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Jeffrey Sachs explains the real situation

by Robert Teitelman | Published July 13, 2012 at 1:22 PM

There's nothing like an economists' catfight to enliven a summer Friday in deep July. Today's main event: Jeffrey Sachs vs. Paul Krugman. Technically it started yesterday, when the Financial Times put up Sachs' column attacking Krugman, eliciting a rapid response from Brad DeLong ("I find very little here that I can agree with") followed by a sniffy response from Krugman ("His argument is a series of non sequiturs"), which DeLong then linked to. Today the same column appeared in the hard-copy FT, for those souls still stirred by the rustle of paper. What's the problem here? Sachs, the head of the Earth Institute at Columbia University and a world-trotting economic adviser, wrote a column arguing that "America's economic debate is stuck in a time warp." On one hand, you have Mitt Romney and the Republicans mired in the 1920s, although they also worship "thirty years of failed Reaganomics." On the other hand, you have Krugman, whom Sachs characterizes as some apostle of a "simplified Keynesian worldview" because of a fixation on ending austerity policies. For Krugman, charges Sachs, "there are no structural challenges, only shortfalls in aggregate demand. There is no public debt problem. There is no global competitiveness challenge. Fiscal multipliers are predictable, timeless, persistent and large. All growth reversals can be solved through larger deficits." And on and on. He has at least three more charges in his bill of indictment that I lack the space to quote.

Now I have to admit there are times when Krugman, in all his vast certitude, can be annoying, tendentious and resemble a 24-hour jackhammer. Austerity, again! There are times, particularly when he wanders outside his expertise and offers free political advice (because, as a tenured professor at Princeton, he has the pulse of the people) to the president, that he seems a know-it-all. And there are times when his antipathy to anything Republican--elephants and bankers as a breed, white shoes, tax cuts--grates. But what is Sachs smoking here? In books, in endless columns in The New York Times and in interviews, Krugman has made it pretty clear that the argument about the need to stimulate aggregate demand is a short-term answer to try to get the patient off the operating table so that longer-term policies on the deficit, entitlements, even climate change--just a few of Sachs' pet needs--can be tackled. He has been consistent in that, from the fall of Lehman Brothers to the euro crisis to his rejoinder yesterday. Not only that, he has large numbers of other economists on his side, including, in the very pink pages of the FT itself, Martin Wolf. In fact, that point of view is so widespread, you have to wonder why Sachs decided to aim his blunderbuss at Krugman. After all, unlike Romney, he's not running for president; there's a guy named Obama doing that, who seems able to speak for himself, and with whom Krugman, in a loving way, occasionally disagrees. You are forced, alas, to ponder the possibility of professional envy and jealousy on Sachs' part. Is it a Nobel thing?

There's a faint whiff of hypocrisy here as well. Sachs argues that both ends of the current debate are backward looking, simplistic and apparently of little value: The world has changed! "Why have we come to this empty debate that addresses none of the subtleties, trade-offs and uncertainties of the real situation?" His answer: There's a lot of noise out there and novel problems. The world has changed! He then offers, in what looks to be about 300 words, his Baedeker to the "real situation," a phrase that sends a chill through me. This includes the fact that finance is global and regulation is national; that "the world of work is being transformed"; that tax collection is beginning to resemble "Swiss cheese"; that we are in the age of something called the Anthropocene (Dictionary.com: "A proposed term for the present geological age during which humans have begun to have a significant impact on the earth"), meaning we are limited by natural resources and climate change; and that governments are broke. Who can argue--though the list sounds like it was cadged from a brochure for the Earth Institute. And, I hate to say it, they strike me as a pretty simplistic, and hardly comprehensive, descriptions of the real situation out there in the real world. Sachs is accusing an op-ed columnist and a pol of simplistic solutions while writing an executive summary of his own. Pretty sweet.

Sachs, deliberately or not, makes a more interesting point, but leaves it hanging. That's his notion that the world has changed so much that none of the economic thinking of the past, even Keynes and presumably Hayek and Friedman, is worth rooting through. Let's start all over! He sums this up in his last line, which sounds pretty stump-speechish to me: "It's time we moved beyond the Republican party economics of the 1920s and the Democratic party economics of the 1930s, to a new macroeconomics for the 21st century." What does that mean? Does he expect Romney and Krugman, er Obama, to thrash out a new macroeconomics, a kind of 21st century "General Theory," on the stump? Is he suggesting that his recitation of the real situation is the start of that? The world has changed! That he's the new Keynes-- or that that job belongs to, my God, Krugman? The truth is, Sachs' recitation of global woes is not a surprise to anyone who reads the newspaper--OK, the numbers of those folks are falling--but they are really not about macroeconomics at all; they're about a variety of policy choices, some of which have nothing to do with macroeconomics. Keynes did not struggle with colonization, financial regulation or the breakdown of democracy in the '30s when he wrote "The General Theory"; he focused on the causes and solutions to a prolonged economic slump. He recognized the difference between short term and long ("in the long run we're all dead"), and the need to do certain things to get from one to the other. He never thought all of his ideas would apply in all situations, at all times. And he had a very clear idea of what kind of problems are apprehensible by economic thinking-- it only became "macroeconomic" after he was gone--and what can be tackled by other modes of thought, like that of the businessman, the historian, the philosopher or the artist. He was a very sophisticated thinker.

On the evidence of this op-ed, Sachs is no Keynes. (Perhaps that's obvious.) I'm not sure that Krugman would put himself in the Keynes league either, but at least he's focused on problems that have solutions somewhere before we meet our Maker. But what does it matter to Sachs? The world has changed! - Robert Teitelman

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