Arguing with Zombies: Economics, Politics and the Fight for a Better Future, by Paul Krugman

Book of the week: Victoria Bateman is impressed by the clear and wide-ranging insights of a Nobel-winning economist and public intellectual

January 30, 2020
Donald Trump Zombie at the annual Silver Spring Zombie Walk in Maryland
Source: Reuters

Asia Times called him “the Mick Jagger of political/economic punditry”, while The Economist magazine has referred to him as “the most celebrated economist of his generation”. The latest book by the American Nobel-prizewinning economist Paul Krugman is a collection of his newspaper articles, mostly written for The New York Times and spanning more than two decades, though with plenty to say about the Trump era.

Krugman is not what one would call a neoliberal economist. He can see the downsides as well as upsides of markets and believes that the state (if it uses its power wisely) can make a substantial difference. Although, as he notes in a section of the book aptly titled “Eek! Socialism!”, “if you think we [in the US] should be a bit more like Denmark…conservatives will insist that you want to turn us into Venezuela” – something he anticipates will be a key theme in the 2020 American presidential election campaign.

Krugman’s tendency towards social democracy inevitably leaves him with a lot to say (or rather critique) with regard to US policy and politics. He engages with real-world – and often pressing – economic issues, from US social security, healthcare and inequality, to more global themes such as the euro, climate change and trade wars.

Krugman’s Nobel prize was awarded in 2008 specifically in recognition of his work on international trade. While it is one thing to understand why economies that are very different from each other may trade – in order to mutually benefit from their differences – it is somewhat more difficult to understand why countries that are very similar (such as rich Western countries) trade with one another, exporting and importing very similar types of goods, for example, trading German cars for, well, British cars. To explain this phenomenon, Krugman brought together the idea that there are benefits to producing on a larger scale (as is enabled by trade) with the fact that consumers like variety. As a result, there are benefits in several countries producing the same kind of product, an analysis that fitted neatly with the empirical reality of globalisation in the 20th century: expanding trade between like (and not just dissimilar) countries.

Now, Krugman is honest and humble enough to note that his argument had already been made by non-mainstream trade theorists, but that it was only once he had formalised it in equations and diagrams that it was taken seriously by the majority of economists, albeit not instantaneously (his Nobel-prizewinning work was initially rejected by a top-ranked economics journal). This has left Krugman with a healthy scepticism about what it takes to succeed in academic economics. In his essay “How I work”, initially published in 1993 but reproduced here, he writes that: “If you want to publish a paper in economic theory, there is a safe approach: make a conceptually minor but mathematically difficult extension to some familiar model. Because the basic assumptions of the model are already familiar, people will not regard them as strange; because you have done something technically difficult, you will be respected for your demonstration of firepower. Unfortunately, you will not have added much to human knowledge.”

As Krugman himself notes, what he did was in many ways the opposite: “using assumptions that were unfamiliar, and doing very simple things with them.”

His work on trade has been used to defend “infant industry” protectionism in poorer countries, where tariffs in theory enable domestic producers to benefit from a period free from competition with established foreign producers. In this time, they can gather their own steam, selling products into what is now a captive domestic market, enabling a scale of production that leads to lower costs and “learning by doing” – and ultimately allows them to compete globally once tariffs are removed. However, such defences of protectionism do not extend to richer countries such as the US, and so Krugman has taken a consistent anti-tariff view when it comes to Donald Trump. Given his specialism in trade, the Trump tariff war inevitably forms an important part of this book.

Beyond this work, Krugman has also made a name for himself by championing a Keynesian response to the global financial crisis (his writings on which form about a third of this book). As he humbly admits: “I myself recognised that we had a huge housing bubble, but was shocked at the damage the burst bubble inflicted, mainly because I hadn’t realised how vulnerable our financial system had become thanks to the growth of unregulated ‘shadow’ banking.” Consistent with his emphasis on Keynesian stimulus, Krugman has also been a critic of austerity (in the case of the UK, drawing upon the work of the economist Simon Wren-Lewis).

