Following up his April attacks on the
critics of the World Bank and IMF as economic illiterates, and after being
criticized by them in turn as an establishment spokesperson, Paul Krugman
offered readers of his New York Times column an analysis of political
bias in economics (“How To be A Hack,” April 23, 2000). This statement
is worthy of a close look for Krugman’s methods of exoneration of both
himself and his approved (mainstream) professional colleagues from the “hack”
category.

One satirical device Krugman employs is to tell his readers that he has been
accused of being “a hired tool of global capitalism.” This “upset
me greatly,” he reports, causing him to ask his “masters” for
a raise to compensate for the pain. This cute evasion permits him to avoid
discussing the fact that he was indeed “hired” by the New York
Times, an institution that is advertising-based and clearly a part of
the corporate establishment, and that he was surely vetted by its editors
and found to meet their standards, like Thomas Friedman and Richard Bernstein.

The Times published some 28 articles and reviews by Krugman in the
14 years prior to giving him a bi-weekly column, so in a sense its editors
have been vetting him for a long time. Based on that output it is easy to
see why they have found him worthy of regular employment: He is smart, writes
with facility and assurance, and while a liberal he trims his sails to the
prevailing winds and rarely departs from mainstream positions. So that just
as the Times has shown little interest in the decline of labor and
the increase in income inequality, Krugman also has bypassed such matters,
on the grounds of political realism. In his books The Age of Diminished
Expectations (1988) and Peddling Prosperity (1994), he spent considerable
space chastising the conservatives for denying the facts and seriousness of
the problem of the rising inequality of income distribution, but in the former
book he then dismissed the issue from further consideration on the ground
that “its trend appears politically out of bounds” and the “public”
is tired of the subject. In Peddling Prosperity he devoted a few half-hearted
lines to government policy for alleviating poverty, urging more financial
aid to poor children and mothers; but he spent many pages explaining that
trade and globalization do not cause poverty. In neither book does the index
contain a reference to labor unions.

The Times’s editors have faithfully supported NAFTA and the new
international economic order buttressed by the IMF, World Bank, and World
Trade Organization (WTO), and so has Krugman. Not only do both favor freer
trade and investment, they have also displayed little regard for democracy
when it conflicts with a perceived “national interest” and “free
trade.” In this regard Krugman is at one with his fellow mainstream economists,
several hundred of whom signed the letter supporting U.S. entry into a “partnership”
with the “Mexican people” via NAFTA, despite the fact that the Salinas
government ruled on the basis of a fraudulent election. Krugman was also one
of many economists who favored NAFTA precisely because it would “lock
in” Mexico to the “reforms”—and lock out the Mexican people’s
freedom to choose their development path. This anti-democratic thrust is also
evident in Krugman’s support of IMF-World Bank conditionality rules and
WTO encroachments on national sovereignty, a stance that blends together free
market ideology, service to the “national interest” of the home
state, and the denial of democratic rights to the people of weaker states.

Although Krugman chides those with whom he disagrees as hacks for their carelessness
in the use of fact, and for always “singing the same tune,” he doesn’t
engage in self analysis on these matters. Thus if everybody important in economics
says that the “natural rate of unemployment” is 5.5-6 percent, Krugman
says the same, and accordingly, he assured readers of the Times back
on February 4, 1996 that this 5.5-6 percent unemployment limit precluded a
more expansionist macro-policy. Krugman and this mainstream consensus have
been refuted by the economic history of the past five years.

If the growing consensus is that government is a drag on the economy, Krugman
agrees: “The evidence suggests that it is difficult for the government
to have any visible effect on the economy’s long-term growth rate”
(NYT, Op. Ed, September 4, 1996). This is a high-school level misreading
of economic history here and abroad; U.S. industrialization in the 19th and
much of the 20th century was underwritten by government, and the slowdown
of growth after 1970 was almost surely tied to the weakening of public investment
in the wake of the bipartisan attack on “big government.” That the
long-term growth rate of post-World War II Japan and the Asian “tigers”
was successfully promoted by their governments’ aggressive interventionary
policies is not part of Krugman’s “evidence” either (see Alice
Amsden’s Asia’s Next Giant and Robert Wade’s Governing
the Market).

