A contrast of two arguments

Acemoglu and Robinson (do they really co-author their blog posts?)

Next comes the original part of Krugman and Wells’s argument: the main corrosive effect of this inequality is in preventing Keynesian policies to combat the recession 2007-2008 and the sharp increase in unemployment that resulted. The idea here is that the “right” (the GOP) opposes any government intervention, and Keynesian fiscal policies and work programs that would have increased employment and combatted the recession are opposed by the right because, with increased inequality, they have become more beholden to the very wealthy.

Though intriguing, this idea is not backed up with direct evidence by Krugman and Wells. It may well be true, but it is also a curious thesis. Here are some of the things we find less than fully clear about this thesis.

First, the distinction between “right” and “left” (or perhaps pro-elite and anti-elite) is not a natural one when it comes to Keynesian economics and policies. Many conservative politicians, and not just Nixon and Reagan, have embraced Keynesian economics.
. . .Third, even in the current US context it is not clear why the wealthiest Americans should be opposed to Keynesian policies. After all, wealthy Americans are the owners of the major corporations or at the very least are strongly vested in the US corporate sector, which would also be one of the main beneficiaries of expanded aggregate demand.
. . .Having said all of that, Krugman and Wells are probably right to some degree. Republicans prevented more aggressive Keynesian measures. . . All the same, the reasons for this hostility to Keynesian economics are still mysterious. Perhaps it was just politicking, with small p — a way of frustrating Obama’s economic policies. Perhaps it was based on a “slippery slope argument” — if the government starts being active now, what is there to stop it from becoming even more active in the future? Perhaps and just perhaps, it was for the same reason that some economists had a blanket opposition to Keynesian policies — on “ideological” grounds not clearly based on pure economic interest. Not as big a story, but a possibility.

Brad DeLong in response (leaving out the parts about Hitler)

My second reaction is that I do, to some extent, understand what Acemoglu and Robinson's impulse is here. The idea that we should engage in technocratic interventions in the macroeconomy to provide a stable economic environment in which free men and women can make their plans live their prosperous lives is, as John Maynard Keynes wrote back in 1936, "moderately conservative": it is in its essence neither left nor right, but merely sane.

The question of what technocratic interventions work best--pegging the price of gold, constant reserve stock, stable money growth rule, lender of last resort, nominal GDP targetting, automatic stabilizers, deposit guarantees, expansionary fiscal policy at the zero nominal lower bound--is not a question of values and goals, but rather a pragmatic question of what works, of what macroeconomic policy is properly "neutral" rather than deflationary. And that is an empirical-technocratic question, rather than a value-philosophical one.

But, even so, right here and right now both the policies of fiscal expansion in a depression advocated by John Maynard Keynes and the policies of massive quantitative easing in a depression recommended by Milton Friedman are strongly left-wing policies--not right wing ones. And, right here and right now, higher income and wealth inequality in our system of money-driven politics has strengthened the right.
. . .
I think that, once one recognizes this fact that both Keynes and Friedman are to the activist left of even the left edge of today's policy spectrum, one cannot then escape the conclusion that today the entire right wing and a good part of the center is simply not sane.
. . .
Acemoglu and Robinson, I think, want at some level to be thought of as Very Serious People, as part of the Bipartisan Center. They do, I think, fear that if they took those additional logical steps that they would find themselves dismissed as "shrill"--as like Paul Krugman and company.


So they try to avert their own--and everybody else's--gaze from the fact that right now to be truly technocratic and nonideological is to be advocating policies that are left of the entire political structure.

DeLong doesn't seem to notice that he is shifting from two very different claims. The first is that right-wing policies correspond to the influence of money on politics; thus they are the policies of those with the resources needed to wield influence in this environment. The second is that the policies advanced by the Republican party and abetted by "centrists" among the Democrats are "simply not sane." A&R acknowledge the possibility of the latter at the end of their post, though they label it as ideology "not clearly based on pure economic interest." This, for them, is "not as big a story." As what? As the first claim, that austerity is the agenda of a specific social group, namely the economic elite (and ultimately, as they note, business). This is at least the implication of trying to link inequality to the current political balance in Washington, but A&R's point is that it is far from clear why this should be so based on the interests of elites and the business community. Why, when business or other even more right-wing forces have in the past been perfectly willing to endorse the stimulation of demand by fiscal means, is there such intense opposition to it today? To repeat, it might just be "insanity" i.e. a kind of ideological blindness, but this is a boring answer. Of course, for the foot soldier in the battle over the management of the capitalist economy, such as DeLong, the degree to which the answer is theoretically interesting is totally irrelevant: it only matters that they are wrong, and must be shown to be wrong (and even pernicious) at every possible opportunity, and any analysis that does not highlight that is no more than a distraction. From DeLong's (and Krugman and Wells') perspective, they are simply championing the technically correct response to a problem in the economy; they are "political" only insofar they are defending the interests of everyone in the economy from a force opposing the correct response ("high unemployment because we will not repair our magneto is a choice, and a disastrous one, and an insane one, and a right-wing one").

However, politics is not an accidental by-product of the existence of an "insane" political party. It is the result of real conflicts of interest among different groups in society, and indeed, when they refer to inequality, or the influence of economic elites, or even to the "right-wing" as a meaningful modifier, they are implicitly at least appealing to this non-accidental level of politics. A&R's point, however, is that far from the simplistic explanation given by Krugman and Wells, it is not at all clear how the Keynesian/anti-Keynesian debate maps onto it, since it is easy to not only sketch out why economic elites (with their interests tied to corporations and the capital markets) could be expected to favor macro-economic re-inflation but also given plenty of historical examples of them doing so. The politics, in this sense, of anti-Keynesian policy is problematic.

Though perhaps it is less so than A&R claim: capital sees an opportunity--in the context of its hegemonic bloc with net savers--to definitively cripple the capacity of the state to intervene in the distribution of economic resources and more specifically the labor market (hence, again, the constant talk of social security and medicare). It might depress revenue a little in the short to medium term--though profits have been perhaps surprisingly buoyant--but that's a small price to pay. Sure, it sucks for the rest of us, but that's politics--as opposed, despite what Krugman and DeLong would like to believe about themselves (though there's evidence the former has been gradually educated), to mere technocratic policy.