Eight years ago, as the world was plunging into financial crisis, I argued that we'd entered an economic realm in which "virtue is vice, caution is risky, and prudence is folly." Specifically, we'd stumbled into a situation in which bigger deficits and higher inflation were good things, not bad. And we're still in that situation -- not as strongly as we were, but we could still very much use more deficit spending.
Many economists have known this all along. But they have been ignored, partly because much of the political establishment has been obsessed with the evils of debt, partly because Republicans have been against anything the Obama administration proposes.
Krugman still does not understand sovereign money. A budget deficit for a government with a sovereign currency is not a moral issue. Budget surpluses are not a "virtue" and deficits are not a "vice." The economic issue is strictly pragmatic -- what size budget deficit or surplus is best for the overall economy? The political issue is the one Krugman made in his criticism of President Obama's embrace of the self-inflicted wound of adopting your opponents' economic illiteracy.
But notice that even though he was writing after the 2016 elections, Krugman could not bring himself to be candid about the identity of "much of the political establishment." Yes, Republicans always said they favored austerity (except when they held the presidency and had to deal with a recession). But New Democrats believed in the same terrible economics and, unlike the Republicans, Hillary's embrace of continuous austerity as a means of waging a unceasing onslaught on the working class was so passionate that she highlighted that embrace during the last 40 days of her disastrous campaign even as ever poll and pundit warned her that she was enraging the white working class. Krugman cannot identify Hillary and the New Democrats as the most prominent leader of "the political establishment [that] has been obsessed with the evil of debt" without raising the obvious question -- why didn't he speak truth to power? Why didn't he advise her to end her obsession with sovereign debt and her economic policies that made war on the working class?
Of course, Krugman did something worse than simply fail to speak truth to power. He joined in the reprehensible effort to trash the reputation of a well-respected economics scholar, Professor Gerald Friedman. Friedman had donated to Hillary's campaign, who dared to point out that Bernie Sanders' economic stimulus proposals were far superior to her proposals. On what basis did Krugman seek to destroy the scholar? Krugman complaint was that the economist was insufficiently "obsessed with the evils of debt." Friedman's study made a point that Krugman had long made (and I quoted above). The 2009 fiscal stimulus was far too small and that the federal government had made a dire mistake in moving toward austerity in 2010 rather than increasing substantially the size of the stimulus package.
What was really going on, of course, is that Krugman was out to defeat Bernie's candidacy for the nomination. Had Bernie won that nomination he would now be President-elect. Sanders was the one candidate for the nomination that embodied what Krugman said the Democratic Party desperately needed -- ending the hold of "the political establishment obsessed with the evils of debt." Krugman simply viewed truth and Friedman as collateral damage in his zealous fight to defeat Bernie. Krugman has been unable yet to summon the integrity and courage to admit how badly he served the Nation and the millions of Americans that rejected that "political establishment." I hope he will reach out to Friedman and begin to offer his apologies.
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