Krugman on Labor, Debt, and the GOP's 'Magic Asterisk'

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Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on The Brian Lehrer ShowNew York Times columnist Paul Krugman talked about the nation's finacial climate, the battle over collective bargaining rights for unions, and the news of the economy.

For the first time in nearly two years, the unemployment rate has dipped below 9 percent.

According to a new report issued by the Department of Labor, the U.S. economy added 192,000 jobs in February. Sounds great, but at this point in the economic downturn, we're just happy to see that the apocalypse hasn't happened yet. Paul Krugman puts these numbers in perspective, but holds that there is reason to be optimistic... sort of.

During the boom of the '90s, the economy was adding more than 230,000 jobs per month. So this is a good report by current standards, because we've become so accustomed to bad news, but it's not a really, really good report. But hey, we're making progress. There's light at the end of the tunnel, and it does not at the moment look like an on-rushing train.

"Not at the moment" being the operative words in that last sentence.

What's happening here? What's bringing the jobs back? The government started doling out stimulus money in 2009, and there's still heated debate over whether or not that was the right thing to do in the first place. Only now is the unemployment rate back to where it was when this whole thing started. Krugman explained this recent progress as the result of a "virtuous circle" of economics, which has taken shape slowly and, to an extent, organically, forming only after the financial situation stabilized for many households.

The economy is recovering because U.S. families, who came out of the bust with way too much debt and were basically strapped, their situation is improving. Their debt is being paid down or written off, in the case of some mortgages, so it's gradually improving the situation of households. It's allowing them to spend more, which is leading the economy to expand, which is making businesses invest more, which is making the economy expand more, which is then helping households improve their financial situation further. It's a recovery that, to a certain extent, is feeding on itself.

Opponents of the Recovery Act argue that government intervention was not a prerequisite for repairs of this nature. Markets and consumers could have righted the ship without piling up public debt. From that point of view, trillion-dollar deficits cast a menacing shadow over the signs recovery we have seen thus far.

Meanwhile, economists like Paul Krugman wish the government had spent more money.

That tradeoff is a lot less acute than people imagine. If we had spent more on promoting the recovery, first of all, we would have gotten useful things. Remember how many schools and bridges and other things we have now were in fact built during the 1930s, done by the WPA. We could have been doing useful stuff. We had a lot of workers sitting idle when they could have been producing stuff that would actually make us richer in the long run. The weakness of the economy is the single biggest reason why we have deficits; it's not government spending. Spending has actually grown less since the recession hit than it did in the years prior to the recession.

"We would be a whole lot better off if we had another trillion dollars of debt and something that resembled full employment," Krugman finished.

Over the last few weeks, it has seemed impossible to talk about government spending without the discussion mutating into one about Wisconsin's labor standoff. This morning's conversation proved no different.

However, Paul Krugman said that Wisconsin Governor Scott Walker's agenda has little to do with money at this juncture. Public sector unions have already agreed to the proposed wage decreases and mandated increases in their health care and pension contributions; but they're holding the line on wanting to keep their collective bargaining rights, while Walker similarly refuses to budge in attempting to strike them.

According to Krugman, this isn't about asking for concessions from unions. Nor is it simply about diminishing their influence; it's about killing them completely. Krugman said that we would all bear the weight of such a loss.

We have a "one person, one vote" society. In principle, that means everyone counts equally; in practice, of course it doesn't work that way. In practice, people who make large campaign contributions, people who can fund organized efforts have a lot more influence than any random voter. In our society now, the preponderance of the people and organizations in a position to exert disproportionate influence, they represent the wealthy, they represent corporations. Unions are one of the few counterweights to that. Knock away this one remanining piece of the old New Deal coalition, and society will be one step closer to fully reproducing the old Gilded Age levels of inequality, not just of wealth but of political influence.

Krugman traces the fragile state of organized labor back to the 1980s, when the policies of the Reagan administration engendered what Krugman might call, to borrow his phrasing, an "unvirtuous cycle" of snowballing corporate influence.

The Reagan admininistration and the conservative Congress at the time created an environment in which union-busting and corporate oppostion to organizing—some of it within the law, some over the line—was tolerated. That meant that some unions were busted, but more importantly, as the economy shifted away from the biggest companies being manufacturers to being in the service sector, those new companies were not unionized...Because we didn't get the organization, the rightward tilt of American politics is in part perpetuated because we don't have an effective counterweight to corporate interests.

While we're on the sunny subjects of deficits, unemployment, and the endangered species that is organized labor, why not get Krugman's take on health care costs, that other source of harmony and good feeling in American politics?

Getting these costs under control is essential to balancing the long-term U.S. budget; in turn, one might say that deficit anxiety is the root of the very problems we see with unemployment and unions.

Representative Paul Ryan, Republican head of the House Budget Committee, has one idea of how we might rein in health care spending. He's introduced a plan to replace Medicare with a voucher program, in essence privatizing the system. Guess what Paul Krugman thinks of that.

Paul Ryan's stuff is one giant magic asterisk: Savings to be explained later. He wants to replace Medicare with vouchers and reduce funding on these vouchers below the rate of growth of health care costs. How exactly that's going to allow seniors to actually buy insurance is left unexplained. There's nothing in [Speaker John] Boehner's previous career or statements that would lead me to believe he's going to produce an actual proposal with a plausible root toward reducing future spending on those programs.

It's an open question whether there is anything Rep. Boehner, or any other House Republican could propose with regard to health care that Krugman would trust. Or with regard to labor laws. Or deficits.

Having spent the last two years screaming "death panels" at any attempt to make sure that Medicare funds are used wisely, now he's going to come out with plausible plan to control Medicare costs? Hard to see how that happens.