Krugman is entirely correct in arguing that, as the economy is currently structured, there is no way to achieve full employment other than government spending to make up the demand shortfall. But there’s no plausible scenario in which the economy, once kick-started by Keynesian pump-priming (if you’ll excuse the mixed metaphor), gets going on a self-sustaining basis without continued government spending. There’s no plausible scenario where the economy ever attains the levels of demand, or nominal output, that existed three years ago.
Keynesian “aggregate demand management” will work this year, if the government runs a $1 trillion deficit. But the economy will slip back into depression if the budget is balanced next year. So the old Keynesian model, in which the government ran a deficit in bad times and paid it back by running a surplus in good times, is as dead as the passenger pigeon. There are no good times, as state capitalism is currently structured, without a perpetual deficit.
So count me among the “deflationists” that Krugman routinely mocks. The material reality we face is that it takes less investment in physical capital, and fewer hours of labor, to produce what most people regard as a comfortable standard of living.
For decades, American foreign policy has protected Third World landed oligarchies against left-wing land reform movements, in effect enforcing the artificial land titles of haciendados and other feudal ruling classes at the expense of the rightful owners actually working the land. It has empowered such landed oligarchies to reenact the Enclosures of early modern Britain, driving peasants off the land and leaving them no choice but to enter the wage labor market on whatever terms are offered by foreign capital.
The World Bank, in collusion with Third World elites, has mainly undertaken projects to create subsidized road and utility infrastructure without which offshored industry would not be profitable — and then used the resulting debt in much the same manner as a company store, to coerce local governments into “structural adjustment” deals by which state property is “privatized” in collusion with crony capitalists.
So corporate globalization, despite all the rhetorical trappings of “free trade,” is statist to the core.