In the NYT today, Paul Krugman, after recounting the birth of the Tea Party movement in the Rick Santelli outburst on CNBC and stating the Keynesian macro position without defense, writes:
So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.
As a student of Modern Monetary Theory, and someone with a decent respect for the implied neo-Keynesian position, I think the first recommendation is correct — although I doubt Krugman and I want to “spend” in the same way (I’d favor tax cuts, or suitcases full of money dropped in peoples’ backyards, or, if forced to go for real government programs, actual infrastructure spending, including the military infrastructure).
The second recommendation is quite problematic. Apparently, Krugman will attack those who don’t think it meets the standard of justice to ask investors to take a haircut as “moralizers.” The same “moralizers” who have always stood in the way of leftist “progress,” no doubt.
But here’s the thing: we’ve basically accepted, as a people, for decades now, that government has a role in making everyone, on average, better off, even if it means making a few worse off than they would be in a free market with a night watchman state. So, if a thorough analysis could establish that it serves “the common good” to force certain investors to forgive large portions of debt (to avoid a very ugly foreclosure wave), is that just a “sacrifice those people will have to be willing to bear?” After all, there are many scenarios in which Americans have adopted similar policies (we drafted particular men and sent them to die in two world wars to serve some abstract notion of the common good, to take but one example). It’s not like this would be breaking any really new moral ground.
What do you think?