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

Friday, March 04, 2011

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.


Paul Krugman


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Comments [20]



OK, that's Republicans, but surely Democrats are more egalitarian?

See comment below for the answer.

Mar. 04 2011 03:48 PM

Prof. Martin Gilens at Princeton has studied the responsiveness of DC politicians to people in various income groups. Who gets what they want? Follow the money.

Unsurprisingly, Republicans respond to the concerns of the wealthy, the top 10%, more than they to do the concerns of the bottom 10%. They also respond just about as well to the concerns of the middle only slightly more than they do to the bottom 10%.

OK, that Republicans, but surely Democrats are more equalitarian?

Alarmingly for me, a Democrat since I reached the age of reason, Democrats react the same way as Republicans: Them's as has, and can donate, gets.

See this post about Gilens' recent research on responsiveness to citizens' demands and concerns (charts at the link):

"At left, we see that as people at the bottom of the income spectrum care more about an issue, the probability of action on that issue scarcely budges. At right we see that policy responds a little more to median preferences. But what's clear in both is that the rich are much more successful at getting their issues on the docket. That's not really that surprising, but why should it be the case? Mr Drum writes:

Gilens' guess is that "the most obvious source of influence over policy that distinguishes high-income Americans is money." This sounds like a pretty good guess to me.
Specifically, Mr Gilens looks at a range of potential causal and non-causal explanations of the connection, eliminates some that don't seem to correspond with available data, and concludes that the striking responsiveness of policy to the preferences of the rich is probably due to the one characteristic in which the rich are strikingly unique, namely, their richness."

And here's the link for the original Kevin Drum post:

Mar. 04 2011 03:45 PM

Part 3 of comment:

I also thought, OK, what's another year until full SocSec? Well, that was before it became common for big corporations to lay off older workers, well before retirement age. And before I got a chronic type cancer which made me a less desirable hire for any company watching its health care costs. And before some other health issues. So, as of this month, I applied for SocSec, at age 65; I couldn't make it financially until 66. Health insurance ate up my savings. I am just one example: Perhaps if I'd been in a different field I could have made it to what's now considered retirement age; perhaps not.

But I know many, many people in my situation. And, statistically, those in the lower economic echelons (that's most of us, btw) are dying earlier than previously. Those in the upper economic echelons are indeed living longer. Studies have shown there actually is a connection between longevity and good health and economic status.

So, now, the Uberwealthy and the oligarchs want those who have already paid more than was once considered the necessary portion for SocSec to "share in the sacrifice" by having "cuts." Raising the retirement age is, of course, a form a cutting benefits as many will be forced to take "early" retirement. And why? Because the Uberwealthy must not be taxed! And we wonder how there was this immense transfer of wealth from the middle classes to the uppermost wealth holders? And, of course, the next insurance to be attacked will be Medicare. Medicaid is already under fire in the states, with DC Republicans and some Democrats moving against it as well.

Someone commented about this "shared sacrifice" the elites are so enthusiastic about:

The victims being sacrificed seldom have a voice in their sacrifice.

So, yes, Mad As Hell, I agree with you.

Mar. 04 2011 01:05 PM

Part 2 of comment:

To me, it was amazing that just prior to the vote to pass Obama's health insurance profit protection plan, a national poll showed support for single payer, "something like Medicare for everyone," to be around 60%. In an Iowa poll, Democrats broke higher for that something like Medicare for All, but independents, supposedly the desired voters for both parties, polled for single payer by 62-63%, iirc. With all the MCM discussion and "reporting" skewed to cover only what Obama et al wanted covered, the people still knew what would be best for them.

And our politicians paid attention to this? Ha. Rep. Anthony Weiner was able to get huge local and national publicity for saying he would demand a vote on a single payer type option; but, alas, he never did demand it. Somehow, it just got finessed "off the table"....

Tea Partiers got tremendous coverage, which now we may be able to understand better: The Koch brothers and other oligarchs funded much of their activity. So, of course, those who are attuned to meeting the expectations of the oligarchs paid attention to what they support and thus promote them with free publicity.

