This morning on Radio 4’s today show, there was an interview
with American ‘anti-austerity’ economist Paul Krugman. Krugman’s central
argument is that recessions are not the time to be balancing the books through
cutting public spending; rather, in such times, governments should borrow more
to stimulate growth, and once the economy is growing again institute tighter
fiscal policies to balance the books. This is nothing new – a restatement of
classic Keynesian economics. Given the social failure of Thatcherism and the
personal debt crisis of the New Labour era, such a model still holds a great
deal of plausibility.
But this poses a problem – what democratic government would
ever institute such a policy? One might expect a full ‘Krugman’ cycle to take
around 15 years, and both increasing national debt (in light of Greece) and
taking the ‘silver lining’ off the boom times are massive electoral risks. Give
most democratic countries have executive electoral terms of between 2 and 5
years, governments will calculate that the likelihood of seeing ‘payoff’ before
the next round of elections is slim.
Again, the notion that the electoral cycle stifles wise,
long-term governance is not a new one, and there are three ways out of such
policy conundrums: a) abandon democracy b) move to ‘democracy minus’ (elections
ever 10+ years, stronger executive power including fiscal adjustment powers)
and c) wait for the zeitgeist of popular opinion to shift to politically permit
said policy. Assuming we don’t a) and dismissing b) as an interesting,
potentially desirable yet highly unlikely solution, we come to the root core of
the problem, namely c).
So what shift in public opinion would allow a government to
whole-heartedly enact Krugmanism? Essentially, the desire for a sound national
economic condition would have to decisively trump the aspiration of greater and
greater consumption. The better off would have to accept that increased incomes
in boom times would be taxed progressively, and the less well off would have to
accept that in harder times that fixed term ‘new deal’ type jobs would become
the norm. The public sector would need to accept that artificial expansion in a
recession would demand significant pruning in growth periods.
If these convictions were to arise, then perhaps a majority
would vote for Krugmanists over a whole economic cycle. So, as with all matters
of importance in democratic society, good economics is fundamentally a battle
for hearts and minds. Regardless of one’s assessment of the merit of Krugmanomics,
may we all stop worshipping at the altar of greed and heed God’s call to seek
responsible economic stewardship. Only then will democracy and good economics
flourish together.
