quantum Future

    Good article. I give great accolades to Bill Black. You can’t have a life enjoyable to live when the rule of law
    only allows applies to the little people. The concept of Justice is second only to Love itself.

    I ask myself, if I died tomorrow did I make a difference? I can say as for this man, he did to MANY.

    We pay a price or give up certain luxuries for that position about Justice and from a raw intellectual stand point it also is sound thinking in understanding of such is which supports a sustainable society. No justice, few customers and insecurity.

  15. ke

    Empire is migrating from everyone is responsible so no one is responaible to the computer is responsible.

    So, we have a hotel elevator controller down, with employees carrying everything up and down stairs, and a clan swapping ownership to inflate booked assets at cost to labor, trying to avoid a multinational extortion contract. Fixing the elevator will not affect revenue printing and so will come out of employee income…The problem may be wrapped differently, but it’s always the same problem, which is not the elevator.

    Remember that story about blocking all the exits with trash?

    Nature will take care of the empire. Be about your business, increasing income/rent and employing the disposable income accordingly. If you think about it, you can fix that elevator yourself, but don’t touch that controller, until you are ready for MAD to happen.

  16. fresno dan

    Two sentences later, Krugman mocks voters for Sanders in “very white states,” which is a pretty clear example of “bad behavior.”
    …….
    “Krugman’s review is most critical of Reich’s book in terms of a remedy for this “vicious circle of oligarchy.” Krugman asks, rightly, how such a corrupted system can escape the “spiral” towards ever greater corruption. It would take someone wildly improbable who would refuse to take funds from the oligarchs and who would fundamentally transform the American economy to end the rigged system. Under Krugman’s own logic, it would take Bernie Sanders.

    If Krugman believes that Hilary has the race sewed up, why is she still taking political contributions from the oligarchs? Under Krugman’s logic Bernie is the one acting “responsibly” – and courageously.”

    =================================================
    Life is pretty simple when you look at what people do, as opposed to what they say. Krugman was obviously just engaged in moral preening, and when giving the opportunity to actually practice what he preaches, scampers away screeching “impractical…irresponsible….racism!”

  17. Qrys

    Considering that Bernie Sanders has accumulated quite the ‘dream team’ of economic advisors himself, I’m surprised we’ve yet to see Black, Wray, Kelton, Mosler, Reich and others brought forward in any concerted way to counter these false attacks. It could be something like the Econ4 webisodes having these economists say “‘Bernie’s Right’ about… Wall Street, Education, etc.”

    1. Plenue

      I’m been very disappointed in the way Sanders has kept harping on about paying for things by increasing taxes on the rich. They should be paying a hell of a lot more in taxes, but taxes don’t drive federal funding. Sanders could do a massive amount of good even if he doesn’t get the nomination simply by saying “I know where money comes from; we’ll just create what we need”. Inject that into the public consciousness and then sit back and watch as the fact checkers splutter and fall all over themselves.

      1. Jess

        I think Sanders is well aware of how MMT works at the federal level but wants to continue pushing his current theme for two reasons:

        1. Lots of common voters don’t understand that we can, theoretically, print all the money we need. And in fact, we do it all the time, whether it’s bailing out banks or funding wars. Bernie wants to keep with the safe conception that most people have so as not to risk opening himself up to criticism as being fiscally looney tunes.

        2. Bernie wants to justify significantly greater taxes on the wealthy and corporations, and this is much easier to do under the construct of “we need that tax money to fund various socially desirable functions” than under the construct that “we just need to make the rich less so”. The latter argument is all too easily framed as “taking” from those who have worked hard and thus earned more. Not that this argument bears out in most rigorous analyses, but it has been drummed into many peoples’ heads relentlessly by the right wing.

      2. ChrisPacific

        I think it would likely backfire. It’s a difficult concept to get your head around when you first hear it. It reads like free money for everyone, which it’s not, but it can be difficult to understand why not.

        I do however think that he could challenge more on whether it’s necessary to pay for things at all. For example, the media likes to portray single payer government health care as a massive expense, but done right it would actually save a ton of money – provided you include private spending on healthcare in the analysis, which you should (but which never seems to happen in the public discussions).

  18. susan the other

    There is a geometric resistance to expanding well being. Because nobody can get too far from the well. There is a material-state flux to cohesion (?) – there are more than solid/liquid/vapor states. So some energy is lost in switching positions. And wonderful etcetera. As far as economix and politix go, there are strict limits to tolerable theft.

  19. ChrisPacific

    Cut Hillary some slack. Yes, we all wish that we didn’t have a parasitic oligarchy that is driving the middle class into poverty by stealing all their stuff. But we need to be realistic here. We must focus on initiatives that actually have a chance of succeeding, like asking the oligarchs to pretty please steal a bit less of our stuff in future. (Maybe leave us a pair of shoes, some of the leftovers in the fridge, that kind of thing). All reasonable and right-thinking people know that this is the best that we can do, but for some inexplicable reason it’s getting increasingly hard to convince the victims of this. It’s a lot of work, especially in an election season, and it’s not helped by some guy popping up to make inflammatory remarks about how maybe we should stop the oligarchs from stealing altogether, or maybe even tell them to give back some of what they stole. (Honestly!) It just puts unrealistic ideas in people’s heads and makes it harder to pass measures that will make a real difference, like a bill that would provide a dollar for dollar match from taxpayer funds to the oligarchs on their loot along with complimentary armored cars to take it all away, in exchange for them agreeing not to break any windows on the way out. (Or at least to break fewer windows). This would make a real and positive difference in people’s lives (who wants broken windows?) and it’s in jeopardy because Bernie and his supporters want to have it all.

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