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Review: Paul Krugman, End This Depression NOW!

category north america / mexico | economy | review author Wednesday June 06, 2012 03:20author by Wayne Price - personal opinionauthor email drwdprice at aol dot com Report this post to the editors

A Radical Critique of the Liberal Economic Program

Paul Krugman, the widely read liberal economist, lays out his program for ending the current economic downturn, by following a Keynesian strategy of expanded government spending. I make a radical critique of his program, from the perspective of an anarchist who believes in the usefulness of Marx's economic theory. [Italiano]

A Radical Critique of the Liberal Economic Program

Review: Paul Krugman, End This Depression NOW!

Just as the economists are the scientific representatives of the bourgeois class, so the socialists and communists are the theoreticians of the proletarian class.
--Karl Marx (1847/1935; p.106)

Paul Krugman is one of the most popular writers on economics in the U.S. He has the credentials of being a professor of economics at Princeton University and of having received the 2008 “Nobel Prize in Economics.” He has the national platform of a twice weekly column on the “op-ed” page of the New York Times. He has written a series of popular books as well as a textbook and maintains a blog. The book under review displays his felicity with language, his wit and humor, and a clarity which is remarkable for anyone writing on economics, left, right, or center. Despite disagreements, I enjoy reading his Monday and Friday New York Times columns. I count myself a “fan.” And yet, despite his important insights, I believe that his liberal viewpoint is deeply flawed. My viewpoint is that of an anarchist who believes that Marx’s economic theory is the most useful for understanding how the capitalist economy works.

The World is in a Depression

To summarize the message of this book: The U.S., indeed the world, is in a “depression.” Krugman is not referring to a deep economic collapse, which he does not expect, but to a long period of stagnation, slow growth at best, with high unemployment. During this depression, there will be ups and downs. The downs will be “recessions,” such as the Great Recession of 2007-9. The ups will be tepid and painfully slow. Overall, this long slump is causing, and will continue to cause, a great deal of suffering, in joblessness, underemployment, and loss of homes, cutbacks in social services, growing inequality, and a general ugliness in social and political culture.

But Professor Krugman believes that there are no deep, underlying causes to this slump (which is what makes him a liberal). It could be easily corrected with a “trivial” change in public policy! The government should follow the lessons of John Maynard Keynes—the great liberal economist--and find ways to stimulate the economy through increased public spending. Following Keynes, Krugman argues that the problem is the loss of aggregate demand in the private sector (consumers are no longer able to buy commodities). Therefore the state must step in and create public sector demand. Then prosperity will return.

Krugman does not deny that there is a problem caused by the government and private sector having large debts. There was “an extraordinary rise in debts, beginning roughly in 1980….We do have a problem of excess debts…” (pp. 50-51). He refers to “the overhang of private debt that is arguably at the root of our slump” (p. 39). But he cites the Keynesian dictum that it is foolish to treat a deficit (by cuts in public spending) during a slump. Doing so is only making the depression worse--and, by weakening the economy, actually increases public and private debt. Once prosperity returns, that will (supposedly) be the time to cut back government spending and decrease the public debt.

Unfortunately, Krugman complains, people who should know better—politicians and even leading economists—have forgotten the ABCs of Keynesian economics. They advocate ever more disastrous policies. At the time when Obama proposed his economic stimulus program, Krugman criticized it as too small and too limited, even if barely better than nothing. “I personally was more or less tearing my hair out in public as the shape of the administration’s plan began to come clear” (p. 118). Krugman’s criticisms (and those of other liberal economists) appeared to have been correct: the stimulus may have prevented further (immediate) decline, but did not restore anything like prosperity. “It was a recipe for grief” (p. 122). Since then, as Krugman points out, Obama has publicly bought into the need to fight the deficit rather than focusing on unemployment. Krugman’s columns continually castigate the Democrats for their weak and inadequate program and their capitulation to the Republicans.

