MIM Notes No. 198, November 15, 1999 Bourgeois internationalist split revealed in "Depression Economics" The Return of Depression Economics by Paul Krugman W.W. Norton & Co., 1999 176pp. reviewed by MC5 Influential economics professor and government consultant Paul Krugman has rushed to publish a book updating the situation of the economic crisis in Asia. Extolled by Fortune Magazine, the Boston Globe and Newsweek, and now awarded a regular column on the op-ed page of the New York Times,(1) Krugman is someone to read to know what the ruling class economists are thinking. There is nothing otherwise remarkable about this book. The title will help to sell books, but Krugman does not predict immediate and dire depression for the United $tates or European economies. He calls the current situation in Asia the "Great Recession."(p. xi) "Over the course of the last two years seven economies -- economies that still produce about a quarter of the world's output and that are home to two-thirds of a billion people -- have experienced an economic slump that bears an eerie resemblance to the Great Depression. Now as then, the crisis has struck out of a clear blue sky, with most pundits predicting a continuing boom even as the slump gathered momentum; now as then the conventional economic medicine has proved ineffective, perhaps even counterproductive."(pp. vii-viii) Comments on Mao Interestingly enough, Krugman starts the book with comments on Mao. As MIM does, Krugman concludes that the steam went out of our movement with the defeat of the Cultural Revolution in China. Next, the Soviet Union collapsed.(p. 3) Also like MIM, he notes that certain trends for armed struggle in Europe relied on Soviet aid (p. 5) -- even while making vague noises for Mao without supporting the idea of the Cultural Revolution. Krugman's point is that we communists are dead and that has changed the economic situation in the world, with more investors willing to invest in the Third World than ever -- without fear of expropriation. In contrast, MIM points to Mao on development questions because only those countries that uprooted semi- feudalism through harsh class struggle managed to get on the positive economic growth path. That is why Indonesia and Thailand recently collapsed and could not sustain the momentum that imperialist speculators had created in those two countries. MIM explained the success of the "Four Tigers" -- exceptional successes in neo-colonial Asia -- in 1993.(2) Like some of the most superficial and ahistorical sociologists, Krugman believes the idea that the "Confucian ethic" explains why Taiwan, Korea, China etc. are experiencing economic growth. Confucius was a teacher around 500 B.C. who founded a secular religion. His influence existed for thousands of years, so the obvious question was why Confucianism did not bring economic growth much earlier. The simple truth is that Japan, Taiwan, Korea and China all crushed their landlord classes and were therefore able to develop as capitalist economies while other countries continue to stifle under semi-feudalism backed with U.$. military aid. The role of speculators Bourgeois economics has become a branch of psychology and Krugman provides the proof. (See for example how NAFTA was purely psychological and merely reflected what was already happening.(p. 44)) MIM has previously reported on a very significant split in the bourgeois internationalist camp between those grouped around the International Monetary Fund (IMF) and those grouped around the World Bank. Jeffrey Sachs and Krugman line up against the IMF. However, Krugman explains the rationale that the IMF has for its line of approach. All over the world, the IMF demands austerity policies of countries on the brink or in the midst of total economic collapse. Asking for and obtaining 50% interest rates, higher taxes and lower social spending is the norm in order for the IMF to loan out money to desperately poor countries. Most of these countries need a massive boost in "effective demand" as the Keynesians say.(3) But instead of following the prescriptions of Arjun Makhijani, reviewed by MIM in MIM Theory and in our bookstore,(4) the IMF makes a bad situation worse in country after country. Significantly, the academic economists have finally figured out why the IMF does this. The role of the IMF is essentially psychological. There may be no good economic reason to impose austerity and raise interest rates in a crisis-ridden country, but the IMF demands it anyway to appease speculators. Investor perception matters more than economic reality. While the notion of "contagion" has become disrespected in bourgeois sociology, Krugman uses it to refer to speculator behavior. The reason the East Asian economies fell like dominoes is that international investors viewed all East Asian countries as in the same boat, regardless of the facts.(p. 97) Without using the word "racism," Krugman admits that there is a double-standard. Speaking of the U.S. Treasury (which emerges as "good guys") and the IMF, Krugman says, "why did these extremely clever men advocate policies for emerging market economies that would have been regarded as completely perverse if applied at home? . . . The short answer is 'fear of speculators.'"(p. 104) What the IMF has done is "an exercise in amateur psychology, in which the IMF and the Treasury Department tried to persuade countries to do things they hoped would be perceived by the market as favorable."(pp. 113-4) For Krugman to say this in public is a little like pulling the curtain on the Wizard of Oz. It too can have effects on speculative action and perhaps make the bluffing job of the IMF and treasuries everywhere more difficult. Krugman himself ends up being for capital controls -- meaning restrictions on the movement of capital across borders. He defended Malaysia's actions to cut off speculators. Describing how capital sometimes needs to be "grounded" the way a parent disciplines a child, Krugman says "it would be safe for each investor if he were sure that other investors were not about to take flight. But investors mistrusted each other -- and the crisis came."(p. 164) Communists have known since Marx that such individualist mistrust is built into the capitalist system. This is why we refer to the anarchy of capitalist production. Private investment and production leave economic policy to the realm of individualist choice. At the moment, the left-leaning faction of bourgeois internationalists has the IMF faction of bourgeois internationalists back on its heels. The IMF is also getting criticism from the far right. Roughly-speaking, the way Krugman paints it, this is a conflict between New Money and Old Money. Old Money leads a purely hereditary and paper existence while New Money arises in the process of economic growth. Old Money believes economic crises are caused by "bad loans" that require more self-discipline or regulation. Old Money will abide by government regulation if taxpayers pay for Old Money's mistakes in making bad loans. New Money cannot dispense with Old Money, because the two both agree that merely owning things should be rewarded with profits or interest income. Notes: 1. The New York Times, 8 October 1999, section C. 2. MIM Theory 4: A Spiral Trajectory, The Failure and Success of Communist Development, pp. 76-9. (Available from MIM for $6.) 3. John Maynard Keynes was the British economist who became famous during the Great Depression of the 1930s for advising government intervention to save capitalism from itself. 4. http://www.prisoncensorship.info/archive/etext/bookstore/ edited by MC45 and MC12 Full length review can be found at MIM's online bookstore.