On social security, too, Krugman jumped on the “crisis” bandwagon
in Peddling Prosperity and in a favorable book review of Pete Peterson’s
Will America Grow Up Before It Grows Old (NYTBR, October 20,
1996). In his review he states that “we are drifting inexorably toward
crisis; if you think 30 years ahead, you wonder whether the Republic can be
saved…the promises that are being made to those now working cannot be honored.”
In a subsequent posting (Slate, November 11, 1996) Krugman admitted
that he “went overboard in supporting Pete Peterson’s position on
entitlements and demographics….I broke my own rules that you should always
check an argument with a back-of-the-envelop calculation and by consulting
with the real experts.” But his errors on the phony crisis claims were
egregious, and they displayed a propensity to accept conventional (and corporate)
claims that can apparently overwhelm his critical and scientific sense and
skills.

Some of the serious students on social security are located at the Economic
Policy Institute (EPI) and Center for Economic and Policy Research (CEPR)
in Washington, DC. But in his “hacks” article Krugman couples the
EPI with the Heritage Foundation as organizations with built-in bias and manned
by hacks. On the other hand, in Peddling Prosperity he relies heavily
on Martin Feldstein, president of the National Bureau of Economic Research
(NBER), as an expert on social security related issues. (Feldstein is also
a regular contributor to the Wall Street Journal’s editorial page
and a ranking free market ideologue.) Specifically, Krugman cited Feld- stein
on the possible negative effect of social security on personal saving and
capital investment. But the interesting background fact is that in one of
the outstanding cases of intellectual fraud in recent times, sometimes referred
to as “Martygate,” Feldstein was caught massaging the data on the
very question of the relation of social security to savings rates, and was
forced to admit a “programming error” that gave results supporting
his hypothesis (see “‘Superstar’ Feldstein’s Little Mistake,”
Dollars and Sense, December 1980). Despite this history, Krugman not
only relies on Feldstein on this very topic on which Feldstein cheated, failing
to mention the earlier scandal, he even pats Feldstein on the back as a “careful”
researcher (“No matter how careful the research of conservative public
finance theorists like Martin Feldstein might be,…” [p. 75]). This
unqualified use of Feldstein as a source is a scholarly lapse of the first
magnitude.

We may therefore ask: why is Feldstein (and the NBER) a legitimate and unbiased
source on social security whereas Edith Rasell, Dean Baker (with EPI for seven
years, now with CEPR), Jeff Faux, and EPI are put in the hack class with Heritage?
The answer is that Feldstein’s biases, like Pete Peterson’s, are
acceptable within the mainstream, and a mainstream thinker and “realist”
like Krugman therefore treats them with the respect that they don’t deserve
on independent and scientific criteria. It is of interest that the New
York Times repeatedly gave Feldstein the floor to advise the paper’s
readers on social security following the disclosure that he had cheated on
the subject (NYT, March 30, 1980; Oct. 5, 1980; July 27, 1998; March
31, 1999).

Similar factors affect Krug- man’s treatment of the American Enterprise
Institute (AEI), the Hoover Institution, and Milton Friedman and the Chicago
School. AEI and Hoover are funded by foundations and individuals with an axe
to grind, they are strongly ideological, and their economists consistently
“sing the same tune.” But Hoover houses many “respectable”
rightwingers, particularly of the Chicago School (Friedman, Becker, Sargent,
etc.), and so does AEI, and both are funded by important corporate interests.
Their exemptions from the hack class, as with Feldstein, are based on Krugman’s
own mainstream political/economic biases and relationships.

Krugman says that “academic research in economics is by and large carried
out without strong political bias,” and what is favored is “cleverness
and originality, not political correctness of any stripe.” Also, at Harvard
and Chicago, “hired guns do not flourish.” This, of course, is all
nonsense, based in part on a very narrow meaning attached to the phrase “hired
guns.” A sizable fraction of high level academic economists have been
hired as consultants to business firms and governments to do research and
testify in hearings or legal or regulatory cases. My computation in 1978 from
a required disclosure form to the FCC showed that five University of Chicago
and six Harvard faculty were on the AT&T payroll at that time, and the
trend toward such employment has not been downward. Furthermore, many have
taken chairs, fellowships or grants from wealthy individuals or foundations
and think tanks organized with an ideological purpose. It would be interesting
to see Krugman explain why these economists are “experts” rather
than “hired guns.”

