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Friday, June 10, 2011

Paul Krugman: Rule by Rentiers

Why have policymakers all but forgotten about the unemployed?

Rule by Rentiers, by Paul Krugman, Commentary, NY Times: The latest economic data have dashed any hope of a quick end to America’s job drought... Yet there is no political will to do anything about the situation. Far from being ready to spend more on job creation, both parties agree that it’s time to slash spending — destroying jobs in the process — with the only difference being one of degree.
Nor is the Federal Reserve riding to the rescue. ... And debt relief for homeowners — which could have done a lot to promote overall economic recovery — has simply dropped off the agenda. ...
The situation is similar in Europe, but arguably even worse. ... What lies behind this trans-Atlantic policy paralysis? I’m increasingly convinced that it’s a response to interest-group pressure. Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense. ...
 Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump ... but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.
Who are these creditors I’m talking about? ... The ... only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers: bankers and wealthy individuals with lots of bonds in their portfolios.
And that explains why creditor interests bulk so large in policy; not only is this the class that makes big campaign contributions, it’s the class that has personal access to policy makers — many of whom go to work for these people when they exit government through the revolving door. The process of influence doesn’t have to involve raw corruption (although that happens, too). All it requires is the tendency to assume that what’s good for the people you hang out with, the people who seem so impressive in meetings — hey, they’re rich, they’re smart, and they have great tailors — must be good for the economy as a whole.
But the reality is just the opposite: creditor-friendly policies are crippling the economy. This is a negative-sum game, in which the attempt to protect the rentiers from any losses is inflicting much larger losses on everyone else. And the only way to get a real recovery is to stop playing that game.

    Posted by on Friday, June 10, 2011 at 12:42 AM in Economics, Policy, Politics | Permalink  Comments (168)


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