Getting real

I recently discussed Paul Krugman's views on the European crisis, and suggested that his ideological commitments may have distorted his analysis. Krugman argued that austerity programs would inevitably fail and lead to the destruction of democracy.

I note that Amity Shlaes, a Bloomberg columnist, has also taken issue with Krugman's perspective. "There is evidence that austerity did lead to growth in the past," she writes, "and that it did not cause fascism."

Shlaes questions "the standard ... narrative of what happened" during the Great Depression which lies behind Krugman's views. She cites the example of Australian government cost-cutting in the early 1930s. "Australia recovered far faster than the U.S. ... [Prime Minister Joseph] Lyons may have praised Mussolini but Australia didn't go fascist."

I am not really in a position to argue on the basis of historical economic data or economic theory, but I can see that Franklin Delano Roosevelt has become a mythic hero for many liberals, and the New Deal an inspirational tale.

But inspiring narratives are just that - stories designed inspire (manipulate?), not to encapsulate historical (or any other kind of) truth.

History is complicated, there are no heroes, and the world does not owe us a living.

Paul Krugman on Europe

It's always salutary to read or listen to - at least occasionally - those whose ideological perspectives are different from one's own.

Sometimes it's simply a matter of being confirmed in one's current views. Like the time I read a political book by Noam Chomsky (whom I respected as a linguist). I was staggered at the degree of anger and irrationality and extremism evident in Chomsky's prose. I had begun the book with an open mind, ready to be convinced: I was wavering ideologically at the time and had no vested interest in any particular system (beyond some investments in equities which could easily have been put into something else if I came to the view that capitalism was bad). But I found there was a huge gulf between where Chomsky was and where I was. I have no idea how he got there, and I was damned sure that I wasn't going to go there.

Paul Krugman is another kettle of fish, a distinguished economist who is also a liberal polemicist. I recently read an opinion piece by Krugman on political and economic trends in Europe, suggesting that we should call "the current situation what it is: a depression." Even putting aside the (unresolved) euro crisis, lack of growth and high levels of unemployment is leading to immense anger and resentment (against Germany, for instance), risks to social cohesion and a clear move in the direction of authoritarian governments.

Last month, the European Bank for Reconstruction and Development "documented a sharp drop in public support for democracy in the 'new E.U.' countries." Hungary, for instance, a country with a turbulent and tragic history, is in dire economic straits. According to Krugman, it has "suffered severely because of large-scale borrowing in foreign currencies and also, to be frank [Krugman acknowledging his ideological position!], thanks to the mismanagement and corruption on the part of the then-governing left-liberal parties."

This led to Fidesz, a center-right party, winning an overwhelming parliamentary majority last year. But now Fidesz, by a series of constitutional and legal measures and media control, seems to be moving towards authoritarian rule "under a paper-thin veneer of democracy." Krugman sees what is happening in Hungary, "in the heart of Europe," as a sign of things to come on the troubled continent. As he puts it, the breakup of the euro may be the least of Europe's worries.

My concern is that Krugman's ideological preoccupations may be distorting his analysis. He is hostile to German-inspired attempts to encourage austerity, suggesting that such an approach is leading to the death of democracy and to authoritarian forms of government. But the crisis was caused, at least in part, by profligate government spending (exacerbated in some countries by their participation in an ill-conceived experiment in monetary union). And something like the pragmatic German model may be the only alternative to fascism or whatever forms of nationalistic collectivism are currently garnering support.