Right now, the SocSec Narrative has been set not only by Pete Peterson, but also by Obama. SocSec is something which Obama talked about "fixing" back in the primaries. Krugman was aghast and wrote about it at the time: There was nothing wrong with SocSec, etc., and why was a Democratic candidate for the presidential nomination bringing it up?

Alarm bells went off for Krugman and for me, among others.

Guess we now know why: Obama is center right, if even that far left.

Since the Tip O'Neill/Reagan compromise, all of us paying into SocSec have been "paying ahead," paying more into the SocSec trust fund than was needed, just to be prepared for the demographic bulge of the Baby Boom.

Retirement ages were raised, which also means lower SocSec payments for many.

At the time, I thought, OK, fair enough. But the politicans raided that trust fund, just as some states raided their pension funds, usually for tax cuts but sometimes for infrastructure improvements. But, alas, mostly to avoid raising taxes or to cut taxes on the wealthy.

To be continued

Mar. 04 2011 01:00 PM

Mad As Hell--I'd say ditto to what you wrote, but it's already doubled. And good thing, because the Very Serious People of the MCM (Mainstream Corporate Media) dare not speak outside certain accepted lines of discourse. Nowadays, of course, even public radio and television are dependent on their corporate donors, along with those from the wealthiest among us.

Krugman is considered "shrill" because he is near the leftmost of "permitted" economic discussion in this nation and in our MCM. Only in the non-corporate press and on the internet can one find others who represent clear alternatives to what is permitted in the MCM. Very occasionally such people may make it on public radio, but not often. Otherwise public radio stations would be attacked by the oligarchs and their minions.

Brian and others read and respect the NYTimes, the WSJrnl, the Washington Post, The Economist; these set the limits of discussion (with FOX News and the WSJ pushing ever rightward). To be considered a voice which should be listened to, certain topics are not discussed and the ones which are discussed are usually referred to in the terms the wealthy oligarchs choose to promote.

When the discussion turned to health care today, the obvious solution was not even mentioned: single payer. Back when Obama took single payer "off the table," for the most part the MCMers did not discuss it, except to offer the occasional disclaimer that it was "off the table" and therefore not worth using air time or print space to discuss.

When a group of physicians made a road trip across the country to promote single payer, with stops all along the way, it got lots of coverage...NOT. (IIRC, Obama's Chicago physician was among those, but for sure he was a vocal supporter of single payer. How many here know that?) When there were rallies for single payer, it got lots of coverage...NOT. It's much like the way the huge numbers which turned out to protest Bush/Cheney's Iraq Invasion got little coverage.

When Obama held those early rally/promotional town halls for his health insurance profit protection plan, one of them was live-blogged by a WH staffer. A well-researched and presented question by a single payer supporter was simply left out of that blog record. Suddenly, the blogger, who had been pretty accurate to that point simply went silent, then resumed when the topics became more acceptable to the Powers That Be (in this case Obama and his corporate supporters).

If something is felt by the oligarchs to be off limits, to not be part of the national discussion, it is seldom discussed by the elite media.. Those who set the parameters for that discussion then better control the results.

Mar. 04 2011 12:47 PM
amalgam from Manhattan by day, NJ by night

@ gary from queens

Why do you listen to NPR again?

You also seem to be confusing "fairness" with balance, which do not not necessarily correlate.

One can be fair in addressing an issue without providing point-counterpoint at every stand. Good journalism is replete with that.

You don't have to listen; you can hear your "fair and balanced" version at Fox.

Why do you listen to NPR again?

Mar. 04 2011 12:24 PM
RBC from Fidi

@Tom Thorn: Public sector salaries are still lower than private sector salaries. The problem is the benefits, namely health care and defined benefit pensions, that drive up the cost of public workers. I agree that the public workforce should pay more for health care. Pensions are just like 401Ks in that they grow in value when the markets do well, but the only difference is that when the market doesn't do well, the pensions have to still be paid at defined tiers, which the taxpayers are on the hook for. That should be reformed.

The REAL issue should be about why the private sector middle class workforce continues to be screwed by the private sector elite/executive class. The reason why private sector pay has been stagnant and benefits have been reduced is because that money that the middle class used to receive in compensation is now in the pockets of CEOs.

