Paul Krugman Destroys Every Republican Argument For Austerity
by Gary Reber
On May 26, 2012, Jason Easley writes on politicususa.com about the appearance of Paul Krugman on Bill Maher’s Real Time where Krugman went head to head with Arthur Laffer, and destroyed every conservative argument for austerity.
“We are in a depression. We are actually in a classic depression. A depression is when nobody wants to spend. Everybody wants to pay down their debt at the same time. Everybody is trying to pull back, either because they got too far into debt, or because if they’re a corporation, they can’t sell because consumers are pulling back. The thing about an economy is that it fits together. My spending is your income. Your spending is my income, so if we all pull back at the same time, we’re in a depression. The way to get out of it is for somebody to spend so that people can pay down their debt, so that we don’t have a depression. So that we have a chance to work out of whatever excesses we had in the past, and that somebody has to be the government.
“We ended the Great Depression with a great program of government spending for an unfortunate reason. It was known as World War II…but when the war broke out in Europe, and we began our buildup that Great Depression that had been going on for ten years. People thought it would go on forever. Learned people stroked their chins and said there are no quick answers. In two years, employment rose 20%. That’s the equivalent of 26 million jobs today, the depression was over. We had full employment, and it never came back, or it didn’t come back until 2008, because people managed to pay down those debts, and we had a durable recovery.”
Arthur Laffer said:
“The government doesn’t create resources. The government redistributes them, and it redistributes them from workers and producers to people they get the resources based on some characteristic of the work effort. So what you really need to do is I think you need to incentivize producers, and what you need to go along, and my way of going would be Simpson-Bowles. Something to lower the tax rates, broaden the base, get rid of the loopholes. I mean really get a production base that officially starts, and that’s the way you really get out of this depression.”
Both Krugman and Laffer are products of one-factor economic thinking––labor workers and labor productivity (labor’s ability to produce economic goods). They do not address the powerful impact of the non-human factor creating productivity gains––productive capital. People are naturally driven to invent tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention. Binary economist Louis Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”
What is needed is a government stimulus program that as a condition to benefit requires participating business corporations and companies to broaden the ownership of their future productive capital assets among employees and other citizens. As well, tax policy should be designed to encourage broadened ownership of new productive capital assets.
The question that requires an answer is now timely before us. It was first posed by Kelso in the 1950s but has never been thoroughly discussed on the national stage. Nor has there been the proper education of our citizenry that addresses what economic justice is and what ownership is. Therefore, by ignoring such issues of economic justice and ownership, our leaders are ignoring the concentration of power through ownership of productive capital, with the result of denying the 99 percenters equal opportunity to become capital owners. The question, as posed by Kelso is: “how are all individuals to be adequately productive when a tiny minority (capital workers) produce a major share and the vast majority (labor workers), a minor share of total goods and service,” and thus, “how do we get from a world in which the most productive factor—physical capital—is owned by a handful of people, to a world where the same factor is owned by a majority—and ultimately 100 percent—of the consumers, while respecting all the constitutional rights of present capital owners?”