The Return of the Royal "We" : Getting Dazed and Confused With Paul Krugman
http://www.counterpunch.org/2012/06/01/getting-dazed-and-confused-with-paul-krugman/
Paul Krugman is at it again, pushing his economic patch-jobs at the plutocrat state instead of imagining the social struggle needed to resolve ongoing economic and financial crises. The offending passage from his
New York Times piece reiterates the economic truism that debt is “money that we owe ourselves.”
This is misdirection through aggregation, conflating corporate and government debt owned by pension funds and charitable organizations with underwater mortgages, student loans and sub-prime auto loans in their economic effects. And within his own economics, disaggregating the “we” renders far different results than he suggests.
The explicit issue is this: certain types of debt, defined by context, represent a transfer of wealth from productive to speculative uses. And in a class struggle framework, the transfer to speculative uses correlates highly with increased empowerment of a predator class that is largely responsible for the current crisis of capitalism and that has successfully stifled attempts by well-meaning economists like Mr. Krugman to save the existing political-economic order from its own internal contradictions.
An example: approximately one-third of households with mortgages owe more on the mortgages than their houses are worth. The economic implication is that every dollar of mortgage principal repaid is lost savings for the homeowner in proportion to the difference between the original loan amount and the ultimate value of the house. This difference also represents the transfer of these lost savings to the bank that made the loan and that accepted the house that has declined in value as collateral. So who should take the loss, the homeowner or the bank? Repaying the full loan amount would reduce the savings of the household (reducing lifetime consumption) while rendering the bank whole for risk that they knowingly undertook.
When this is aggregated personal tragedy becomes a major economic drag for the next sixty years. But also importantly, given the current state of banking, renewed lending by the banks would go to speculate on financial asset prices, as loan demand for productive investment is non-existent these days. This asset-price speculation, or in economist Hyman Minsky’s terms, “Ponzi” finance, was behind the most recent financial and economic crises.
And until this type of finance is ended there is little chance that Mr. Krugman’s Keynesian prescriptions would be more than temporary patches in a series of ongoing crises. But it also is the reason why not all debt is created equal. Ponzi finance is economically destructive because it is destabilizing, something that Mr. Krugman refuses to acknowledge.
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