Thursday, May 19. 2011
Somehow I got way behind on Paul Krugman's twice-weekly New York
Times columns. Rather than clutter up the Weekend Roundup with them,
I thought I'd kick out the salient points here. Actually, although the
columns are always well thought out and tightly crafted, most of my many
Krugman quotes come from his blog, where he strays wider from his basic
themes and strikes things at more interesting angles. In the columns he
tends more to harp on the same points, not that they don't deserve some
The Intimidated Fed [April 28]:
Given this dismal picture, you might have expected unemployment, and
what to do about it, to have been a major focus of Wednesday's press
conference with Ben Bernanke, the chairman of the Federal Reserve. And
it should have been. But it wasn't.
After the conference, Reuters put together a "word cloud" of Mr.
Bernanke's remarks, a visual representation of the frequency with which
he used various words. The cloud is dominated by the word "inflation."
"Unemployment," in much smaller type, is tucked in the background.
Really, no surprise. When Bush nominated Bernanke, the only thing
anyone had to say about him was to praise how vigilant he would be on
fighting inflation. The Fed has a legal responsibility to further full
employment, but in practice it's in thrall to the bankers. Obama could
have done something about this when Bernanke's term expired, but Mr.
Change-You-Can-Believe-In renominated Bernanke, giving him three more
years to sacrifice employment on the holy grail of inflation-fighting.
The fact is that no president since Carter nominated his own guy for
Fed Chairman during his first term. (Carter nominated Paul Volcker,
the all-time champ of the inflation fighters, who raised interest
rates to all-time highs to induce a recession and get Carter thrown
out of office.) Krugman is kind of soft on Bernanke (who chaired
Krugman's economics department at Princeton), and Bernanke is less
awful than Greenspan, but the actions he was praised for during the
crisis were things that ran against his grain. It wouldn't have taken
much effort on Obama's part to come up with who at least could have
conceived of employment mattering. Hell, Larry Summers would have
been a better choice.
Lately the inflationistas have seized on rising oil prices as
evidence in their favor, even though -- as Mr. Bernanke himself
pointed out -- these prices have nothing to do with Fed policy. The
way oil prices are coloring the discussion led the economist Tim Duy
to suggest, sarcastically, that basic Fed policy is now to do nothing
about unemployment "because some people in the Middle East are seeking
But I'd put it differently. I'd say that the Fed's policy is to do
nothing about unemployment because Ron Paul is now the chairman of the
House subcommittee on monetary policy.
So much for the Fed's independence. And so much for the future of
America's increasingly desperate jobless.
I'm not sure that the snipe at Ron Paul is necessary or helpful.
The Fed has always favored bankers over workers. Bankers have always
hated inflation, and ever since economists came up with a formula to
link inflation to wage gains they've had one more reason to undercut
Springtime for Bankers [May 1]:
Usually when deregulation turns sour politicians of all stripes feel
obliged to crack down on the miscreants who took advantage of the
deregulator's good faith. As I recall, back during the S&L crisis
Congress passed a law that defrauding a thrift a capital crime. This
time the one one the Republicans could find to blame was the government
for bailing the bankers out, and even there they were hardly serious --
it was, after all, a Republican administration that did most of the
bailing. And they fought back on everything that implied that the
bankers owed something to the public: against nationalizing banks
(which is how the S&L crisis was fixed), against any sort of limit
on executive bonuses, and especially against any reform or regulation
(not that the Democrats were pushing for much either).
What does it take to limit future bailouts? Declaring that we'll never
do it again is no answer: when financial turmoil strikes, standing aside
while banks fall like dominoes isn't an option. After all, that's what
policy makers did in 1931, and the resulting banking crisis turned a mere
recession into the Great Depression.
And let's not forget that markets went into free fall when the Bush
administration let Lehman Brothers go into liquidation. Only quick action --
including passage of the much-hated bailout -- prevented a full replay of
So what's the solution? The answer is regulation that limits the
frequency and size of financial crises, combined with rules that let
the government strike a good deal when bailouts become necessary.
Remember, from the 1930s until the 1980s the United States managed
to avoid large bailouts of financial institutions. The modern era of
bailouts only began in the Reagan years, when politicians started
dismantling 1930s-vintage regulation. [ . . . ]
To see what's really going on, follow the money. Wall Street used
to favor Democrats, perhaps because financiers tend to be liberal on
social issues. But greed trumps gay rights, and financial industry
contributions swung sharply toward the Republicans in the 2010 elections.
Apparently Wall Street, unlike the voters, had no trouble divining the
party's real intentions.
And one more thing: by standing in the way of regulations that would
limit future financial crises, Republicans are giving further evidence
that they don't really care about budget deficits.
