Rebuttal

05.14.12

Paul Krugman’s Dismissal of Structural Causes for U.S. Employment Problem Is Misguided

The Nobel laureate insists our unemployment problems are part of a chronic cycle and require government action—and says arguing the issue is structural is an excuse for doing nothing. Zachary Karabell on why that stance is misguided.

For four years, the United States has been grappling with high unemployment and underemployment. While there has been noticeable improvement since the plunge in late 2008–09, and while there is no longer a crisis of job losses, there is nonetheless a chronic employment problem in the United States.

Why this is the case has been the source of a heated and increasingly imperative debate: is the issue cyclical or structural? Is the problem the result of a particular recession and crisis that began in late 2007 and intensified in 2008–09, or is it instead a long-term shift in the nature of our economy?

This debate has become increasingly heated, especially because those who claim the problem is cyclical have a tendency to describe those who see the problem as structural as partisan tools of a right-wing agenda that preaches slashing government spending, reducing debt, and balancing budgets in the name of long-term austerity and balance.

The most egregious offender here is Paul Krugman. While his passion and desire to see better policies in the United States are evident, his virulent disdain for those who contest his analysis leaves no room for disagreement. In his new book and recent columns, he has intensified the pitch of his attacks on any who argue that the employment issue is primarily structural.

As he said in The New York Times late last week, “So what’s with the obsessive push to declare our problems ‘structural’? And, yes, I mean obsessive. Economists have been debating this issue for several years, and the structuralistas won’t take no for an answer ... Claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed ... All this talk about structural unemployment isn’t about facing up to our real problems; it’s about avoiding them.”

As someone who has been arguing that our problems are structural, I beg to differ. Krugman is an effective polemicist with a prominent perch, but let’s not confuse that with the scepter of “rightness.” Krugman often keeps good company with fellow Nobel laureate and frequent critic of the establishment view Joseph Stiglitz, yet Stiglitz has been arguing that what is roiling the United States as well as the rest of the developed world is a generational or even more unusual shift in the very nature of work and economies.

The only correlate to the current transition occurred more than a century ago as agriculture became more mechanized, which led to the massive displacement of farmers and helped cause the Great Depression. That began a process that saw tens of millions displaced from farms to the point that fewer than 2 million farmers today produce far more food than 30 million did in 1900. Today, the same transition has been occurring in manufacturing, a process that began in the 1970s and which the Internet and stock-market bubble of the 1990s and then the housing bubble of the mid-2000s only partly obscured.

Asserting the structural case does not mean championing austerity and passivity in the face of dramatic social and economic changes.

You can make the case that the massive dislocations in the nature of work are a product of these technology revolutions combined with the globalization of production and capital without been an apologist for austerity or an opponent of meaningful government action. You can be—as I am—a proponent of the view that there will be no meaningful short-term change in the nature of employment in the United States regardless of government policy and simultaneously argue—as I do—for more effective and comprehensive government action to manage the short-term dislocations and the long-term need to reinvent. And you can argue passionately—as I do—that those like Krugman who see the morass as a product of government failure are placing far too much weight on the role of government and far too little on the changing shape of the global economic system that none of us fully understands.

Krugman is locked in mortal combat with the Paul Ryans of the world, those who believe that austerity is the most important goal in a period where there has been too much ineffective government spending, too much debt, and not enough growth. Both sides of that polemic treat government as the primus inter pares, as the axis around which societal health revolves or devolves. Republicans treat government as the source of most collective ills, Democrats as the fount of most collective benefits. Krugman plays his part in this death match, seeing all who disagree as tools of capital and instruments of greed. And he meets his match in the Republicans, the preachers of austerity, who see the deficit spending and stimulus urged by Krugman et al. as exhibit A and public enemy No. 1.

Distressingly, this framing of the debate limits so many options. You can view the waves buffeting society as structural and long-term and then argue for cogent government action—and yes, spending—that acknowledges and addresses that reality. But where can that view be found in the current policy framework? You could argue for aggressive government action to manage a generational shift, to seek productive employment for the unemployed à la the Works Progress Administration and the Civilian Conservation Corps of the 1930s. After all, if we are going to spend tens of billions a year on unemployment benefits, and if those benefits make people feel simultaneously helpless and worthless, why not spend the same money allowing those people some gainful use of what skills they have? And if there truly is a generation lost in the transition, then we owe that generation a solid net—but we do not owe that to the generation now emerging. Instead, they deserve the opportunities to acquire the skills and training that they will need in a post-manufacturing world as surely as those farmers in 1900 needed new skills in a 20th-century manufacturing world.

Asserting the structural case does not mean championing austerity and passivity in the face of dramatic social and economic changes. It means naming the problem and then abandoning this pretense that all can be solved by a few years of stimulus or that government is the axis around which our collective health revolves. Government has a vital role to play, first by not making false promises, and then by not abjuring responsibility to assist in smoothing the social dislocations caused by economic and technological transformations.

We have daunting challenges, and we do have sufficient resources that “austerity” should not be the central pursuit. But the bitter nature of this debate and the unwillingness of partisans to grant those who disagree a modicum of respect does none of us any good.