In order to make substantive changes to economic policy, Paul Krugman notes the obvious: "you have to ... convince current policymakers that it’s the right answer." But Krugman is being a little naive: people — policymakers included — rarely if ever do the "right" thing just because it's the right thing to do. If you want to make changes, you to convince the policymakers that those changes are in their material interest. There are two sets of policymakers: the very rich and the elected government. So we have to ask: what precisely are the material interests of these policymakers?
People tend to construct their interests in widening circles, from their individual interests to the interests of their families, work organizations, localities, nations, and regions. They also widen their construction of interests laterally to their church or religion, their profession, their social class and (sometimes) their economic class. And members of the capitalist class seem to have been especially effective at acting in their own economic class interests.
It's a mistake, I think, to see group identification as a "sacrifice" of one's personal interests to the interests of the group. First, a group isn't "really real"; doesn't have interests of its own. A group interest is some abstraction of the interests of its members.
The simplest abstraction is merely some interest that is predominantly shared by the members of the group, especially where individuals self-identify with the group explicitly on the basis of some interest. The group of poker players, for example, are all interested in — surprisingly enough — playing poker; the members of the Motion Picture Association of America are all interested in enforcing, preserving and extending intellectual property rights.
Another, more complex abstraction is mutual benefit. There are interactions where it's always in each individual's immediate benefit to one thing, but it's to both individuals' greater benefit to do the opposite but only if both individuals do the same thing. If I buy a TV from Crazy Eddie, it's in my "immediate" benefit to give him counterfeit money whether or not he gives me a real TV. Likewise, it's in Crazy Eddie's immediate benefit to give me a box with bricks in it whether or not I give him real money. This analysis means that all exchanges are of counterfeit money for empty boxes. Compared to that outcome, it's to our increased mutual benefit to exchange real TVs for real money. Compared to mutual betrayal, mutual cooperation is not a sacrifice: it's an increase in benefit. Each party must "sacrifice" only the illusory benefits of asymmetric betrayal (i.e. where one person cooperates and the other betrays).
One reason I suspect that group identification is strong in humans is precisely that group identification affords mutual cooperation for mutual benefit. It does so by changing the game, by imposing an immediate penalty — loss of group membership — on asymmetric betrayal. The dominant local strategy for each person becomes to cooperate, since asymmetric betrayal loses the more valuable group identification for the smaller immediate benefit. Group identification can evolve — it doesn't need to be planned — and group selection is much more important in social evolution than it is in biological evolution. (Although I'm hardly an expert in evolutionary biology, I suspect that we'll find that group selection plays an important part in inter-species competition.)
What are the interests of the rich?
I recently read Burn Rate, by Michael Wolff, a fascinating inside look at the Internet tech bubble of the late 1990s. In one passage Wolff, the CEO of an Internet startup, has a conversation with his primary financial backer. To paraphrase, the backer exhorts Wolff to go for a personal payout of about $30,000,000, because the people who settle for a payout of only $15,000,000 are "dead". They have enough money to live comfortably for the rest of their lives, but they don't have enough money to make large-scale investments: they cannot become members of the true ruling class. Membership of the ruling class isn't about consuming more; I doubt that even Bill Gates actually consumes more than about $500,000/year (and people who do consume more are parvenus intent on rejoining the working class). Had living well been his only goal, he would have retired and cashed out at $15 million, instead of accumulating three orders of magnitude more money, three orders of magnitude more status and power in the ruling class. No one gets into the ruling class without the burning desire to accumulate and exercise power, and those who do manage (usually by birth and inheritance) to get in without that burning desire soon fall out of it.
(It's also worth noting that the easiest and most common way of accumulating enough money to join the ruling capitalist class is to get that money from someone already in that class. It's very difficult (but not impossible, as several televangelists have demonstrated) to get that much money directly from the working class: the working class is the source of the ruling capitalist class's wealth, and pretty well sewn up.)
It seems fairly obvious that the dominant personal and immediate family interest of the members of the ruling capitalist class is the accumulation and exercise of economic power. The accumulation and exercise of any sort of power is generally a zero-sum game. It's neither in the immediate self interest of any member of the capitalist class to improve the overall state of the economy, nor is there any sense of mutual benefit by mutual cooperation. In much the same sense, it's not in football coaches' immediate or mutual self interest to increase the overall score of a game: a 2-0 win is better than a 41-72 loss.
So clearly, Krugman cannot have the members of the capitalist ruling class in mind: the only sense that the capitalist ruling class acts in its mutual self interest is to prevent, discourage and suppress threats from other classes to their own class rule, and there's no immediate danger of any kind of socialist or working class revolution. (The only immediate danger to the capitalist ruling class is that posedd by Christian theocrats, but the capitalists are handling that danger by co-option and "corruption".) Krugman can have only elected officials in mind.
Elected officials are, like capitalists, motivated by the zero-sum accumulation and exercise of power, but their method of obtaining power is different from the capitalists'. In a capitalist "democracy", the working class occasionally gets some voice in the exercise of power: to gain power (at least for now) a politician must convince millions of people to drive to a polling place and pull the lever next to her name.
We can assume that professional politicians at the national level are generally those most skilled at winning elections (or employ those who are most skilled): if there were anyone more skilled, they would have won the election. So to convince the elected policymakers to make some change, you have to convince them that supporting the change will help them win elections (or, having won elections, allow them to more strongly exercise their acquired political power).
The working class does benefit to some extent from overall improvements in the economy: jobs, employment, work, standards of living are not zero-sum games, they are usually positive-sum games, where the natural dominant strategy is cooperation for mutual benefit. However, to influence elections, the members of the working class must think of themselves as a class, with class interests. Lacking much individual power, having power only in numbers, they must also act in concert, with a certain level of organization and discipline*.
*While "authoritarians" frequently invoke the value of discipline as justification for authoritarianism, the fallacy does not lie in the value of discipline itself, but in their connection of discipline to authority.
But if the working class did conceive of itself as a class, with class interests, and if they were capable of enough organized and disciplined action to influence elections (even under the rigged capitalist "democratic" system) to their class benefit, then they would have sufficient power not just to extract concessions from the capitalist class, but to take over completely. But of course the capitalist class does conceive of itself as a class, it is itself disciplined and organized, and they fully understand that their mutual interest in preserving their own class as the ruling class.
It's going to be very difficult to convince policymakers to do the "right" thing, to choose the "correct" answer; the difference between the "right" and "wrong" answers (according to Krugman's conscience and preferences) is at the very least irrelevant (and may be contrary to) to the immediate and medium-term self interest of the entire ruling class, moneyed and elected. The only long-term threat to the ruling class is a socialist revolution, but the ruling class does not seem to consider this threat sufficiently serious to implement general economic reform — even Obama has primarily limited himself to preserving the status of owners of financial capital and making only token efforts for the working class in the ludicrously small "stimulus" (primarily targeting the professional-managerial middle class) and his woefully insufficient (and actively misogynist) "universal" health care plan.