By PAUL KRUGMAN: The New York Times: Phony Fear Factor!

We live in a golden age of economic debunkery, fallacious doctrines have been dropping like flies. No, monetary expansion needn't cause hyperinflation. No, budget deficits in a depressed economy don't cause soaring interest rates. No, slashing spending doesn't create jobs. No, economic growth doesn't collapse when debt exceeds 90 percent of G.D.P. And now the latest myth bites the dust: No, "economic policy uncertainty" created, it goes without saying, by That Man in the White House, isn't holding back the recovery. I'll get to the doctrine and its refutation in a minute. First, however, I want to recommend a very old essay that explains a great deal about the times we live in. The Polish economist Michal Kalecki published "Political Aspects of Full Employment" 70 years ago. Keynesian ideas were riding high, a "solid majority"of economists believed that full employment could be secured by government spending. Yet Kalecki predicted that such spending would, nonetheless, face fierce opposition from business and the wealthy, even in times of depression. Why? The answer, he suggested, was the role of "confidence" as a tool of intimidation. If the government can't boost employment directly, it must promote private spending instead, and anything that might hurt the privileged, such as higher tax rates or financial regulation, can be denounced as job-killing because it undermines confidence, and hence investment. But if the government can create jobs, confidence becomes less important, and vested interests lose their veto power. Kalecki argued that "captains of industry" understand this point, and that they oppose job-creating policies precisely because such policies would undermine their political influence. "Hence budget deficits necessary to carry out government intervention must be regarded as perilous." When I first read this essay, I thought it was over the top. Kalecky was, after all, a declared Marxist, although I don't see much of Marx in his writings. But, if you haven't been radicalized by recent events, you haven't been paying attention, and policy discourse since 2008 has run exactly along the lines Kalecki predicted. First came the "pivot" the sudden switch to the view that budget deficits, not mass unemployment, were the crucial policy issue. Then came the Great Whine, the declaration by one leading business figure after another that President Obama was undermining confidence by saying mean things about business people and doing outrageous things like helping the uninsured. Finally, just as happened with the claims that slashing spending is actually expansionary and terrible things happen if government debt rises, the usual suspects found an academic research paper to adopt as mascot: in this case, a paper by economist at Stanford and Chicago purportedly showing that rising levels of "economic policy uncertainty" were holding the economy back.


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