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Sense and the Incensed Paul Krugman and the Accuracy of Outrage

To cut to the quick: Princeton economist/New York Times columnist Paul Krugman sees a way out of the morass this administration is perpetrating.

Revulsion. That’s right, rousing, upwelling national disgust. “I have a vision— maybe just a hope,” Krugman writes to introduce The Great Unraveling: Losing Our Way in the New Century, “—of a great revulsion: a moment in which the American people look at what is happening, realize how their good will and patriotism have been abused, and put a stop to this drive to destroy much of what is best in our country.”

The Great Unraveling collects Krugman’s Times columns and some new material in an informed, impassioned response to this administration’s posturing and misinformation. It is also a persistent (and readable) technical refutation of the economic ideology being rammed past often non-existent congressional opposition, to the mounting dismay of many economists, liberal and conservative alike.

There’s no telling when the revulsion he prescribes will occur, but “one thing is clear: it cannot happen unless we all make an effort to see and report the truth about what is happening.” Unraveling ranges far and wide for material (communications and climate policy, rigged energy deals robbing California), and straight to the top.

Indeed, the book aims straight at the top. Krugman has tracked bait and switch tactics since the current president was on the campaign trail. In “Reckonings; Oops! He Did It Again” (Oct.1, ’00): “Is there any way to explain away Mr. Bush’s remarks (falsified budget declarations on CNN Moneyline)?… Not that I can see. We’re not talking questionable economic analysis here, just facts: what Mr. Bush said to that national television audience simply wasn’t true.”

“What is really striking,” Krugman adds, “is the silence of the media…when Mr. Bush declared that he would spend twice as much on new programs as the sum announced by his own campaign, the interviewer said nothing— and nobody else picked up on it.”

Unraveling’s indictment reads as a diary of things going terribly wrong. And for readers who balk at its 400-page bulk, tune in to Krugman’s Times Op/Ed column Tuesdays and Fridays. This past month, as the media’s machinery took patriotic offense at anti-Bush books, he wrote in "Lessons in Civility:" "…some would say that criticism should focus only on Mr. Bush’s policies, not on his person. But no administration in memory has made paeans to the president’s character— his ‘honor and integrity’— so central to its political strategy.” Krugman cites the carrier landing, then reminds us “that the life story of the man inside the flight suit isn’t particularly heroic— that he has never taken a risk or made a sacrifice for the sake of his country, and his business career is a story of murky deals and insider privilege.”

In Unraveling, Krugman underscores salient points of that business career. “Everyone is Outraged” mocks the offense Bush expressed at WorldCom revelations. Bush, after all, was on Harken Energy’s board while an Enron-style fake transaction hid company losses and executives dumped over-valued stock. This ploy, later overruled by the SEC, made the current president $848,000 ("“Just for the record,” Krugman notes, “that’s about four times bigger than the sale that has Martha Stewart in hot water.”) He violated disclosure laws and wasn’t charged, yet “this, everyone insists, had nothing to do with the fact that his father was president.”

His “C.E.O. administration” gets heat in “The Insider Game:” “…how can we take his moralizing seriously when Thomas White— whose division of Enron generated $500 million in phony profits, and who sold $12 million in stock just before the company collapsed— is still secretary of the Army?”

Authority backs Krugman’s journalistic moonlighting. After Yale undergrad and a Ph.D. at MIT, he taught at both schools and then Stanford before taking his Princeton job. Awarded the John Bates Clark medal in 1991 (for the top American economist under forty), Krugman’s academic focus is on economic and currency crises (the Guardian calls him “perhaps the world’s authority” on the latter).

In a interview, he recalled his start at the Times. “It was 1999, and it seemed like our problem was: How do we deal with prosperity and all the interesting things happening in the business world? We figured U.S. policy would be sensible and reasonable, and I’d be writing about disasters elsewhere. It turned out to be something quite different from anything we imagined.”

Different, indeed. Clinton-era surpluses tanked into tremendous deficits, with both used to justify tax cuts weighted to the wealthy yet sold using misleading averages. In Unraveling’s “Pants on Fire,” Krugman writes “money that was supposed to be accumulated to pay retirement benefits has been used instead to provide big tax cuts to the very, very affluent.”

London’s conservative Financial Times now warns against the US deficit. George Akerlof, 2001 Nobel laureate in economics, says “the Bush fiscal policy is the worst policy in the last two hundred years.” Harvard Law School’s Howell Jackson called for “accrual accounting” in an October Times editorial, to force “long-term liabilities to be recognized when they are incurred and can be controlled,” without which “the federal budget will remain the most misleading document in Washington.”