Mar. 04 2011 12:20 PM
gary from queens


With all due respect, I found you comments on the fund raising segment outrageous. You touted the fact that Paul Krugman can have a free forum to present his views inemcumbered by a challenging rebuttal?! THAT is what you call good radio?!

Paul Krugman ALREADY has a forum to expand on his views without interruptions. He's the premier columnist for the NY Times! He can carefully craft his views in written form in that column, or the books he writes. He's famous enough to also hold a press conference. As you remarked, he also appears on Sunday morning news shows on NBC and ABC.

Brian, some conservatives would contribute to NPR if NPR was balanced. But instead, there is little if any counterpoint by conservatives on your show. Your remarks with respect to krugman now indicates that you're PROUD of that legacy?! Well, let me say then that I'm proud NOT to give you a penny.

Good luck with your unfair and unbalanced agenda.

Mar. 04 2011 11:09 AM
Mad as Hell

Is there some reason that Brian endlessly repeats the outright falsehood that SS contributes to the deficit? Bro, it's an income transfer program. It doesn't contribute a dime to the deficit or the budget.

Of course, when surplus SS contributions are counted to to *reduce* the deficit -- an accounting trick which allowed for steep upper income tax cuts in the 80s, 90s and early 20s -- the matter does get complicated. But the fact that we cheated on one side of the ledger shouldn't mean we cheat on the other, by effectively stealing those surplus contributions, to give to the rich in the form of tax cuts.

Can't we tell the truth? Or must Brian frame all policy questions in exactly the same way as, say, anti-social crusader/billionaire Pete Peterson?

Mar. 04 2011 10:38 AM
jgarbuz from Queens

Israel may be teensy tinesy, itsy bitsy, but so is Switzerland, and Belgium and Sweden (in population), and Taiwan, and Singapore, etc. The reality is, that whether your population is 7 million, 70 million, or 700 million, the laws of economics still apply. The problem is, figuring out what those laws are, like figuring out all the laws of physics. We still don't have it all down pat yet. That is why there are different and competing schools of thought.

IN some ways, ISrael's tiny economy is a PLUS because it can change on a dime like a high speed motor boat, whereas a huge economy is like a battleship, and more difficult to turn around.

But otherwise, things are not as different as many think. I learned a lot living there, and saw our own US economic problems coming because I had already experienced similar situations over there, only worse. For example, I saw Israel government having to temporarily take over ALL of its banks for a period of time. Even the kibbutzim went bankrupt and had to be bailed out. The economy was forced to change or go bankrupt. Now the US is in a similar condition.

Mar. 04 2011 10:38 AM
Mad as Hell

Is there some reason that Brian endlessly repeats the outright falsehood that SS contributes to the deficit? Bro, it's an income transfer program. It doesn't contribute a dime to the deficit or the budget.

Of course, when surplus SS contributions are counted to to *reduce* the deficit -- an accounting trick which allowed for steep upper income tax cuts in the 80s, 90s and early 20s -- the matter does get complicated. But the fact that we cheated on one side of the ledger shouldn't mean we cheat on the other, by effectively stealing those surplus contributions, to give to the rich in the form of tax cuts.

Can't we tell the truth? Or must Brian frame all policy questions in exactly the same way as, say, anti-social crusader/billionaire Pete Peterson?

Mar. 04 2011 10:38 AM
Jef Klein from Kendall Park NJ

I was a Union organizer in the 80s, led a successful strike in 1986, one of the few successful strikes of the Reagan era, and I can tell you we all saw the agenda of Reagan and the conservatives then. They were clearly trying to union bust and their promise at that time of a bright future in the service sector was where unions should have tried harder to capture the American heart again in order to organize the new service labor force. When unions focused too much on the bottom line (speaking the language of corporations and focusing on money and benefits) we lost our moral center, we failed to remind Americans as to what we were really all about--not money, but justice for all workers. We unwittingly worked in concert with conservatives, thinking we were keeping our members' needs in mind by focusing on money, but helping the country forget about the real reason unions existed: to promote equity, fairness, and social justice.

