Paul Krugman reflects on the paranoid style of GOP politics that is now ascendant. Regardless of what one may think of Krugman as a political commentator, his remarks about this attempt to conflate limited with government with privatization being pushed by the Grand Acquisitors raises an important point not only politically but also economically, and its manifestation as political propaganda in the paranoid style have deep significance for macroeconomics and economic policy in the US for anyone understanding sectoral balances.
By fostering the notion that all government intervention in the domestic economy — other than through crony capitalism and political corruption in favor of the elite, of course — is "road to serfdom' and statism, the stage is being set for a greater role of private debt versus government injection of net financial assets other than directly at the top. It is rising private debt that is the road to ruin rather the increase in "public debt," as portrayed.
The result of decreasing the "size" of government is either deflationary with high unemployment if private debt or net exports do not increase, on one hand. But given the current state of the global economy, the US will likely remain a net importer for some time, exacerbating the problem of continually financing consumption with private debt owing to stagnant income other than at the top.
On the other hand, if private debt increases to close the output gap by supplementing income other than at the top, then the danger is another financial crisis on top of the current one, since the growth of private debt is unsustainable, unless gains from investment and productivity increases are distributed as income to service the debt. The experience of recent decades is, however, one of stagnant wages and increasing profit margin, moving productivity gains to owners and top management rather than sharing with workers. Accordingly, workers have accumulated debt in excess of ability to pay, which is still being worked through.
While Professor Krugman doesn't draw this economic conclusion, those who understand MMT will see the handwriting on the wall.
Of course, this should not be considered an endorsement of current Democratic economic policy and thinking, either. The Democrats seems to be under the spell of the illusion that the Clinton surplus created unprecedented prosperity with out consequence, when actually the government "saving" just translated into increased private indebtedness that eventually exploded into financial crisis. Now they yearn for reduction of "public debt," seemingly unaware that that the public debt represents non-government net saving, since the deficit provides the funds that get saved as government securities, given the politically imposed requirement for deficit offset.
But Professor Krugman does put his finger on the psychological dynamic and how it being used to manipulate political discourse in favor of greater privatization in the name of less government intrusion in order to reduce the threat of statism, while the hidden agenda is further redistribution of income and wealth to the top.
What I find most alarming in this push toward privatization is its creeping into the military and security services. This is fatal for liberal democracy and the hallmark of empire.
by Paul Krugman