Peter Peterson, the Federal Reserve Bank of New York chairman and a life-long Republican, told Bill Moyers that the administration has “not told the American people there’s $25 trillion of unfunded liabilities for Social Security and Medicare.” Peterson signed a Times editorial, “No New Tax Cuts,” with Paul Volcker (former Fed chairman, architect of Reaganomics), Robert Rubin (former Treasury Secretary) and former senators Rudman, Nunn and Kerrey. “No New Tax Cuts” ran in early April. Weeks later, new permanent tax cuts became law. Months after, the administration stated the astronomical price of conquering Iraq.

What is going on here? Krugman’s analysis peppers Unraveling, then this September he drew it up in an extensive Times Magazine piece titled “The Tax-Cut Con.” Claims of even distribution are debunked, then he quotes the treasury undersecretary for domestic finance: the federal government is “a gigantic insurance company with a sideline business in defense and homeland security…a decade from now, this insurance company’s policyholders will begin making a lot of claims.”

Then Krugman names the administration’s agenda: “Wealthy campaign contributors have a lot to gain from lower taxes, and since they aren’t very likely to depend on Medicare, Social Security or Medicaid, they won’t suffer if the beast gets starved.” States too are in crisis and slashing services, but laws prevent states from deficit spending.

The clue is the permanent status of tax-cuts sold as economic stimulus. Temporary cuts are regularly used to motivate a lethargic economy; that’s not what this administration is after. “We are not talking about minor policy adjustments. If taxes stay as low as they are now…Social Security will have to become far less generous; Medicare will no longer be able to guarantee comprehensive medical care to older Americans; Medicaid will no longer provide basic medical care to the poor.”

Krugman sees this administration adapting events in pursuit of a radical agenda (see Unraveling’s Chapter 10, “Exploiting September 11”). “We would have faced a serious fiscal problem even if those tax cuts had never happened. But we face a much nastier problem now that they are in place. And more broadly, the tax-cut crusade will make it very hard for any future politicians to raise taxes.”

An opposition candidate calling for new taxes in ’04 will perform political suicide, as the real crunch is years away. Last year’s Congressional elections debated Saddam Hussein’s imminent threat to what the president termed hundreds of thousands of US citizens. Those insisting on more pertinent issues— job losses and grim economic news— were slandered as unpatriotic. There’s every reason to expect that was a warm-up to next year’s tactics.

Krugman’s not for everyone: his speculation that the impact of corporate malfeasance will last longer than 9/11’s earned him enmity, and critics made a stink of $50,000 he earned on an Enron panel (before his Times debut). The Nader camp reviles his free-trade advocacy, while the Times deletes his e-mail death threats.

To charges of being shrill, Krugman quotes a doctoral thesis on pre-Waterloo complacency as part of Unraveling’s excellent introduction: “Those who warn against the danger in time are considered alarmists,” wrote the young Henry Kissinger; “those who counsel adaptation to circumstance are considered balanced and sane.” That failure in placating Napoleon, Krugman says, indicates “how the American political and media establishment has responded to the radicalism of the Bush administration.”

“Paul has done a fantastic job as New York Times columnist,” Jeffrey Sachs told me in an e-mail (a distinguished economist at Columbia, Sachs contributes to both the New York Times and the Financial Times). “For several years he’s been swimming against the tide. Yet events are showing that he and other critics of the Administration have been right in their detailed critiques of economic and foreign policies. It seems that more and more of the public is coming to that realization.”

Up to #3 on the Times list, Unraveling is structured thematically (“Victors and Spoils,” on partisan political opportunism, is one section, “When Markets Go Bad,” another). Keeping chronological track between sections can be tricky— might the columns, in sequence with an alternate reading order by subject, have preserved the material’s dateline immediacy while offering access to multiple themes?

But Krugman’s is no easy task. A column not selected for the book, titled “Who Lost the U.S. Budget?” (March 21, ’03) goes from a specific (the administration’s “inventing strange new principles of accounting”) to the big picture:

“There’s a lesson here that goes beyond fiscal policies,” Krugman concludes. “On almost every front the outlook for the United States now seems far bleaker than it did two years ago. Has everything gone wrong because of evildoers and external forces? In the case of the budget— and the economy and, yes, foreign policy— the answer is no. The world has turned out to be a tougher place than we thought a few years ago, but things didn’t have to be nearly this bad.”

“The fault lies not in our stars,” says Krugman, echoing Edmund in Lear, “but in our leadership.”


Alan Lockwood


The Brooklyn Rail

NOV 2003

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