But he saves his greatest attacks for the right-wingers, the so-called “conservatives” (really reactionaries) in the U.S. and Europe. (I will not go over his discussion of the European crisis, which he regards as partly due to creating a common currency before there was an integrated political and financial system in place. But he sees the basic error as European governments demanding cutbacks—“austerity”--during the slump, instead of an economic stimulus—as is similarly happening in the U.S.) Of the rightists, economists and politicians alike, he denounces their “sheer ignorance.” He summarizes, “Those who were right lacked all conviction, while those who were wrong were filled with passionate intensity” (p. 111). (Historically this has been a common pattern in conflicts between liberals and reactionaries!)

Of course, when conservatives vehemently object to government spending on social services for poor and working people because of the overwhelming need to cut government debt—but then demand ever greater tax cuts for the wealthy and ever more funds for military spending—it should be clear that they are hypocrites. Some of them (the economists maybe) might be sincere, but the politicians—and their masters, the businesspeople who pay them--are after something else than deficit-reduction. Even the depression is, for them, mostly an opportunity to push their agenda. Sometimes they say that what they are really after is cutting back “government,” but this is also hypocritical. They are positively for larger military and police, more border guards, greater government intrusion into women’s reproductive lives, etc. No, what they are after is increased wealth for the very rich by attacking the working class (my conclusion, not Krugman’s).

Krugman’s Liberal Economic Program

Since Obama’s nomination, there have been liberals calling for expanded public spending programs, for a “new New Deal.” What does Krugman advocate? First, he wants the federal government to provide enough money for state and local governments to reverse their recent firings of public employees. Krugman estimates that a rehiring of teachers, school secretaries, firefighters, etc. would directly create over a million jobs and perhaps indirectly around three million. This could be done immediately. Then he proposes “investments in roads, rail upgrades, water systems,…infrastructure,…delayed or cancelled projects, deferred maintenance, and the like” (p. 215). Further, he suggests “a temporary increase in the generosity of unemployment insurance and other safety net programs” (p. 216), on the grounds that “people in distress” are most likely to spend money as quickly as they can.

Next he urges activity on the Fed (the Federal Reserve, the U.S. central bank). Krugman criticizes the Fed’s “timid[ity]” and “passivity,” putting this down to its members being “intimidated by political pressure” from the right and to “the pressures of groupthink” (p. 218). He makes several suggestions, which include a commitment by the Fed to “modestly higher inflation, say, 4 percent over the next five years” (p. 219) or even over 10 years (higher than the current 2 percent, but not too high). For Krugman, one advantage of inflation is that it provides a convenient way to cut down the workers’ incomes, without all that messy conflict which might follow a direct attack on wages. “Countries can and do get large declines in their relative wages more or less overnight, and with very little disruption, by means of currency devaluation” (p. 170).
As a liberal, Krugman is sympathetic to “people in distress” but not really on the side of the workers.

Also, Krugman proposes to deal with the major problem of the debt which homeowners had built up in the time of the housing bubble. As usual, even the Obama administration’s best programs for homeowner relief have been “far too cautious and restrictive” (p. 220). A mass refinancing program can be worked out. Krugman says that additional policies would help break the slump, such as “environmental regulation” or getting “tougher” on the Chinese state for its manipulation of currency.

To me, it is unclear how much more Krugman thinks would be needed, since he writes, “reversing state and local austerity wouldn’t eliminate the need for additional fiscal stimulus” (p. 221). Does this mean that all these proposals would, after all, not be enough money to jumpstart a recovery? Just how much would be needed?

Will The Liberal Program Work?

Unfortunately, when looking for evidence that the Keynesian stimulus program would work, Krugman can only cite instances of military spending. The U.S. New Deal did not end the Great Depression; about 1 in 5 workers was unemployed in 1939, ten years after it began. It ended due to military spending leading up to the Second World War, followed by the war itself, and the same was true for other countries such as Britain and Germany. The next big boost to the economy was the Korean War. “Big spending programs rarely happen except in response to war or the threat of war” (236-7).

Krugman does not discuss the way the apparent prosperity after World War II was based on continued armament spending—what President Eisenhauer was to call the “military-industrial complex,” what some Marxists called the “Permanent Arms Economy,” and what others called “military Keynesianism” (or, as Representative Barney Frank put it, “weaponized Keynesianism”). Nor does he consider how, even now, the downturn is cushioned by massive military spending.

