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.

Dealing with decline

Niall Ferguson and many others have made the point that the United States, like other once-dominant nations before it, is in for a very difficult period of adjustment. That is, if the combination of its massive public debt and shifts in the global economic center of gravity play out as expected, and America's international preeminence is relentlessly eroded.

The U.S. debt-to-GDP ratio is around 100%, and it's well known that public debt levels above 85% of GDP are a drag on growth and also carry other, more dire, risks - as recent credit downgrades portend and as recent events in Europe have illustrated.

Of course America never had an actual empire like many of the preeminent nations of the past, and so will be spared the dramatic indignity of surrendering territories and dealing with mass immigration and other such phenomena that are associated with the end of an empire. Though long-held perceptions and expectations are not easy to put aside, the lack of an empire will make the process far easier, not only in practical terms but also in terms of saving face. The decline in power and influence could be seen as a voluntary return to policies of relative isolationism and non-interventionism.

The French writer Henry de Montherlant - an aristocratic conservative - faced head-on and accepted the patent reality of the decline of France in the inter-war years, though he felt the pain of it keenly. Others, in the face of much evidence to the contrary, continued to believe in France's greatness, even after the debacle of 1940, even after the disastrous Algerian war, even now ...

The style and antics of the present French president, Nicolas Sarkozy is explicable only in the light of France's glorious past, and the mismatch between his pretensions and the reality of France's current position in the world is a source of amusement to many.

Britain's decline has been, if anything, even more painful and traumatic than that of France. In the post-World War 2 period, Michael Flanders and Donald Swann reflected the attachments and preoccupations and regrets of the English middle class. Behind the mock xenophobia and comic aggression of this little piece (from a performance in New York) lies ... Well, you be the judge.

A final thought: it strikes me that unsympathetic observers of David Cameron's actions at last week's Brussels summit will see him and his eurosceptic supporters - quite unjustly, of course, at least in respect of Cameron himself - as having been motivated by something like the sentiments being satirized here by Flanders and Swann.