Krugman, Brooks and Zuckerberg
May 23, 2012
Paul Krugman and David Brooks, regular OP-ED columnists for the New York Times, disagree so widely, frequently and precisely in their presentations that their by-weekly commentaries read like a point-counterpoint debate, as if each is inspired by what the other has written recently. In his other capacity as a Princeton professor, Krugman is one of America’s most acclaimed economists with a Nobel prize to prove it. Brooks writes from the point of view of a cultural sociologist and historian. Both columnists are unabashedly political in their opinions, Krugman sympathetic to traditional beliefs of the Democratic Party and Brooks siding with the neoconservative school of thought. Krugman defends Keynesian economics and successful empirical results when Keynesian teachings have been applied amply and appropriately. Brooks favors unfettered capitalism, trusting market guidance as a force of creative destruction, and distrusting efforts by government to undertake tasks that can be handled by private enterprise.
Krugman has criticized Obama for not providing enough stimulus in the first year of his presidency and for too often tempering Democratic Party principles with a need to attract independent voters. A series of recent columns by him decry the ideology that would impose massive fiscal austerity in Europe and the United States while ignoring the greater and more tragic problem of unemployment. In Krugman’s vision of the world, important elements of the post-war years that delivered financial stability and economic prosperity to advanced economies have been recklessly allowed to lapse by conservative ideologues who ignore facts in pursuit of preconceived and untested beliefs. The result has been deteriorating economic conditions.
Brooks, in contrast, writes optimistically as he did in his column of May 22, about how market capitalism has transformed a “bloated” U.S. corporate sector into a mean and lean fighting machine and how private equity firms such as Bain Capital expedited that process and did mostly good work. The hopeful vision that Brooks sees is on its way back if only Democratic politicians like President Obama don’t obstruct it with regulations and other initiatives that protect activities that have become unproductive or no longer aligned with consumer preferences. The two columnists argue persuasively in defense of their polar visions.
So whose ideas feel most in tune with what seems to be happening? By looking backward, the columnists’ impressions of the past few decades can be measured easily. Krugman decries a deterioration of conditions in recent decades, and Brooks applauds how a foundation for growth has been rebuilt. A big picture portrayal can be best measured by big-picture indicators such as GDP growth, jobs growth, and stock market performance. The table below compares the growth of these three variable, expressed in annualized change over the past ten years to their respective rates of change over the immediate prior ten-year period and to the ten years between 1982 and 1992. The results clearly support Krugman, not Brooks. Performance has deteriorated materially from previous norms. While time periods are indicated by year, the table was constructed by using the most recent available observations (1Q for GDP, April 2012 for employment, and today for the Dow Jones Industrials Average) compared to changes observed exactly ten years beforehand.
| % per year | 2002-2012 | 1992-2002 | 1982-1992 |
| Real GDP | 1.6% | 3.5% | 3.4% |
| Jobs | 0.2% | 1.9% | 1.9% |
| DJIA | 1.9% | 11.7% | 15.0% |
Facebook is one of the poster children of America’s new direction into unchartered innovative capitalism, and its founder and CEO, Mark Zuckerberg, grew up in the New York metropolitan area as did Krugman and Brooks. Facebook has had a rocky start to public trading, jumping to $45 initially, then falling all the way back to $30.94 and recovering to $31.80 at this writing, which remains over 16% below its IPO price. Many arguments have been given to explain the botched start, and the past couple of days may prove nothing more than an administrative hiccup. I find it somewhat amusing, nonetheless, that a behemoth “social network” should be posited as the darling and weather vane of American capitalism. In a country where the very term “socialism” has become the filthiest of dirty words, it is ironic to see social networking attract so many souls. Facebook, to be sure, is a totally private enterprise, with Zuckerberg still commanding over 50% of voting stock. That said, it’s hard to imagine a more perfect prequel to George Orwell’s 1984 than the edifice that is Facebook, and it’s scary to imagine what Stalin, Hitler or some future tyrant could do with a tool like Facebook.
Facebook staff is much smaller than the headcounts ordinarily associated with a capital value of $100 billion or even half that amount. Welcome to the age of great value from few people. One wonders, too, from where future staffers at Facebook will come. High technology jobs require the genius of above-average intelligence. Classrooms will always be stocked with students possessing a wide range of innate abilities, a small minority of whom will be deemed right for high tech companies like Facebook. Redesigning education should improve the supply of needed workers if handled well but not as much as one hopes. Krugman maintains that the largest cause by far of current unemployment is deficient aggregate demand. A structural mismatch between available workers and needed skills is a factor in the problem but a smaller one than a lack of demand. My own perception is that the structural dimension is greater than Krugman believes and that it is an element of the problem that will not go away merely with the passage of time. 2012 is not 1940.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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