Liberals ask, why cannot the same amount of big government money be spent on the production of useful goods and services? Why not spend it on education, healthcare, housing, mass transit, basic food, improving the environment, finding alternate energy sources, and so on? It hasn’t been, but why not?

The answer is: class politics. The capitalist class does not want to be taxed to spend money on the working class. Such a program would unsettle the balance of class power. It would make the workers more independent of the corporate rich. It would tend to produce public goods which would compete with privately-produced commodities. It would lead to people asking, If the public sector can provide so many goods and services, then who needs the capitalist class and their market economy?

Arms spending, on the other hand, is a subsidy to big business. It does not compete with privately-produced commodities (especially the nuclear missiles). It strengthens the empire and encourages superpatriotism. To replace big military spending with big government spending on goods and services useful for the working population is just not going to happen. The moderates and liberals will weakly vacillate while the conservatives will froth at the mouth against it.

The Deep Crisis

The basic problem with Krugman’s analysis is that he sees the downturn as just a conjunctional crisis, the result of almost accidental short-term difficulties, which can be dealt with by “trivial” policy corrections. He does not see, or at least does not discuss, the long term decline of world capitalism which became apparent at the end of the 1960s. This was when Keynesianism lost popularity, as the capitalists decided to end their deals with the unions and to cut back on social services. For at least four decades, the world economy has been going downhill, with increasing stagnation, overproduction, underutilization of resources, high unemployment and underemployment, lop-sided development at best in the poorer nations, expanding poverty in the wealthiest nations, and a series of economic crises, culminating (so far) in the Great Recession and the current depression. If we regard the post-World War II “boom” as the aberrant result of the world war, then we have returned to the conditions, beginning in 1914, of the “epoch of capitalist decline,” of “monopoly-financial capitalism” and of continuing imperialist wars.

The root problem is not a lack of “aggregate demand” (the Keynesian view) but a decrease in the rate of production of sufficient profits (surplus value, in Marxist terms). Were there enough profits, then the capitalists would hire more workers who could buy more goods, while the capitalists would buy more luxury goods and their firms would buy more means of production. In short, increased profitability increases the aggregate demand and decreased profits decrease the aggregate demand. This can only be properly analyzed in the Marxist terms of the labor theory of value and of the tendency of the rate of profit to fall.

The capitalist system has tried to resist the decline of its “real economy” (which produces actual goods and services) by an expansion of the financial (“virtual” or “paper”) economy (including armament expenditures which did not produce salable commodities). This made it seem like profits were going up, while actually they were mostly what Marx called “fictitious capital,” a mountain of debt, a mainly bubble economy. An expansion of government spending, which Krugman wants, would undoubtedly decrease social misery. It might get the wheels turning again, for a while, at the expense of ever greater public and private debt. This would only prepare the way for greater catastrophes further down the road. This is a social system which cannot be reformed but must be removed.

Socialists of various sorts have long advocated public works programs and public spending to provide jobs and services. Such proposals can be found in the 1848 Communist Manifesto--and were not original with it. Revolutionary anarchists demand that public works projects be under the democratic control of the workers employed there and of local working class communities.

Revolutionary socialists (including anarchists) advocate public works programs for some reasons similar to Krugman and other liberals, namely to decrease suffering. Revolutionary socialists also advocate them for reasons very different from Krugman, who wants to get the capitalist economy working again. Instead, public works would be combined with a program of expropriation of ineffective private businesses (taking them over without compensation and turning them over to workers’ and community self-management). Public programs and expropriated enterprises would coordinate themselves from below, as the beginning of a democratically planned nonprofit economy. Contrary to the liberal program, this would offer, in the words of the Manifesto, “means of despotic inroads on the rights of property and on the conditions of bourgeois production” (Marx & Engels, 1848/1955; p. 31).

This book is well worth reading to get a clear and informative exposition of the liberal economic analysis. But I suggest further reading of various Marxist writers on the political economy of the world crisis: e.g., Daum & Richardson (2010), Foster & Magdoff (2009), Kliman (2012), Mattick (2011). (The ideas in this essay will also be covered to a much greater degree in my book, Marx’s Economics for Anarchists; An Anarchist’s Introduction to Marx’s Critique of Political Economy, which AK Press will be publishing in the fall. It is a much revised and expanded version of material which previously appeared on Anarkismo.)


