Krugman’s blog, 9/11/15

There were two posts yesterday.  The first was “Charlatans, Cranks, and Apparatchiks:”

The Jeb! tax plan confirms, if anyone had doubts, that the takeover of the Republican Party by charlatans and cranks is complete. This is what the supposedly thoughtful, wonkish candidate of the establishment can come up with? And notice that the ludicrous claim that most of the revenue effects of huge tax cuts would be offset by higher growth comes from economists who, like Jeb!, are very much establishment figures – but who evidently find that the partisan requirement that they support voodoo outweighs any fear of damage to their professional reputations.

While the intellectual implosion of the GOP is obvious, however, it’s less obvious what is driving it. Or to be more specific, stories that explain why one set of crank ideas flourish don’t seem to work well for other sets of crank ideas. At least for now, I don’t feel that I have a general theory of crankification. Instead, I have two basic stories, which seem to apply with very different force to different crank ideas.

Consider, in particular, the contrast between supply-side economics and Ron-Paul-style monetary crankdom.

Inflation paranoia — the constant assertion that we’re going to turn in Zimbabwe any day now owing to the evils of fiat currency — is a form of nonsense that’s completely immune to evidence. But why does it persist? Is it in the interests of powerful people to oppose expansionary monetary policy and promulgate crank monetary theory? It’s not at all clear why. Yes, rentiers benefit from low inflation or deflation, and are hurt by low yields, but on the other hand they benefit from higher asset prices, and overall the distributional implications of monetary policy are complicated.

So my sense is that monetary crankdom is more of a grass-roots phenomenon, driven partly by libertarians warped because they read Ayn Rand instead of Tolkien, and by the quasi-moral sense of old white men that they earned their money and printing the stuff must be destructive.

On the other hand, belief in the sovereign power of cutting taxes on rich people obviously serves the interest of rich people — and there is, not surprisingly, a lavishly financed industry aimed at promoting that belief. And that industry is what keeps the belief going, by supporting large numbers of apparatchiks employed not to produce accurate predictions but to concoct justifications for policies serving their sponsors’ interests. I wouldn’t call someone like Stephen Moore a crank; he’s just doing his job, which doesn’t happen to involve economic analysis.

True, you do see people like Glenn Hubbard and Martin Feldstein falling in line as well; that’s just sad.

The thing is, there isn’t anything comparable on the other side. You can find cranky individuals on the left, but mainstream Democratic politicians don’t feel the need to support, say, extreme anti-GMO positions. There are interest groups with a lot of influence on Democratic politics, like teachers’ unions, but supporting bad economic theories that serve their interests isn’t a litmus test for establishment politicians.

All of this leads to a further question, which is why the GOP is the party of apparatchiks and cranks. I don’t yet have a deep answer.

Yesterday’s second post was “Poland Versus Greece:”

Yannis Ioannides and Christopher Pissarides, in a new Brookings Paper, talk about the ways lack of structural reform hurts Greek productivity and competitiveness. I have no reason to doubt that there are big things that should change, and that Greece would be much better off if it could somehow break the political barriers to making these changes.

But I would argue that it’s very, very wrong to point to factors limiting Greek productivity and claim that these factors are the “cause” of the Greek crisis. Low productivity exacts a price from any economy; it does not normally, or need not, create financial crisis and a huge deflationary depression.

Consider, in particular, a comparison that should be made — between Greece and Poland. Poland, like Greece, is a country on Europe’s periphery, closely linked to the rest of the European economy. It’s also a country with relatively low productivity by northwestern European standards, indeed lower productivity than Greece by standard international measures:

Conference Board

But Poland has not had a Greek-style crisis, or indeed any crisis at all. Instead, it has powered through the turmoil of recent years:

What’s the difference? The main answer, surely, is the euro: by adopting the euro Greece first brought on massive capital inflows, then found itself in a trap, unable to achieve the needed real devaluation without incredibly costly deflation.

Every time someone asserts that the Greek problem is really on the supply side, you should ask, not whether it has supply-side problems — it does — but why this should lead to collapse. Greece seems to have about 60 percent of Germany’s productivity, which means that it should have real wages only about 60 percent as high as Germany’s. It should not have 25 percent unemployment.


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