Tom Paxton is Still With Us

One of the more memorable songs to come out of the Sixties protest movement was Tom Paxton's "Daily News," a hilarious tribute to yellow journalism with the memorable phrase, "don't try to change my mind with facts." That could easily have been an alternative title for Paul Krugman's latest contribution to The New York Review of Books, whose actual title is "How the Case for Austerity Has Crumbled." The reason I propose my alternative title is that, while the logic behind that case for austerity has, indeed, been pretty thoroughly decimated, those who espouse it have not yet been swayed from their position.

Krugman not only recognizes this sad truth but also offers an explanation for it:

Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning. 

When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does). 

By contrast, Keynesian economics rests fundamentally on the proposition that macroeconomics isn’t a morality play—that depressions are essentially a technical malfunction. As the Great Depression deepened, Keynes famously declared that “we have magneto trouble”—i.e., the economy’s troubles were like those of a car with a small but critical problem in its electrical system, and the job of the economist is to figure out how to repair that technical problem. Keynes’s masterwork, The General Theory of Employment, Interest and Money, is noteworthy—and revolutionary—for saying almost nothing about what happens in economic booms. Pre-Keynesian business cycle theorists loved to dwell on the lurid excesses that take place in good times, while having relatively little to say about exactly why these give rise to bad times or what you should do when they do. Keynes reversed this priority; almost all his focus was on how economies stay depressed, and what can be done to make them less depressed.

In other words people prefer to embrace a narrative with strong moral implications over a dispassionate analysis based on nothing more than mathematics. This should not be too surprising. Most people can follow a morality play far more easily than mathematical reasoning, and even those who know the math may still prefer the idea of judgment based on some form of divine judge over the outcome of a totally objective process. Look at how quick so many people are to dismiss the hard evidence of fossil records in order to reject the theories of Charles Darwin.

Krugman then observes that the only people who benefit from this irrational rejection of Keynes are (you guessed it) the rich. The austerity debate has provided the 1% with yet another way to stick it to the 99%. Furthermore, the assumption by the 1% that the Occupy movement would run out of steam seems to have come to fruition. So the rich will continue to live in a world of comfortable assets and benefits while the now-globalized world economy hurtles off a cliff, taking the rest of us down with it.