Daum, Walter, & Richardson, Matthew (Winter 2010). “Marxist Analysis of the Capitalist Crisis: Bankrupt System Drives Toward Depression.” Proletarian Revolution, No. 82; pp. 48, 35—45.

Foster, John Bellamy, & Magdoff, Fred (2009). The Great Financial Crisis: Causes and Consequences. NY: Monthly Review Press.

Kliman, Andrew (2012). The Failure of Capitalist Production: Underlying Causes of the Great Recession. NY: Pluto Press.

Krugman, Paul (2012). End this Depression NOW! NY: W.W. Norton.

Marx, Karl (1847/1935). The Poverty of Philosophy. Moscow: Co-operative Publishing Society.

Marx, Karl, & Engels, Friedrich (1848/1955). The Communist Manifesto. Northbrook IL: AHM Publishing Company.

Mattick, Paul, Jr. (2011). Business As Usual: The Economic Crisis and the Failure of Capitalism. London: Reaktion Books.

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author by Ilan S. - AAtW, ainfos, Matzpenpublication date Wed Jun 06, 2012 17:51author email ilan at shalif dot comauthor address Tel AvivReport this post to the editors

The state debts have nothing to do with the real economy. It just enable big capital firms to "invest" the taxes it do not pay the state in a secure profitable way instead of investing it in means of production and hazardously competing between them. The mounting consumer debts are of similar use - the surplus value extracted from wage slaves is lend to them for consumption as other way the production will have to shrink and class struggle will intensify.
The cycles of up and down are supposed to be around the level of unemployment needed for holding the wage slaves in line.
The Kensian intervention is not about increasing state debt but of printing money to quicken the capitalist cycle one way or another... and when cycle is up and wages increase it is part of inflation tax to neutralize wages increase.
The fact that different sections of the capitalist class have their own priorities restrict the ability of the state to take into consideration the optimum solutions.
The "Marxist" wishful thinking that the decline in rate of profits is an in built time bomb that eventually will explode the capitalist system obscure the real picture for its believers.

(The profit rates are not even. The rate of profit of the core capital of the big firms seems even to increase... it is just the rate of profit of the saving funds and passive capital "invested" in the firms or state budget via the finance system that decrease. The common capitalist firm usually use more than tree times capital than its own.)

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author by Waynepublication date Thu Jun 07, 2012 10:27Report this post to the editors

A friend who is a Trotskyist wrote me some comments. He wrote:

(1) I do find one analytical disagreement, or perhaps a difference in emphasis. (I definitely disagree with your spelling of Eisenhower, though.)

I answered: Oops.

He wrote: (2) The reasons you give for why Keynesian spending for public works is off the table are right as far as they go. But one has to explain why public spending could be done during the post-WW2 boom (and at times before, as under Bismarck, and to an inadequate extent during the Depression) and then was stopped. One reason is the falling profit rate, which you go into later. But another is the failure of the working-class leadership to fight back when Volcker and then Reagan turned to austerity, so that the ruling class had little fear from the working class. The unions’ etc ties to the Democratic Party are a major factor. Krugman of course can’t complain, since despite his wailing about the DP’s weak programs, he is a staunch Democratic partisan.

I responded:
Yes. I might have pointed out that even the New Deal's programs only were implemented due to an independent mass movement of workers. Even the lesser gains of the Great Society were a reaction to the independent Black movement. Without such a movement, there is no hope of getting even Krugman's program. I thought that my essay was already too long, however.

(3) He wrote: Of course, you and I have more fundamental differences. I would use the need for public works plus the failure of Keynesianism to argue for a workers’ state, so I guess there we part company. Who is to do the expropriation you advocate? How are enterprises to be placed under worker and community control if not by confronting, combatting and defeating the capitalists’ state and creating our own?