Inequality forms another topic of this book, beginning with an article from 1992 that highlighted the rise in inequality over the previous decade and confronted the inequality deniers (some of whom can still be found today). Later articles, also reproduced here, argue that rising wage differentials between skilled and unskilled workers cannot account for the extent of the increase in inequality, and that while many on the political right have argued that what they call “moral breakdown”(!) is responsible for stubborn poverty, changes in society can instead be seen as a response to difficult economic conditions, including the declining wages of working-class men, rather than vice versa. Looking to the future, Krugman finds himself defending new technology and does not fear the rise of a robot army that will cause mass unemployment and forever stagnating wages. As he notes, some people made similar dire predictions about technology at the time of the Industrial Revolution, and were largely proven wrong.

This is a book with many parts, each of which contains multiple and mostly short newspaper articles. It’s the kind of book that you can dip in and out of depending on what piques your interest or whatever is currently topical news-wise (my own favourites were the parts on socialism, inequality and trade wars). Along the way, you’ll find Krugman tackling what he calls the zombie ideas that endlessly reappear in political debates: that austerity will help the economy (known as expansionary austerity); that there is a ceiling for government debt (of about 90 per cent of gross domestic product), above which “terrible things happen”; or that taxing the wealthy will be economically damaging. He makes readers aware of how much race still defines American politics, with voters happy to vote for parties that offer them very little in terms of economic security but which play to racist (or anti-immigrant) sentiment. And Krugman certainly does not hold back in his criticisms of Trump: “Trump is about as populist as he is godly…While he isn’t a populist, however, he is a pathological liar, the most dishonest man ever to hold high office in America. And his claim to stand with working Americans is one of his biggest lies. He’s scamming his supporters.”

Krugman did not begin his academic life with the aim of becoming a public intellectual but, as he notes, in today’s world everything is political. It is difficult not to be drawn in as an economist when zombies continue to walk the political terrain. The battle for truth may not be won, but it can be lost – and it will be lost unless we keep fighting those who peddle the opposite.

Victoria Bateman is a fellow in economics at Gonville & Caius College, Cambridge, and the author of The Sex Factor: How Women Made the West Rich (2019).

Arguing with Zombies: Economics, Politics and the Fight for a Better Future
By Paul Krugman
Norton, 464pp, £22.99
ISBN 9781324005018
Published 28 January 2020

The author

Paul Krugman, distinguished professor of economics at City University of New York’s Graduate Center, was born in Albany, New York and studied economics at Yale University before going on to a PhD at the Massachusetts Institute of Technology. He has subsequently worked at Stanford University, the London School of Economics and Princeton University as well as Yale and MIT while also serving on the Council of Economic Advisors under President Reagan. He was awarded the 2008 Nobel Prize for Economic Sciences for his work on new trade theory and new economic geography.

“Thirty years have passed since a small group of theorists began applying concepts and tools from industrial organization to the analysis of international trade,” Krugman explained in his prize lecture. The challenge was to explain what was then “a comparatively new phenomenon”, namely trade in “similar products between similar countries”, typified by “the massive two-way trade in automotive products between the United States and Canada”. With their models, Krugman went on, he and his fellow theorists “didn’t supplant traditional trade theory so much as supplement it, creating an integrated view that made sense of aspects of world trade that had previously posed major puzzles”. Further developments in the field meant the unhelpfully named “new trade theory” was now sometimes referred to as “the old new trade ­theory”.

Another key area to which Krugman made a major contribution was economic geography. “As late as 1990,” his Nobel lecture pointed out, “economists took virtually no notice of trade within countries, or the location of production in space”. Yet given that “God made [Silicon] Valley for apricots, not semiconductors”, this left many important questions for him and colleagues to answer about why certain industries grew and generated increasing returns in particular places.

Matthew Reisz


Print headline: Musings from the markets’ rock star

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