Posted on November
23, 2016 by Yves Smith
By Bill Black, the author of
The Best Way to Rob a Bank is to Own One and an associate professor of
economics and law at the University of Missouri-Kansas City. Jointly published
at New Economic
Perspectives
In the first column in this
series I explained how Hillary Clinton, during the closing 40 days of her
campaign, showcased repeatedly her promise to assault the working class with continuous
austerity. I explained that her threat represented economic malpractice – and
was insane politics. I showed that the assault on the working class via
austerity was such a core belief of the New Democrats that their candidate
highlighted that assault even as the polls showed massive, intense rejection of
her candidacy by the white working class. I also noted that in this second
series in the column I would discuss the failure of her campaign team, and her de
facto surrogate, Paul Krugman to speak truth to power about the dual idiocy of
her campaign promise to wage continuous war on the working class through
austerity forever.
The broader point is the one
made so often and so well by Tom Frank – it is morally wrong, economically
illiterate, and politically suicidal for the New Democrats to continue to
assault the working class via austerity, “free trade” (sic) deals, and
financial deregulation. The only thing worse is to then insult the working
class for reacting “badly” to being pummeled for decades by the Party that once
defined itself as the party of working people. The New Democrats decided to
insult the white working class in response to polls showing that the white
working class was enraged at Hillary Clinton. Arrogance and self-blindness are
boon companions.
I grew up in the Detroit-area
and saw George Wallace win the Democratic Party primary for the presidential
nomination, so none of this is new to me. We all know that the New Democrats
are never going to listen to my warnings or Tom Frank’s warnings. But the leaks
show that Hillary had many competent staff who raised difficult questions. Why
wasn’t any senior campaign staffer willing to tell her that her austerity
threats were economically illiterate and politically suicidal? Krugman warned President Obama several times that austerity was a
terrible economic policy.
John Boehner, March 2009:
It’s time for government to
tighten their belts and show the American people that we ‘get’ it
Barack Obama, yesterday:
“At a time when so many
families are tightening their belts, he’s going to make sure that the
government continues to tighten its own,” Obama said. “
We’ll never know how
differently the politics would have played if Obama, instead of systematically
echoing and giving credibility to all the arguments of the people who want to
destroy him, had actually stood up for a different economic philosophy. But we
do know how his actual strategy has worked, and it hasn’t been a success
Why did he cease speaking
truth to power as the election came down to the wire?
The New Democrats Were Locked
Into Austerity
Ever since the birth of the
New Democrats, their adherents have embraced austerity. This act of mutual
economic and political self-destruction has become so core to their identity
that Hillary unhesitatingly made it one her most important closing pitches
during the last 40 days of her campaign against Trump. At the very moment when
her pollsters were warning her that she could lose due to working class hostility,
she chose to showcase her hostility to the working class by promising to
inflict eight more years of austerity on them. In your face working class! This
is a political strategy that has no upside, but a toxic downside. Despite
intense criticism from progressives of her austerity threats, Paul Krugman
never urged her publicly to promise to end austerity’s assault on the working
class. Similarly, no one on her official campaign team had the courage and
strength to tell her to stop and reverse her position.
Part of Krugman’s problem was
that while he has come some distance from his long-held support for austerity,
his reflexes are still wrong because he does not understand sovereign money. A November 14, 2016 Krugman column revealed the hold his past
dogmas still had on him.
Eight years ago, as the world
was plunging into financial crisis, I argued that we’d entered an economic
realm in which “virtue is vice, caution is risky, and prudence
is folly.” Specifically, we’d stumbled into a situation in which bigger
deficits and higher inflation were good things, not bad. And we’re still in
that situation — not as strongly as we were, but we could still very much use
more deficit spending.
Many economists have known
this all along. But they have been ignored, partly because much of the
political establishment has been obsessed with the evils of debt, partly
because Republicans have been against anything the Obama administration proposes.
Krugman still does not
understand sovereign money. A budget deficit for a government with a sovereign
currency is not a moral issue. Budget surpluses are not a “virtue” and deficits
are not a “vice.” The economic issue is strictly pragmatic – what size budget
deficit or surplus is best for the overall economy? The political issue is the
one Krugman made in his criticism of President Obama’s embrace of the
self-inflicted wound of adopting your opponents’ economic illiteracy.
But notice that even though he
was writing after the 2016 elections, Krugman could not bring himself to be
candid about the identity of “much of the political establishment.” Yes,
Republicans always said they favored austerity (except when they held the
presidency and had to deal with a recession). But New Democrats believed in the
same terrible economics and, unlike the Republicans, Hillary’s embrace of
continuous austerity as a means of waging a unceasing onslaught on the working
class was so passionate that she highlighted that embrace during the last 40
days of her disastrous campaign even as ever poll and pundit warned her that
she was enraging the white working class. Krugman cannot identify Hillary and
the New Democrats as the most prominent leader of “the political establishment
[that] has been obsessed with the evil of debt” without raising the obvious
question – why didn’t he speak truth to power? Why didn’t he advise her to end
her obsession with sovereign debt and her economic policies that made war on
the working class?
Of course, Krugman did
something worse than simply fail to speak truth to power. He joined in the
reprehensible effort to trash the reputation of a well-respected economics scholar,
Professor Gerald Friedman. Friedman had donated to Hillary’s campaign, who
dared to point out that Bernie Sanders’ economic stimulus proposals were far
superior to her proposals. On what basis did Krugman seek to destroy the
scholar? Krugman complaint was that the economist was insufficiently “obsessed
with the evils of debt.” Friedman’s study made a point that Krugman had long
made (and I quoted above). The 2009 fiscal stimulus was far too small and that
the federal government had made a dire mistake in moving toward austerity in
2010 rather than increasing substantially the size of the stimulus package.
What was really going on, of
course, is that Krugman was out to defeat Bernie’s candidacy for the
nomination. Had Bernie won that nomination he would now be President-elect.
Sanders was the one candidate for the nomination that embodied what Krugman
said the Democratic Party desperately needed – ending the hold of “the
political establishment obsessed with the evils of debt.” Krugman simply viewed
truth and Friedman as collateral damage in his zealous fight to defeat Bernie.
Krugman has been unable yet to summon the integrity and courage to admit how
badly he served the Nation and the millions of Americans that rejected that
“political establishment.” I hope he will reach out to Friedman and begin to
offer his apologies.
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