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Going to Extreme

By PAUL KRUGMAN

I admit it: I had fun watching right-wingers go wild as health reform finally became law. But a few days later, it doesn’t seem quite as entertaining — and not just because of the wave of vandalism and threats aimed at Democratic lawmakers. For if you care about America’s future, you can’t be happy as extremists take full control of one of our two great political parties.

To be sure, it was enjoyable watching Representative Devin Nunes, a Republican of California, warn that by passing health reform, Democrats “will finally lay the cornerstone of their socialist utopia on the backs of the American people.” Gosh, that sounds uncomfortable. And it’s been a hoot watching Mitt Romney squirm as he tries to distance himself from a plan that, as he knows full well, is nearly identical to the reform he himself pushed through as governor of Massachusetts. His best shot was declaring that enacting reform was an “unconscionable abuse of power,” a “historic usurpation of the legislative process” — presumably because the legislative process isn’t supposed to include things like “votes” in which the majority prevails.

A side observation: one Republican talking point has been that Democrats had no right to pass a bill facing overwhelming public disapproval. As it happens, the Constitution says nothing about opinion polls trumping the right and duty of elected officials to make decisions based on what they perceive as the merits. But in any case, the message from the polls is much more ambiguous than opponents of reform claim: While many Americans disapprove of Obamacare, a significant number do so because they feel that it doesn’t go far enough. And a Gallup poll taken after health reform’s enactment showed the public, by a modest but significant margin, seeming pleased that it passed.

But back to the main theme. What has been really striking has been the eliminationist rhetoric of the G.O.P., coming not from some radical fringe but from the party’s leaders. John Boehner, the House minority leader, declared that the passage of health reform was “Armageddon.” The Republican National Committee put out a fund-raising appeal that included a picture of Nancy Pelosi, the speaker of the House, surrounded by flames, while the committee’s chairman declared that it was time to put Ms. Pelosi on “the firing line.” And Sarah Palin put out a map literally putting Democratic lawmakers in the cross hairs of a rifle sight.

All of this goes far beyond politics as usual. Democrats had a lot of harsh things to say about former President George W. Bush — but you’ll search in vain for anything comparably menacing, anything that even hinted at an appeal to violence, from members of Congress, let alone senior party officials.

No, to find anything like what we’re seeing now you have to go back to the last time a Democrat was president. Like President Obama, Bill Clinton faced a G.O.P. that denied his legitimacy — Dick Armey, the second-ranking House Republican (and now a Tea Party leader) referred to him as “your president.” Threats were common: President Clinton, declared Senator Jesse Helms of North Carolina, “better watch out if he comes down here. He’d better have a bodyguard.” (Helms later expressed regrets over the remark — but only after a media firestorm.) And once they controlled Congress, Republicans tried to govern as if they held the White House, too, eventually shutting down the federal government in an attempt to bully Mr. Clinton into submission.

Mr. Obama seems to have sincerely believed that he would face a different reception. And he made a real try at bipartisanship, nearly losing his chance at health reform by frittering away months in a vain attempt to get a few Republicans on board. At this point, however, it’s clear that any Democratic president will face total opposition from a Republican Party that is completely dominated by right-wing extremists.

For today’s G.O.P. is, fully and finally, the party of Ronald Reagan — not Reagan the pragmatic politician, who could and did strike deals with Democrats, but Reagan the antigovernment fanatic, who warned that Medicare would destroy American freedom. It’s a party that sees modest efforts to improve Americans’ economic and health security not merely as unwise, but as monstrous. It’s a party in which paranoid fantasies about the other side — Obama is a socialist, Democrats have totalitarian ambitions — are mainstream. And, as a result, it’s a party that fundamentally doesn’t accept anyone else’s right to govern.

In the short run, Republican extremism may be good for Democrats, to the extent that it prompts a voter backlash. But in the long run, it’s a very bad thing for America. We need to have two reasonable, rational parties in this country. And right now we don’t.

Krugman On Samuelson

There have been hedgehogs; there have been foxes; and then there was Paul Samuelson.

I’m referring, of course, to Isaiah Berlin’s famous distinction among thinkers – foxes who know many things, and hedgehogs who know one big thing. What distinguished Paul Samuelson as an economic thinker, making him like nobody else, past or present, was the fact that he knew – and taught us – many big things. No economist has ever had so many seminal ideas.

With a little help from Google Scholar, I’ve compiled a list of some of Samuelson’s big ideas. I say “some” because I’m sure it’s not complete. But anyway, here are eight – eight! – seminal insights, each of which gave rise to a vast and continuing research literature:

1. Revealed preference: There was a revolution in consumer theory in the 1930s, as economists realized that there was much more to consumer choice than diminishing marginal utility. But it was Samuelson who taught us how much can be inferred from the simple proposition that what people choose must be something they prefer to something else they could have afforded but don’t choose.