I responded: Obviously I did not go into these issues. On the one hand it is an demand on the existing state (and many anarchists are against making such demands, as came out in the Occupy movement). But these demands can only really be carried out by a revolution and the creation of an association of workers' and popular councils, affiliated with a workers' militia. I would not regard this as a state however, since it is not a socially alienated bureaucratic military machine over the working class but is the self-organization of the workers and their allies . On this we may not have such a big disagreement (although I have noticed that your groiup's public statements call for nationalization but do not add the Trotskyist more-or-less traditional "under workers' control"). The real issue comes when you support the state set up by Lenin and Trotsky and even regard the USSR under Stalin as a "workers' state" up to 1939. Well, it is a long discussion....

author by Tompublication date Thu Jun 07, 2012 11:35Report this post to the editors

Good review.

Krugman usually calls this the third referring to the economic history of the USA since the American civil war. The first was the Long Depression that began with the Panic of 1873 and continued with ups and downs til about 1898. And the second of course was the Great Depression of the '30s. Government spending during the '30s did actually make a difference...leading to significant recovery in 1935-36. When FDR started listening to his deficit hawks and cut back federal outlays in 1937, this triggered a savage recession that threw the country back into the depths of the depression. So it's not quite true that state spending on make-work and infrastructure had no effect.

It doesn't seem plausible to say that low profits are the cause of the present slump. Corporate profits are at historic highs. But they are not being invested in the real economy. They will go into speculative investments, mergers & acquisitions, cost-cutting forms of investment, etc. They aren't being invested in the real economy because there is already excess capacity so new investment won't lead to sufficient profit to get them to do it. (Maybe that's what you mean by lower profitability.)

The previous era of speculative booms, especially the housing bubble & real estate investment boom from late '90s to 2007, artificially propped up equity. Meanwhile with over 30 years of declining wages people were using debt to prop up their spending, such as debt based on paper equity of houses. This tended to prop up demand, which encouraged firms to invest in vast new productive capacity, like all those factories in China. Now that the bubble is deflated, a deflated level of demand exposes the reality of excess capacity. Hence no new investment & no hiring.

Although attempts to pump up employment and consumer spending might help, the capitalists will tend to oppose this for the reasons that you mention. Also, individual capitalists often tend to pursue politics rational for them even if not for their class as a whole. Individual capitalists will want to cut wages and minimize employment and cut their taxes because this beefs up their individual profits. But an austerity agenda will tend to just drive the economy deeper into slump.

author by Waynepublication date Thu Jun 07, 2012 23:50Report this post to the editors

(1) You write: " Government spending during the '30s did actually make a difference...leading to significant recovery in 1935-36." But what the following recession demonstrated was that the government's fiscal stimulation was enough to pump up the economy immediately but not enough to get it back on its own feet as a self-motivating system. When the state's financial props were taken away, back down fell the economy.

(2) "Corporate profits are at historic highs. But they are not being invested in the real economy." That is the point. Real surplus value is not being pumped out from real workers in the real economy, not to a sufficient extent. So the bourgeoisie has been channeled into financialization. The paper profits look good but are really "ficticious capital," in Marx's terms. That is, it is a bubble economy at best. And it will repeatedly burst into new and greater depressions.

Meanwhile, as you say, overall efforts at austerity, to lower the workers' share of the wealth and increase that of the capitalists, has side effects of weakening the consumer market, overproduction, and other aspects of disproportionality.

author by Skippublication date Fri Jun 08, 2012 13:01Report this post to the editors

On point 2, I'm unclear about this corner of Marxist economics to be honest. Are you saying that increased inequality has concentrated wealth in a few hands, who then pump that money into the financial industry, making the rest of the economy poorer? Or are you saying that there isn't enough profit in things like manufacturing and more tangible services(the "real economy"?), as compared to finance? The first interpretation makes sense to me, the second not so much.

On the first point, I think there is at least some historical evidence that when tried stimulus can restore the economy to pre-crisis health. There aren't many examples of this outside of wars because the ruling class is never willing and rarely forced into putting enough money into things like jobs programs building infrastructure, extended unemployment, or food assistance, to give some examples. I do think forcing the ruling class to do that is vastly better than austerity though, and would provide at least some short term relief worth fighting for.

