Triumph of the Unthinking
by Paul Krugman
ďWords,Ē wrote John Maynard Keynes, ďought to be a little wild, for they
are the assault of thoughts on the unthinking.Ē Iíve always loved that
quote, and have tried to apply it to my own writing. But I have to admit
that in the long slump that followed the 2008 financial crisis ó a slump
that we had both the tools and the knowledge to end quickly, but didnít
ó the unthinking were quite successful in fending off unwelcome thoughts.
And nowhere was the triumph of inanity more complete than in Keynesís
homeland, which is going to the polls as I write this. Britainís
election should be a referendum on a failed economic doctrine, but it
isnít, because nobody with influence is challenging transparently false
claims and bad ideas.
Before I bash the Brits, however, let me admit that weíve done pretty
It began very early. President Obama inherited an economy in free fall;
what we needed, above all, was more spending to support demand. Yet much
of Mr. Obamaís inaugural address was given over to boilerplate about the
need to make hard choices, which was the last thing we needed right then.
Itís true that in practice Mr. Obama pushed through a stimulus that,
while too small and short-lived, helped diminish the depth and duration
of the slump. But when Republicans began talking nonsense, declaring
that the government should match the belt-tightening of ordinary
families ó a recipe for full-on depression ó Mr. Obama didnít challenge
their position. Instead, within a few months the very same nonsense
became a standard line in his speeches, even though his economists knew
better, and so did he.
So I guess we shouldnít be too harsh on Ed Miliband, the leader of
Britainís Labour Party, for failing to challenge the economic nonsense
peddled by the Conservatives. Like Mr. Obama and company, Labourís
leaders probably know better, but have decided that itís too hard to
overcome the easy appeal of bad economics, especially when most of the
British news media report this bad economics as truth. But it has still
been deeply disheartening to watch.
What nonsense am I talking about? Simon Wren-Lewis of the University of
Oxford, who has been a tireless but lonely crusader for economic sense,
calls it ďmediamacro.Ē Itís a story about Britain that runs like this:
First, the Labour government that ruled Britain until 2010 was wildly
irresponsible, spending far beyond its means. Second, this fiscal
profligacy caused the economic crisis of 2008-2009. Third, this in turn
left the coalition that took power in 2010 with no choice except to
impose austerity policies despite the depressed state of the economy.
Finally, Britainís return to economic growth in 2013 vindicated
austerity and proved its critics wrong.
Now, every piece of this story is demonstrably, ludicrously wrong.
Pre-crisis Britain wasnít fiscally profligate. Debt and deficits were
low, and at the time everyone expected them to stay that way; big
deficits only arose as a result of the crisis. The crisis, which was a
global phenomenon, was driven by runaway banks and private debt, not
government deficits. There was no urgency about austerity: financial
markets never showed any concern about British solvency. And Britain,
which returned to growth only after a pause in the austerity drive, has
made up none of the ground it lost during the coalitionís first two years.
Yet this nonsense narrative completely dominates news reporting, where
it is treated as a fact rather than a hypothesis. And Labour hasnít
tried to push back, probably because they considered this a political
fight they couldnít win. But why?
Mr. Wren-Lewis suggests that it has a lot to do with the power of
misleading analogies between governments and households, and also with
the malign influence of economists working for the financial industry,
who in Britain as in America constantly peddle scare stories about
deficits and pay no price for being consistently wrong. If U.S.
experience is any guide, my guess is that Britain also suffers from the
desire of public figures to sound serious, a pose which they associate
with stern talk about the need to make hard choices (at other peopleís
expense, of course.)
Still, itís quite amazing. The fact is that Britain and America didnít
need to make hard choices in the aftermath of crisis. What they needed,
instead, was hard thinking ó a willingness to understand that this was a
special environment, that the usual rules donít apply in a persistently
depressed economy, one in which government borrowing doesnít compete
with private investment and costs next to nothing.
But hard thinking has been virtually excluded from British public
discourse. As a result, we just have to hope that whoever ends up
running Britainís economy isnít as foolish as he pretends to be.