In fighting to prevent austerity measures, socialists and Marxists have often found themselves in alliance with Keynesians. The crisis has led to a revival of both Marx and Keynes in the mainstream media. One of the few lone voices among US mainstream economists arguing against austerity is Paul Krugman, a liberal in the American sense of the word, outspoken Keynesian and columnist for the New York Times. In 2003 The Economist described him as an "ivory tower folk hero of the American left, a thinking person's Michael Moore".
As the title suggests, End This Depression Now! is overwhelmingly a book about finding a way out of the crisis; its cause is treated as a side issue. This, of course, distinguishes him from Marxist economists who tend to focus on the cause rather than policy solutions. The book is clearly written and offers an accessible analysis of the current crisis setting it apart from most mainstream books on the subject.
As a Keynesian, Krugman is convinced that we see a huge disproportion between a "relatively trivial" cause and severe effects. He promises that ending the depression could be "a feel good experience for almost everyone". Consequently, his analysis of the roots of the current economic crisis remains superficial, characterising the crisis as a "liquidity trap", a combination of low interest rates and insufficient consumption and investment. While the inability to consume may have aggravated the current crisis, Krugman fails to take into account the systemic contradictions such as a tendency towards declining profitability under capitalism.
Of course, the way we perceive a problem has implications for the solution. Krugman hopes for the return of "substantial economic growth". But what if the economic crisis is rooted in a structural problem - that of declining profitability? In his attempt to empirically justify the plea for increased government spending, Krugman stumbles over his own contradictions. He admits that it was actually not Roosevelt's New Deal but the Second World War that restored profitability after the last Great Depression.
He rightly criticises the myth that an increase in taxation and regulation would lead to a decline in confidence among employers. Indeed, confidence seems to be the ruling class's favourite tool to blackmail politicians and create fear. How often have we heard that "the markets have lost confidence"?
But when it comes to proposing concrete solutions, ironically, Keynesians seem to lay all their hopes at the foot of some mythical confidence fairy - in other words they argue that increased government spending should restore confidence and hence profitability.
Alas, hoping for the confidence fairy is even pricier than inviting Krugman for a lecture (he charges at least 20,000 dollars an hour). By 2011, the US government had made financial commitments of about 12.2 trillion dollars and spent about 2.5 trillion dollars. Granted, these commitments did help to soften the immediate impact of the crisis, but it is not good enough to claim that the rescue package just wasn't big enough. How much more would have been needed to restore confidence?
While Keynesians assume that investments lead to profits, Marxists argue that a restoration of profits is based on the destruction of capital and the increased exploitation of labour. The current rescue packages have prevented this destruction of capital and further postponed the restoration of profitability.
But crucially the way out of the crisis cannot be a win-win situation for both capital and labour. Current attempts to restore profitability represent a massive reallocation of wealth from the poor to the rich. Any reply to these attacks has to start with demands to force the rich to pay for the crisis they caused. This requires an understanding of why the state is not a neutral mediator, but tends to act in the interest of the ruling class. Consequently we can't rely on the state to end the crisis. Real political change has to come from below.
To sum up, the key weaknesses of Krugman's analysis are twofold. First, in promising an easy way out, he neglects the structural contradictions of capitalism that have caused the current crisis. Second, in arguing for a simple increase in government spending, he does not acknowledge the competing class interests that lie at heart of the current system.
That being said, his book does offer an insightful perspective on the current crisis and elements of his analysis can be useful in bringing forward arguments against austerity. Along with Keynesians, socialists should address the state to demand redistributive measures, but at the same time be clear that our goal is not a restoration of profitability, but the abolition of the system altogether.
End This Depression Now! is published by W W Norton, £14.99