Have Zombies Eaten Bloomberg’s and Buttigieg’s Brains?

By Paul Krugman

MADRID — I’m in Spain right now, talking about zombie ideas — ideas that should have been killed by evidence, but just keep lurching along. In the modern United States, most important zombie ideas are on the right, kept undead by big money from billionaires who have a financial interest in getting people to believe things that aren’t true.

But sometimes zombie ideas also manage to eat centrists’ brains. Sure enough, some of the most destructive zombies of the past dozen years have shambled their way into the Democratic primary fight, where a couple of centrists are repeating ideas that were thoroughly debunked years ago.

And as it happens, the experience of Europe, and Spain in particular, provides some of the bullets we should be using to shoot these particular zombies in the head.

So let’s start with the origins of the 2008 financial crisis, a topic that remains relevant if we want to avoid repeating past mistakes.

Although few saw 2008 coming, in retrospect it was a classic banking panic, the type of thing that happened frequently before the 1930s. First, lenders got caught up in a gigantic housing bubble; then, when the bubble burst, much of the financial system just froze up.

What made this panic possible, after two generations of relative financial calm? The answer, clearly, was the erosion of effective financial regulation over the previous few decades.

But right-wingers refused to accept the obvious. Instead, they pushed an alternative narrative in which liberals somehow caused the crisis by forcing poor innocent bankers to lend money to people of color (they weren’t usually that explicit, but that was the clear message). This narrative was so nakedly self-serving that it’s hard to believe that anyone took it seriously; but some influential people bought it. And among those people was Michael Bloomberg.

At this point the evidence against the liberals-did-it story is overwhelming. The surge in bad loans came neither from government-sponsored agencies nor from regulated banks, but from unregulated mortgage originators. The fallout was so severe because investors believed, wrongly, that fancy financial instruments protected them from risk.

And, crucially, the housing bubble was an international phenomenon: Spain had a bigger bubble than we did, followed by a worse slump. Did U.S. liberals force Spanish banks to make bad loans?

But zombie ideas can’t be killed by evidence. Perpetrators of the liberals-did-it lie are still out there, still getting space to spread their disinformation in mainstream media.

Elizabeth Warren argues that Bloomberg’s embrace of a false right-wing narrative about the financial crisis should disqualify him for the Democratic nomination. But I’d be willing to cut him some slack if he’d admit that he was taken in by right-wing disinformation. If he isn’t willing to make that admission, she’s right.

At the same time that Bloomberg is being called out on his housing bubble zombie, Pete Buttigieg is facing justified criticism for buying into another zombie idea — the obsession with government debt. That obsession did much to hobble recovery from the financial crisis.

To be fair, deficit panic wasn’t as naked a scam as the claim that do-gooders caused the financial crisis, although some of the loudest voices decrying the evils of deficits were obvious phonies. What happened instead was that many important people imagined that inveighing against the dangers of debt made them sound serious, because that’s what all the other serious people were doing.

At this point, however, the debt obsession has been thoroughly debunked by both economic research and experience. We live in a world awash in private savings looking for someplace to go, with investors willing to lend money to governments at incredibly low interest rates. It’s actually irresponsible not to put this money to work investing in the future, both by building physical infrastructure and through programs that help children develop their potential.

Now, the Trump administration is doing it wrong — borrowing large sums, but squandering the money on tax cuts for corporations and the wealthy. But even bad deficit spending boosts the economy to some extent, and it is the reason America is still growing reasonably fast while Europe, still in the grip of austerity ideology, is stagnating.

Look: It’s easy to make the political case that Democrats should nominate a centrist, rather than someone from the party’s left wing. Candidates who are perceived as ideologically extreme usually pay an electoral penalty; this is especially true if, like Bernie Sanders, they actually pose as more radical than they really are.

But a key part of centrism’s appeal is the belief that centrists are realists, who understand how the world works. It’s much harder to make the case for centrists who repeat manifestly false claims, especially if those claims were essentially right-wing propaganda.

As I said, you can make a good case for the proposition that Democrats should, in the end, nominate a centrist. But a centrist whose brain has been eaten by zombie ideas? Not so much.

The New York Times