Re: say it ain't so, Paul!

["Devine, James" <jdevine@xxxxxxx>]

Frankly, I don't think that Paul Krugman is corrupt, at least not in the
sense of personal venality. Instead, it seems to me that orthodox economists
such as PK got swept up in (and in turn helped create) the intellectual
bubble that also included Arthur Andersen and the auditing "industry," the
Wall Street financial advisors, the economic forecasters, the stock-market
speculators, etc.

You have to go back to 1999 or even early 2000, when economic triumphalism
was rampant (in tandem with foreign-policy triumphalism, after "our" victory
over Serbia, killing a large bunch of civilians in the name of "human
rights"). Neo-liberalism (or what PK calls "free-market liberalism") was
victorious, despite the East Asian and Russian disasters (and the energy
emergency in California). Previous economists had only studied the world --
but the point was to change it! the point is to force the world into the
Procrustean Bed of the Walras-Arrow-Debreu Model: if the world was so rife
with imperfections that the WAD Model wouldn't fit, fit the world to the
Model! De-regulate industry, even those with high fixed costs and economies
of scale. Create artificial markets (such as for permits to pollute, or for
energy). Allow capital, even short-term "electronic herd" money, to move
freely between countries. If things go wrong, it's because the Model wasn't
obeyed _enough_! If things go wrong, the Maestro Alan Greenspan or other
Benevolent Technocrats that run central banks will set things right,
steering the unemployment rate to its natural level.

Who cares about all the increase in inequality that resulted? after all, the
neo-liberal  policy revolution was _clearly_ raising productivity and
efficiency (at least as measured by such things as real GDP which leave out
non-market costs and benefits). That meant that we could hypothetically
compensate the losers (though that somehow never seemed to happen).
Free-market liberals hoped that the tax/transfer system could be used to
even out the distribution without sacrificing efficiency. The textbooks tell
us that lump-sum transfers are efficient, so let's do it! Our technocratic
expertise can be used to do it right.

Of course, the shift of economic power that went along with de-regulation
(etc.) also meant a shift in political power, by giving a wad of bucks to
the companies that most profited from the new era, such as Enron. The big
money already had the US Republicans, so it bought the US Democrats,
eventually producing the Clinton presidency. (The Democrats were _never_
anti-business, but they had a residual tinge of being pro-Labor,
pro-minority, urban, feminist, environmentalist, etc. That had to be stomped
out while leaving those constituencies no choice but to vote for the "lesser
of two evils.") Similar moves can be seen in places like New Zealand and
England, where Labour Parties instituted neo-liberal policies (following the
"triumphs" of Thatcher and Reagan).

This trend also prevented the free-market liberal dream of lump-sum
transfers from ever achieving fruition. Sinking the unions and their allies
(and other non-business forces) in the name of perfect markets also meant
the pulling away of the "countervailing power" that would allow marginally
left-of-center free-market types to live up to their liberal self-image.

Of course, the financial power of Enron and many other companies (along with
the IMF and the World Bank and the US government) could be -- and was --
employed to pump up the intellectual bubble that swept the world. It's not
really a matter of the De-Regulation Triumphalists buying off people who had
contrary points of view. After all, were Larry Lindsay (Dubya's economic
Rasputin) or Alan Greenspan ever even mildly left of center? They didn't
need to be bought off. Rather, it's a matter of encouraging those who
already agree with the Party Line. Intellectual life has a certain Darwinian
aspect, so big money helps some competitors survive or even prosper -- if
they toe the Line. This, along with the success of market-oriented measures
such as real GDP, encourages an intellectual consensus.

Then it's a matter of consensus ruling: no-one wants to say "the emperor has
no clothes" because it doesn't pay and it doesn't fit with the official
world-view. This is especially true of economic forecasters, but it also
infects the auditors, financial advisors, economic pundits, speculators,
etc. It hurts your status to be a Cassandra like Wynne Godley.

In the stock market, it's possible to profit by being a bear, by selling
short (though as Keynes pointed out, you need to know _when_ to leap, but
that's never clear). But in establishmentarian intellectual life -- outside
of marginal outlets -- it's very hard to prosper this way.

