Political economists are a strange bunch, almost comprising a religion, or perhaps a cult. All of them worship the same god of economic growth, believing that aggregate growth in the activity and output of an economic system is the truest expression of his approval. There are dozens of fractious denominations propounding different paths to sanctification, each of which believes theirs is the only right and true Way. Krugman is one of the shrillest of the sect that believes the only way to the heaven of infinitely-sustained growth is through the government; Krugman’s sect is like Catholicism in the Christian faith, believing that salvation can only be achieved through an intermediary. Catholics have to go through their priests to get to God; Krugman’s sect of political economists believes that aggregate economic nirvana can only be attained through government intervention.
So, of course, Krugman believes the problem with economic performance of late can be solved via more government interventionism, from his column in the New York Times:
What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.
All of the faithful in this politico-economic theology believe the Federal Reserve Board and its leader are economic magi, capable of producing growth where none would otherwise have obtained. This is a catechism of the faith. Thus there is nothing at all progressive or radical in Krugman’s proposed prescriptions so far as the faithful would perceive them. Some denominations might object to the particular provisions and perhaps the methods through which they would be enacted, but all would basically agree that it is a very bad thing, this sub par aggregate economic performance, which must somehow be arrested and extinguished.
But they worship a false, unattainable god. The growth of any organism is not infinitely sustainable, nor even desirable. Infinitely-sustained growth leads to over-extension and collapse. The normal cycle of growth, maturity and decay should be welcomed as the natural process that yields continuous rejuvenation. Striving for sustained growth requires ossifying existing structures in an infantile state; it is impossible to sustain and expensive to attempt. Besides all that, aggregate economic growth is only an abstraction. It is nothing more than a contrived aggregation of the activity and output of the individuals and households comprising the economic system at question. Whatever are the innate behavioral compulsions of the individuals and households comprising the economic system will determine whether the system grows or contracts in the aggregate, but the individuals and households do not exist to make the economy grow, except perhaps in the minds of the capitalists trying to exploit them.
Viewed from the heretical perspective that infinitely-sustained aggregate economic growth is not a god to be worshiped or strived after, none of Krugman’s prescriptions make sense. Sure the economic system needs good communications infrastructure (a part of which are roads and schools), and the nature of communications systems makes them a good best delivered by collective, i.e., government efforts. But aside from necessary maintenance, it’s not clear what incremental value might be obtained through further investments. Schools are not buildings. School buildings are just convenient places to conduct the information-dissemination transaction. Information was somehow disseminated long before palatial school buildings became the norm. Roads need to be kept in reasonably-good repair such that physical communications are not unduly impaired, but the days of gargantuan road-building projects yielding massive returns (e.g., the San Francisco Bay Bridge, the Brooklyn Bridge, etc.) are past. Only incremental gains will accrue from road-building type projects, and these mostly from keeping the existing infrastructure in decent repair.
Proclaiming a debt jubilee might help a few homeowers, but at the expense of immeasurably damaging the sanctity of contract upon which so much economic activity depends. It would also be nothing more or less than a reward for imprudent behavior, and rewarding imprudent behavior would inevitably yield more of it. Engineering a devaluation in the currency (i.e., inflation) that serves as a medium in the exchange of goods and services would not have any lasting effect on the underlying demand for goods and services, while imposing substantial additional transactional costs due to the uncertainty of the medium’s value.
Krugman feels justified in making these proposals because of the immediacy of the problem of economic growth:
For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability.
The economy is not “bleeding profusely from an open wound”, although it’s not surprising that Krugman so readily anthropomorphizes his god. Casting a god in our own image is a robust human attribute. The aggregate economy is a creature of the imagination. All that matters is the economies of individuals and households comprising the economic system, and it’s not clear that anything Krugman proposes would tend to improve their economic fortunes. Rather than attempting to engineer solutions with a view towards improving aggregate economic performance, everyone (except perhaps capitalists) might be better off mostly left alone to negotiate life’s economic shoals within the already well-established infrastructure for conducting transactions. Maintain the infrastructure as appropriate, but quit trying to bind an imaginary wound on an imaginary patient.