Ph.D. Octopus

Politics, media, music, capitalism, scholarship, and ephemera since 2010

In which I Disagree with Paul Krugman

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By Wiz

The Krugmonster writes:

The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble. Twenty years ago, the average American household’s debt was 83 percent of its income; by a decade ago, that had crept up to 92 percent; but by late 2007, debts were 130 percent of income.

All this borrowing took place both because banks had abandoned any notion of sound lending and because everyone assumed that house prices would never fall. And then the bubble burst.

Now its true that I’m still waiting for my Nobel prize in economics (next year, I think), but I would say that Krugman’s interpretation of why households have so much debt is a bit simplistic. 30 years of wage repression, union-busting, and off-shoring; combined with an explosion in the costs of health care, education, and (until recently) housing, is the true reason for this household debt. The credit card and mortgage industries played a part, by functioning to conceal the fact that the neoliberal turn mandated lower living standards for most Americans, and allowing people to continue to live a similar lifestyle as before. But the financial industry wasn’t the root causes, even if it profited by parasitically exploiting the situation. Easy credit was the “how” but not the “why” of the crisis, if that makes sense.

Which is to say. Go watch David Harvey.

Then go read this hilariously pathetic neoliberal tripe post which Ezra Klein sympathetically links to, which claims that the crisis is the result of “Republican and Democratics [sic] administrations that were more concerned with punishing innovative industries and ladling on additional security and economic regulations.” Yes! If only we have provided more tax-breaks to pharmaceutical companies or eliminated OSHA regulations. That would have averted this crisis! To paraphrase Marx, when the neoliberals are confronted with a crisis they flee from economics to seek refuge in (corporate welfare for) organic chemistry.

Update: Check this out from Kevin Drum:

However, their introduction is pretty easy to understand: they’ve constructed a simple model for financial crises that essentially proposes the following narrative:(a) growing inequality produces less money for the middle class and more money for the rich, (b) the rich loan much of this money back to the middle class so they can continue to improve their living standards even with stagnant incomes, (c) the financial sector balloons to mediate all this, and (d) the system eventually collapses since, after all, this kind of thing can’t last forever


Written by Peter Wirzbicki

December 13, 2010 at 12:12

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