Thanks for writing this Wayne, it was interesting and topical reading.

author by Waynepublication date Mon Jun 11, 2012 09:06Report this post to the editors

So the capitalists concentrate more wealth in their own hands and less in that of the workers--which is what rising inequality means. My question then is WHY do they "then pump that money into the financial industry" rather than into the "real economy," where real goods and services are made? I answer: because the real, industrial, economy has become less profitable over a long span (abut 40 years). If you don't agree or are not sure, I gave four possible books to read which cover this topic. Right now I am reading Robert Brenner's The Economics of Global Turbulence, first written in 1998 and slightly revised in 2003. He analyzes the "long downturn" from 1970 to when he wrote.

I do not really agree that "there is at least some historical evidence that when tried stimulus can restore the economy to pre-crisis health." An apparent prosperity which is based on military spending is not really in "health." It is relying on massive waste-production, which if ever used would destroy the society. Not "health." (I also did not go into how the capitalists have propped up their fictitious profits through looting the environment.)

But I completely agree that it would be good to fight to pressure (you say "force") the ruling class to spend money on good and useful things for the working class and the real world. I am all for fighting for reforms. If a movement can win them, great! If not, then it (hopefully) demonstrates that the ruling class must be gotten rid of. Which is why I end the piece with a discussion of how revolutionaries raise similar proposals.

author by the red star twinkles mischievouslypublication date Wed Jun 27, 2012 00:56Report this post to the editors

Excellent article. A series of good articles to read alongside it, which, in detailed form, propose a transition from a capitalist to a socialist economy are from a group of Greek Marxists active in SYRIZA (or, to be more clear, what supporters of the Orthodox Trotskyist International Marxist Tendency view as neccesary to transition to a socialist economy).

While a number of things they advocate seem reasonable enough, of course, there are others which are more controversial, and there are a number of considerable weaknesses in what they propose. For example, while condemning 'bourgeois nationalisations' by capitalist governments in response to our current crisis, and advocating a socialised and democratically planned economy, they themselves seem to confuse nationalisation with socialisation, and socialised property with state property. There's plenty of talk of workers' control and management, but even if they excercise considerable influence, the economy is still under control by some kind of top down, socially alienating 'state'- they seem to be closer to advocating a revolutionary reform of the state so that it loses its capitalist characteristics, rather than its replacement with a 'workers' state' although I doubt they really think what they are proposing can really be done within the framework of a capitalist state- indeed, they are quite keen on saying that the Greek crisis cannot be solved on a purely national basis and advocate the slogan of a 'United Socialist States of Europe'. Furthermore, they tend to confuse democratic planning with central 'planning' and are excessively centralistic in what they are proposing, even though I imagine they are sympathetic to desires of regions, localities, etc, to be relatively autonomous within even a centralised framework. Their ideas about planning seem to owe more inspiration to Year One of the Russian Revolution (i.e. 1917-18- and probably even later on) than to a more modern, less rigid, and thoroughly democratic version of democratic planning and of economic, political and social organisation that can be found in Pat Devine's 'negotiated coordination' model and in his book Democracy and Economic Planning (or Cornelius Castoriadis' 'Workers' Councils and the Economics of a Self-Managed Society' his idea of the 'plan factory', elements of parecon, perhaps even the 'market socialism' that David Schweikhart advocates in his book 'After Capitalism' might be worth a try? from what I understand, he is in favour of a self-managed socialism, even if his model does retain elements of capitalism and the state to a considerable degree).

So, I fear, despite their good intentions, that this is a kind of more democratised version of state capitalism, and only in a limited sense a genuinely libertarian socialist programme. I known Wayne has already done some work on this already, but I think we need to be presenting a more detailed libertarian-socialist program to combat the deficiencies within some of their ideas, but also to find ways to relate comradely to all other groups on the left which are resolutely anti-Stalinist, democratic, etc, through a united front as most likely the most effective means of advancing the struggle for a libertarian-democratic socialism from below with the maximum unity of democratic left organisations that is possible.

By the way, I appreciated the clarity and detail of The Abolition of the State: Anarchist and Marxist Perspectives. It's a great book Wayne, and I think it helped me concieve of what a modern-day socialism from below might look like, alongside your discussion in 'Marx's Economics for Anarchists.' Kropotkin's article 'Anarchist Communism' and Alexander Berkman's 'The ABC of Anarchism' were also very helpful.

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