If we had resisted louder, longer, and cleverer at the Reagan ideology that the US should put its future into the hands of big business, unions may have kept their members from crossing over to the Republican side. If we'd said "big business? The people who brought you 3 mile island, love canal, and Bhopal? Who invest in apartheid? We should trust them??" maybe we could've kept our members. Instead we stood by while the media and the country drooled over that corrupt, cynical, manipulative windbag who, along with his conservative cronies, drove this country to hell financially and morally.

America used to have a solid core of common people who felt strongly that big business needed to be closely watched and that workers mattered. The fact that we live in an era where a construction worker will complain about what a school teacher makes, and not be in the streets marching against Wall Street financiers, is a sad reflection on how the labor movement lost the heart of America. I really hope that we get it back in Wisconsin.

Sorry about the long post !! as you can see I really care about this issue.

Mar. 04 2011 10:37 AM
mc from Brooklyn

HughSansom: Spot on. As Krugman likes to say: the conventional narrative would have you believe that we have this giant entitlement program called socialsecuritymedicaremedicaid.

Mar. 04 2011 10:31 AM

jgarbuz - Israel is teeeny tiny teeny tiny and not comparable to our economy. Israel also gets a lot of help from us whether socialist or not. Are Israeli banks and investment houses anywhere naer as corrupt as ours?

Mar. 04 2011 10:30 AM

Brian Lehrer seems to buy the line that there is a long-run problem with social security and medicare. First, those two are separate. Social security is ABSOLUTELY okay. No problem for over 25 years. Very modest changes now, like requiring the richest to pay more, would more than compensate for projected shortfalls.

The persistent, malicious misrepresentation by the New York Times, the Post, CNN, NPR and most Democrats and ALL Republicans is really about demolishing Social Security in its entirety -- or, more accurately -- turning it over to Goldman Sachs at Wall Street to destroy while making trillions in the process.

And if you think this is just fear-mongering or conspiracy-theorizing, take a look at where hundreds of billions were funneled in the past 3 years, and where Clinton-Bush wanted to hand off Social Security before the financial crisis.

Mar. 04 2011 10:23 AM
mc from Brooklyn

jgarbuz: I hear there is a growing discontent in the secular population in Israel with supporting ultra-Orthodox who don't work. Is this overblown in the US media or did you see this when you were there?

Mar. 04 2011 10:20 AM
Tom Thorn from Westchester, NY

Krugman, how do you justify the salaries of school teachers in New York suburbs
going up 6 - 7%/year for the past 10 years?

How come you don't talk about the real issue, which is how does the public
sector salaries compare to private sector workers?

Mar. 04 2011 10:19 AM
jgarbuz from Queens

I think the size of the TARP was just about right. Not too little and not too much.
I lived in Israel during the 1980s when superinflation was rampant, unemployment was stuck at around 9%, and many apartments were "under water," and banks were going down and came under government control.
But since the former socialist economy there was whittled down, more privatization, and fiscal restraint, today the unemployment there is around 6.8%, housing prices are rising rapidly, and inflation is low.
Krugman is too socialistic. If he had seen with his own eyes what I experienced in Israel, he would become a lot less socialistic than he is today.

Mar. 04 2011 10:16 AM
Bobby G from East Village

Let's get real about the debt. Wasn't it the Republican president George W. Bush, who was handed a budget surplus upon entering office, that added $5 trillion to the national debt, failed to get Bin Ladin and his henchmen, left us with two costly, unnecessary wars, unpaid for tax cuts (that Obama caved into extending), unpaid for Medicare prescription drug benefits that has already cost a trillion dollars and counting and left office with the economy in shambles?

Guess it might take a little time to dig out of this hole. Obama needs to stand up to those who want to "drown the government in a bathtub."

Mar. 04 2011 10:08 AM
JT from LI

We need to make economics, micro and macro, a serious requirement for high school students. The next few generations will be making crucial decisions and they need to understand what they are doing. Too many people are getting their information from Fox and the result is scary.

Mar. 04 2011 09:20 AM

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