I think that we're now seeing the slow leak of hot air out of the
intellectual bubble, though the support that Dubya has received after 911
will keep it going for awhile.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine


>  -----Original Message-----
> From: 	Devine, James
> Sent:	Tuesday, January 22, 2002 11:32 AM
> To:	Zaki Eusufzai (E-mail)
> Subject:	say it ain't so, Paul!
>
> from http://www.andrewsullivan.com/index.php?switch=1 (what seems to be a
> right-wing e-rag):
> KRUGMAN, AGAIN: The response to the news that Paul Krugman, public scourge
> of Enron, was once on their gravy train, is almost as interesting as the
> original story. First, Krugman himself
> <http://www.wws.princeton.edu/~pkrugman/enron.html>. Here's his apologia.
> Not only does Krugman have no regrets about this - he even boasts about
> it! Krugman claims his 1999 piece was not about Enron, but a love-letter
> to markets. Well you decide
> <http://www.wws.princeton.edu/~pkrugman/eman.html>. It was indeed a weird
> (for Krugman) piece of 'irrational exuberance' about free markets, but its
> centerpiece was Enron:
> "[Enron] is not, and does not try to be, vertically integrated: It buys
> and sells gas both at the wellhead and the destination, leases pipeline
> (and electrical-transmission) capacity both to and from other companies,
> buys and sells electricity, and in general acts more like a broker and
> market maker than a traditional corporation. It's sort of like the
> difference between your father's bank, which took money from its regular
> depositors and lent it out to its regular customers, and Goldman Sachs.
> Sure enough, the company's pride and joy is a room filled with hundreds of
> casually dressed men and women staring at computer screens and barking
> into telephones, where cubic feet and megawatts are traded and packaged as
> if they were financial derivatives. (Instead of CNBC, though, the
> television screens on the floor show the Weather Channel.) The whole scene
> looks as if it had been constructed to illustrate the end of the
> corporation as we knew it."
> I'm sorry but this gushing paean to Enron is not just a love-letter to
> free markets. It's a massive suck-up to a company he was taking $50,000
> from at the time. I know, I know. He disclosed the board membership. I
> never said he didn't. But the money matters. At least I think it matters
> to your average New York Times reader who'd be shocked, I think, to find a
> New York Times columnist who, before he joined the Times, was a $50,000
> paid crony for a major corporation that was in the process of fleecing its
> shareholders - especially since he is now one of that company's fiercest
> critics. Then Krugman goes into a swoon about how much he was worth in the
> international corporate advice industry: "I was a hot property, very much
> in demand as a speaker to business audiences: I was routinely offered as
> much as $50,000 to speak to investment banks and consulting firms." That's
> interesting. I wonder how many other companies Paul "Hot Property" Krugman
> has taken money from in the past that might be relevant for his current
> disquisitions. I think he owes his readers an account of all the corporate
> money he has taken in the five years before he went to the Times, if he
> has ever subsequently mentioned those companies in his Times columns. My
> further question he ignores. Since many public figures who were once, like
> Krugman, beneficiaries of Enron's largess, have now given the money to
> charity, will Krugman do the same?
>
> and:
>
> MARK STEYN ON A CERTAIN COLUMNIST: "The man who sneers at the malign
> influence of Enron money on Republican politicians -- or, as he calls them
> "the people Enron put in the White House" -- has received more money from
> Enron than any member of the House of Representatives. If he were in the
> Senate, where 71 of 100 members have been endowed with Enron moolah, he
> would rank in that crowded field as the third biggest beneficiary of the
> company's generosity. And, whereas the pols' Enron take was stretched out
> over several election cycles, Professor Krugman got his nice, clean 50,000
> in one year. Yet, while he takes it as read that Enron's cheques to Dub
> and Dick and Senator Sleazebag and Congressman Forsale were in return for
> something, in his case, he assures us, it was a big fat cheque for ...
> nothing. So that's OK." - from today's column in the National Post
> <http://www.nationalpost.com/commentary/columnists/story.html?f=/stories/2
> 0020121/1190693.html>. Steyn gets it. He's done more homework and finds
> Krugman recently lambasting Businessweek for being "more akin to Goldman
> Sachs than to Consolidated Edison." But of course it was Krugman (while on
> the take from Enron) who actually celebrated that fact in 1999: "It's sort
> of like the difference between your father's bank, which took money from
> its regular depositors and lent it out to its regular customers, and
> Goldman Sachs..." Amazing how $50,000 can affect some people's judgment.
>
> Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine
>