2. Welfare economics: What does it mean to say that one economic outcome is better than another? This was a blurry concept before Samuelson came in, with much confusion about how to think about income distribution. Samuelson taught us how to use the concept of redistribution by an ethical observer to make sense of the concept of social welfare – and thereby also taught us the limits of that concept in the real world, where there is no such observer and redistribution usually doesn’t happen.

3. Gains from trade: What does it mean to say that international trade is beneficial? What are the limits of that proposition? The starting point is Samuelson’s analysis of the gains from trade, which drew on both revealed preference and his welfare analysis. And everything since, from the distortions analysis of Bhagwati and Johnson, to the generalized comparative advantage concepts of Deardorff, has been based on that insight.

4. Public goods: Why must some goods and services be provided by the government? What makes some, but only some, goods suitable for private markets? It all goes back to Samuelson’s 1954 “Pure theory of public expenditure”.

5. Factor-proportions trade theory: Every time we talk about resources and comparative advantage, every time we worry about the effect of trade on income distribution, we’re harking back to Samuelson’s work in the 1940s and 1950s: he took the vague, confusing ideas of Ohlin and Heckscher, and turned them into a sharp-edged model that defined most trade theory for a generation, and remains a key part of the modern synthesis.

6. Exchange rates and the balance of payments: A bit of personal storytelling: Most people who work in international trade tend to lose the thread when the discussion turns to exchange rates and the balance of payments; as I’ve sometimes put it, the real trade people regard international macro as voodoo, while the international macro people regard real trade as boring and irrelevant (and when I’m in a sour mood, I suggest that both are right). But I was saved from all that when I read Dornbusch, Fischer and Samuelson 1977 on Ricardian trade, which among other things showed how trade and macro, exchange rates and the balance of payments, the possibility of gains from trade but also the possibility of unemployment, all fit together.

What I learned later was that Samuelson grasped these issues much earlier, although the neatness of the DFS formulation surely helped get them across. Here’s what he wrote in his 1964 paper “Theoretical notes on trade problems”: “With employment less than full and Net National Product suboptimal, all the debunked mercantilist arguments turn out to be valid.” And he went on to mention the appendix to the latest edition of his Economics, “pointing out the genuine problems for free-trade apologetics raised by overvaluation”. The solution, of course, was to end the overvaluation rather than restrict trade; Samuelson understood that good macroeconomic policies are a prerequisite for good microeconomic policies. More on that in a minute.

7. Overlapping generations: Samuelson’s 1958 overlapping-generations model of borrowing and lending is the ur-framework for thinking about everything from Social Security to household debt. It’s hard to imagine macro without it.

8. Random-walk finance: Samuelson’s demonstration that forward-looking investors imply randomly fluctuation prices is the starting point for much of modern finance.

As I said, I’m sure there’s more. But notice that any one of these ideas, all by itself, would have been considered enough to make Samuelson a great economist. Nobody, but nobody, has done this much.

So how did he do it? By being smarter than anyone else, of course. But there were also, I’d suggest, two aspects of Samuelson’s intellectual makeup that empowered his intellectual quest.

The first was his playfulness. Read Samuelson’s work, and what you get is the sense of a man who, rather than sitting down to write Very Serious Papers, was having fun with ideas. Sometimes the playfulness boiled over into inspired silliness. Look at footnote #9 in his overlapping-generations paper, where he writes: “Surely, no sentence beginning with the word ‘surely’ can validly contain a question mark at its end? However, one paradox is enough for one article …” It seems clear to me that Samuelson’s playfulness liberated his imagination, and fueled his creativity.

And yet Samuelson was at the same time always grounded in reality. No ivory-tower academic he: he remained deeply interested in events and policy, he played the markets, he never let his theories override his sense of the way things actually were.

Which brings me, finally, to Samuelson’s great contribution to economic policymaking: the Keynesian synthesis. Samuelson was, intellectually, a Depression baby: he came of intellectual age in an environment of mass unemployment. His textbook brought Keynesian thinking to a broad audience. And he never forgot that markets can malfunction terribly. How, then, could economic theory on the virtues of markets be of any real-world use?

Samuelson’s answer was that good macro policies come first. Monetary and fiscal policy had to be employed to assure more or less full employment (and as I’ve pointed out elsewhere, Samuelson appreciated the limits of monetary policy in a way that seems incredibly prescient today). Exchange rates had to be adjusted to assure competitiveness. Only then could the virtues of markets come into play.

It was a lesson that too many economists forgot, as they immersed themselves in the lovely math of perfect markets. But Samuelson’s realism – his understanding that markets are great things, but need to be supported by government activism — has never seemed more relevant than it does now.

So let us praise Paul Anthony Samuelson, the incomparable economist. There has never been, and will never be, anyone to match him.

by Paul Krugman