Krugman’s claim that the Chicago School economists don’t have a
“strong political bias” and are not limited by “political correctness
of any stripe” is also untrue. The identification of the Chicago School
“Chile boys” with the totalitarian free enterprise regime of Pinochet
is notorious, and I am not aware of any Chicago School critique of the political
economy of that regime. Similarly, the Chicago School’s apologetics for
each merger movement as efficiency enhancing and government regulation as
invariably damaging to the public interest represents a consistently held
party line. That line has also been supported by some scientifically extremely
dubious research, some of it even corrupt in the Feldstein mode. (For a critical
review of a piece of that science, see Dennis Mueller, “The Effects of
Conglomerate Mergers: A Survey of the Empirical Evidence,” Journal
of Banking and Finance, 1977. For a critique of Chicago School corruption,
I refer once again to the notable case of 1964 where George Stigler proved
the inefficacy of the SEC by serious massaging of the data, sufficent to affect
statistical significance tests; for this and other illustrations see my “The
Politicized ‘Science’,” Z Magazine, February 1993, reprinted
in Triumph of the Market).

In criticizing the EPI, Krugman says the test is whether the individual or
institution always “sings the same tune,” and specifically whether
the EPI would “find some trade liberalization it favors.” Well,
the EPI’s head Jeff Faux has favored Jesse Jackson’s African trade
bill, which calls for a substantial opening up of markets and Faux even favored
the Canadian-U.S. free trade agreement. In a letter to the New York Times
commenting on Krugman’s “hacks” article, longtime EPI economist
Dean Baker volunteers his own trade liberalization recommendation: that the
U.S. should remove patent protection for AIDS drugs throughout the developing
world, which would enhance economic efficiency and save many lives.

I wonder how many examples Krugman could cite of Chicago School economists
favoring protectionist actions or enlarged or tougher regulation—or cases
where he has departed significantly from mainstream opinion on free trade
agreements? (Krugman did, however, defend exchange controls as a substitute
for the IMF’s draconic high interest rate policies during the Asian financial
crisis, and, like Joseph Stiglitz and Jeffrey Sachs, he sharply criticized
the IMF’s perverse actions at that time.)

In the case of the IMF-World Bank controversy, however, Krugman once again
reverted to both his uncritical orthodoxy and carelessness with fact as well.
He attacked CEPR economist Robert Naiman’s critique of the World Bank’s
handling of Mozambique, where the Bank had forced Mozambique to curtail protection
of the cashew refining industry and allow freer export of raw cashew nuts.
Krugman argued that this protectionism had only helped the powerful refiners
at the expense of “millions” of small farmers (“A Real Nut
Case,” NYT, April 19, 2000).

But Krugman based his critique on free market ideology and a reiteration of
World Bank apolo- getics, and “ignores the 1997 Deloitte & Touche
study commissioned by the World Bank, which found that Mozambique’s peasants
did not gain anything from liberalized exports of raw cashews” and which
recommended that the processing industry, recovering from the crushing war
of destabilization by South Africa, be given needed protection. Krugman obviously
also failed to read the detailed analysis of the World Bank’s policy
and its background by Joseph Hanlon on which Naiman had relied. The quote
above is part of Naiman’s letter of response to the New York Times,
which the paper chose to cut, as the paper and its employees (including Krugman,
Friedman, and the editors) presented a unified phalanx of support for the
IMF and World Bank. In reply to all this, Krugman would no doubt point out
that he is still free to write what he wants, so he is no mere hired hack.

 In an earlier statement along this line, Anthony Lewis explained that
writing for the Times he was perfectly free to say what he wanted to
say. What he failed to grasp was that he was free because he operated within
acceptable constraints that he had internalized, which is why he was hired
and retained. Krugman is also free, because the paper knew that he and Thomas
Friedman would work in tandem and that he would not be stepping far out of
line and upsetting anybody important by giving credence to “hacks.”
                            Z