Paul Krugman won the Nobel prize for Economics in 2008 and was ranked the most influential liberal in the US media by Forbes in 2009. He is one of the leading economic voices in the world and arguably the most prominent one against the wave of austerity that followed the financial crisis of 2007.
The Conscience of a Liberal was published in 2007 and is essentially a justification of Krugman’s politics. The book is deliberately titled to look like a response to The Conscience of a Conservative written by Barry Goldwater in 1960.
In his book, Krugman the economist is first of all Krugman the historian. He explains the economic inequality that existed in USA from the post-civil war period to the 1930s. He calls this the long-gilded age. In this age the Republican party represented the rich industrialists who held a disproportionate amount of the nation’s income because of returns on their capital and the low income tax. The Democratic Party in this age represented most of the working class but lacked the resources to really compete with the well-financed Republicans. This was an age in which trade unionisation was frowned upon and strikes were violently broken with the help of the federal government.
The Great Depression of the 1930s greatly turned the tide against the rich as the anti-government intervention economic policies they supported proved to be a disastrous failure. The Democratic presidency of Franklin D. Roosevelt (1933-1945) introduced the New Deal that led to what Krugman calls The Great Compression. By raising taxes astronomically on the richest, working on the side of the unions and introducing welfare policies, America became a middle-class country with inequality lower than it had ever been. These programs were so successful that the Republican party had to adopt the new deal platform before they won the presidency in 1952 and 1956 with Dwight D. Eisenhower.
The third era Krugman analyses is the post-1980s era where inequality is going back to the level it was in the 20s. However, this era is different in that while inequality existed in the 1920s because the rich were receiving huge returns from capital they owned, many of the ultra-rich in this era are employees earning disproportionately huge salaries.
Krugman makes five major arguments in the book.
- It takes the government to reduce inequality. He argues this through the example of the New Deal and how it created a largely equal country with a decent standard of living for a significant portion of the population.
- Technology is not the reason for the return of inequality since the 1980s. If technology was the reason then there should have been similar inequality in other countries. However, the USA is unique in this and he attributes it to government lowering taxes on the wealthiest, exceptional remuneration of top executives and the destruction of the trade unions which did not happen in other countries.
- The Republican Party is once again the party of the rich and will continue to promote inequality. The moderate positions of Eisenhower Republicans were threatened by what Krugman calls “movement conservatives”. He said the first instance of the threat came when Barry Goldwater won the Republican presidential nomination and was consolidated when Ronald Reagan won the presidency in 1980.
- The movement conservatives, who have the desire to rollback all the policies of the New Deal, could only gain support for their radical ideas by exploiting white backlash against the civil rights granted black citizens. By being against the rights of minorities they are able to continue winning the white vote especially in the south although their economic policies favour only a tiny percent of the population.
- Universal healthcare will be the final block of the New Deal. Krugman argues that the USA’s healthcare sector is much worse than other developed nations because it does not guarantee healthcare for its citizens. He believes the success of a government healthcare programme will shift public sentiments strongly from the anti-government propaganda that the movement conservative think tanks have planted in the public conscience.
Reading this book in 2015, I have the benefit of being able to judge some of Krugman’s predictions. Firstly his argument that the 2006 capture of congress by the Democrats was the start of a long period of Democratic dominance has proved not to be true. I am sure he did not foresee Barack Obama’s victory in the Democratic primary. Had he predicted that, he would’ve foreseen the backlash and how it would lead to the Republican takeover of congress. He however predicted the level of bitter fighting it would take to introduce healthcare reform the size of the Affordable Care Act.
Krugman does not criticise the old Democratic Party enough for being willing to tolerate Jim Crow in the south in order to win the poor white voters. To be fair he does criticise William Jennings Bryan for being a virulent racist even though he represented the best chance of ending the economic inequality in the country. However he should’ve criticised the party as much as he did the Republicans for going for the same strategy in the 1960s.
The book shows how political parties change in the pursuit of winning elections. FDR won the majority of the black vote in 1936 and Lyndon Johnson consolidated their support in 1964 with the passing of the Civil Rights Act. And yet this had been the party of the slaveholders and of the KKK. The Republican Party, the party of Lincoln, had also adopted the southern strategy to win over white voters angry over the new rights granted blacks.
Given this history Krugman should not have been too enthusiastic about major demographic changes that he thinks will create a Democratic majority. The parties have shown that they can change radically on social issues in order to protect their economic interests. Perhaps, in time, we will see another radical shift.
Whether you agree with Krugman’s economics and politics or not, The Conscience of a Liberal is an informative book and a great insight into the raison d’être of one of the most influential economists of our time.