tags: economic history, Bill Clinton, neoliberalism, Paul Krugman, economics, intellectual history
Adam Tooze is the Shelby Cullom Davis chair of History at Columbia University and serves as Director of the European Institute. His book Shutdown: How Covid Shook the World’s Economy is due in September.
Arguing with Zombies: Economics, Politics and the Fight for a Better Future
by Paul Krugman.
Norton, 444 pp., £13.99, February, 978 0 393 54132 8
Paul Krugman’s latest collection of essays, Arguing with Zombies, first appeared in January 2020. Not only was it quickly buried by Covid, but he missed out on a thing all too rare for a pundit: the opportunity to declare victory. A year later, in Joe Biden’s Washington, Krugmanism rules. The gigantic scale of the $1.9 trillion Biden rescue plan, and now the proposed $2 trillion infrastructure investment programme, are testament to a rearrangement of the relationship between economic expertise and politics in the Democratic Party, a rearrangement which Krugman anticipated and for which Arguing with Zombies makes a powerful case.
In the 1990s the lines were clearly drawn. The Democrats were a party of fiscal rectitude and trade globalisation. They had the weight of academic economic opinion behind them. Krugman was one of the cheerleaders and enforcers of that dispensation: the job of brilliant economists with a quick pen was to guard the true knowledge against deviations to the left and the right. It isn’t by accident that Jed Bartlet – the fictional president in The West Wing, the TV fantasy that sustained liberal America during the dark Bush years – was a genial economics professor and Nobel laureate. It was a fantasy. The synthesis of brains, wisdom and power embodied in Bartlet didn’t stand up to 21st-century realities. Today, Krugman tells us, ‘everything is political.’ He has come to accept that ‘the technocratic dream – the idea of being a politically neutral analyst helping policymakers govern more effectively – is, for now at least, dead.’
Breaking with the technocratic assumptions of the Clinton era and the early Obama years has been an attritional process. In Krugman’s case it is the end of an arc that spans half a century. He is no longer at the height of his influence, but he still has huge reach through his New York Times column and on Twitter, where he has a staggering 4.6 million followers. For critics on the left it can be infuriating to watch high-powered centrists inching their way towards seemingly obvious political conclusions. But when they do, it is consequential. By tracing Krugman’s itinerary, we can shed some light on how we arrived in our current situation, with three centrists – Biden, Janet Yellen and Jerome Powell – undertaking an experiment in economic policy of historic proportions.
In the 1970s Krugman belonged to a generation of young lions at MIT, then the pre-eminent economics department in the US. The prevailing model at MIT was the so-called neoclassical synthesis, shaped since the 1940s by Paul Samuelson above all. Working from a broad acceptance of Keynesian prescriptions for macroeconomic policy, the younger economists at MIT specialised in clever models that demonstrated the often dramatic implications of market imperfections such as the limited availability of information, or the dynamics that ensue from increasing returns when increasing production actually reduces unit cost. Their increasingly complex modifications to the neoclassical synthesis resulted in what became known in the 1980s as New Keynesian economics.
The young Paul Krugman’s breakthrough came when he used a model of increasing returns and product differentiation to explain the emergence of clusters of industrial specialisation which could in turn drive international trade, not as a result of natural comparative advantage, in growing bananas for example, but in manufacturing high-end products such as German-badged motor cars. It was theoretically elegant and it explained why, in the golden age of economic growth after the Second World War, it wasn’t the old colonial and postcolonial exchange of raw materials for manufactured goods that dominated economic growth, but trade in manufactured goods between rich countries. The hour and a half Krugman spent laying out his new trade theory at the National Bureau of Economic Research in July 1979 was, he later wrote, ‘the best ninety minutes of my life. There’s a corny scene in the movie Coal Miner’s Daughter in which the young Loretta Lynn performs for the first time in a noisy bar, and little by little everyone gets quiet and starts to listen to her singing. Well, that’s what it felt like: I had, all at once, made it.’