Thursday, December 18, 2008

Forget The Middle Class, Paul Krugman Says. Rich People Will Fix Everything.

In an online posting late yesterday afternoon, liberal columnist Paul Krugman took his fan base by surprise with some unconventional thinking about how to stimulate the American economy.

It has already been described by one angry commenter as Krugman's "Let them eat cake" column, and by others as the sort of thinking that prompts revolutions and class revolt. There's no question that the piece -- under the explosive headline, "Do We Really Need The Middle Class?" -- proposed the provocative theory that our economy's future doesn't depend on restoring the middle class to fiscal solvency.

Krugman declares that while he's "in favor of a strong middle class," he argues that "there's no reason consumer demand can't be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do."

Responding to a Mother Jones essay by Kevin Dunn that pushed the notion of middle-class spending as our economic salvation, Krugman went on:

In fact, the prosperity of New York City in the last decade — largely supported off of super-salaried Wall Street types — is a demonstration that you can have an economy sustained by the big spending of the few rather than the modest spending of large numbers of people.

Consider just two of the dozens of thoughtful, critical reader comments on Krugman's post:

Yes the economy they created is the one we are bailing out now - you must have gotten some bad eggnog in Stockholm, Paul. --Tom Simon

Assuming that you’re right, and you can have an economy driven by a small number of super-rich, what does that do to the business cycle?

If the bulk of your economic spending comes from the working class, and the economy hits a rough patch, most people will continue to spend the vast majority of their income. It’s not like they have any choice. This is, I suspect, why food stamps are such an effective economic stimulus–people have to eat.

But if most of your spending is driven by $200 dinners, an economic downturn could lead to a dramatic cutback in spending.

So even if an economy of $200 dinners for a tiny upper class (and Ramen noodles for everyone else) can create full employment in the short term, it might not lead to long-term economic stability.
— Eric

For Krugman, the brief post muet have represented a realistic take on economic conditions, based on everything he knows about financial crises. And as any regular Krugman reader knows, the columnist has consistently foreshadowed the events of 2008 with smart, pointed warnings at every turn.

And no doubt he's technically right -- if rich people keep buying luxury products and eating swanky dinners, the economy may bounce back with no help from the struggling and dispossessed middle class who can't afford to eat at McDonald's, or buy coffee at Starbucks, on their $405 weekly unemployment checks or out of their dwindling savings.

But that's not a world any of us necessarily wants to live in. And the readers of Krugman's blog have rightly risen up to call him out on this insensitively narrow-minded post that puts economic theory above the needs of a society as a whole. One peril of a blog is that it can encourage columnists to commit every thought to paper, including those -- like this one -- that may be technically correct, but serve no coherent purpose. It seems implausible that Krugman really wants to live in the world he describes in this post.

1 comment:

Anonymous said...

It's probably not coincidental that Krugman never put this one in the paper. He uses his website to try out his crazier ideas. Agreed, this one went too far.