By the way, the real reform that nobody talks about is getting the
money out of politics. The Democrats, who had a piece in every one of
these disastrous banking deregulation laws, have been desperately
chasing the Republicans for business donors, grasping for whatever
they could find, which increasingly included Wall Street. Indeed,
one can argue that Clinton made Wall Street more money than Reagan
and all the Bushes, even after taxes. The thing that bothered me
more about Obama than Larry Summers was how he crowed about what
smart and savvy businessmen Jamie Dimon and Lloyd Blankfein are,
and how tight he was with both personally.
Fears and Failure [May 5]:
Nothing here that Krugman hasn't said dozens of times before, or
won't say dozens of times in the near future. That we're stuck on
these themes just shows that political interests have shoved us
into a dark age of idiocy.
It's not as if our political class is feeling complacent. On the
contrary, D.C. economic discourse is saturated with fear: fear of a
debt crisis, of runaway inflation, of a disastrous plunge in the dollar.
Scare stories are very much on politicians' minds.
Yet none of these scare stories reflect anything that is actually
happening, or is likely to happen. And while the threats are imaginary,
fear of these imaginary threats has real consequences: an absence of
any action to deal with the real crisis, the suffering now being
experienced by millions of jobless Americans and their families.
What does Washington currently fear? Topping the list is fear that
budget deficits will cause a fiscal crisis any day now. In fact, a
number of people -- like Erskine Bowles and Alan Simpson, the co-chairmen
of President Obama's debt commission -- have settled on a specific time
frame: terrible things will happen within two years unless we make drastic
spending cuts. [ . . . ]
Which brings me back to the destructive effect of focusing on invisible
monsters. For the clear and present danger to the American economy isn't
what some people imagine might happen one of these days, it's what is
actually happening now.
Unemployment isn't just blighting the lives of millions, it's undermining
America's future. The longer this goes on, the more workers will find it
impossible ever to return to employment, the more young people will find
their prospects destroyed because they can't find a decent starting job.
It may not create excited chatter on cable TV, but the unemployment crisis
is real, and it's eating away at our society.
Yet any action to help the unemployed is vetoed by the fear-mongers.
Should we spend modest sums on job creation? No way, say the deficit hawks,
who threaten us with the purely hypothetical wrath of financial markets,
and, in fact, demand that we slash spending now now now -- which might well
send us back into recession. Should the Federal Reserve do more to promote
expansion? No, say the inflation and dollar hawks, who have been wrong
again and again but insist that this time their dire warnings about runaway
prices and a plunging dollar really will be vindicated.
So we're paying a heavy price for Washington's obsession with phantom
menaces. By looking for trouble in all the wrong places, our political
class is preventing us from dealing with the real crisis: the millions
of American men and women who can't find work.
One more thing that could be said: in a growing economy, it's possible
for everyone to come out better, but in a stagnant or shrinking economy,
the only way anyone gets better is at the expense of others. The measure
of wealth isn't how rich the richest are, but how much productive work
is done, and the simplest way to get more done is to employ more people.
Moreover, high employment not only increases overall wealth, it helps to
distribute it more evenly, resulting in a more equitable society where
more people participate and fewer feel like victims.
The Unwisdom of Elites [May 8]:
The previous column all over again.
The past three years have been a disaster for most Western economies.
The United States has mass long-term unemployment for the first time
since the 1930s. Meanwhile, Europe's single currency is coming apart
at the seams. How did it all go so wrong?
Well, what I've been hearing with growing frequency from members of
the policy elite -- self-appointed wise men, officials, and pundits in
good standing -- is the claim that it's mostly the public's fault. The
idea is that we got into this mess because voters wanted something for
nothing, and weak-minded politicians catered to the electorate's
So this seems like a good time to point out that this blame-the-public
view isn't just self-serving, it's dead wrong.
The fact is that what we're experiencing right now is a top-down
disaster. The policies that got us into this mess weren't responses
to public demand. They were, with few exceptions, policies championed
by small groups of influential people -- in many cases, the same people
now lecturing the rest of us on the need to get serious. And by trying
to shift the blame to the general populace, elites are ducking some
much-needed reflection on their own catastrophic mistakes.
[ . . . ]
President George W. Bush cut taxes in the service of his party's
ideology, not in response to a groundswell of popular demand -- and
the bulk of the cuts went to a small, affluent minority.
Similarly, Mr. Bush chose to invade Iraq because that was something
he and his advisers wanted to do, not because Americans were clamoring
for war against a regime that had nothing to do with 9/11. In fact, it
took a highly deceptive sales campaign to get Americans to support the
invasion, and even so, voters were never as solidly behind the war as
America's political and pundit elite.
Finally, the Great Recession was brought on by a runaway financial
sector, empowered by reckless deregulation. And who was responsible for
that deregulation? Powerful people in Washington with close ties to the
financial industry, that's who. Let me give a particular shout-out to
Alan Greenspan, who played a crucial role both in financial deregulation
and in the passage of the Bush tax cuts -- and who is now, of course,
among those hectoring us about the deficit.
[ . . . ]
Why should we be concerned about the effort to shift the blame for
bad policies onto the general public?
One answer is simple accountability. People who advocated budget-busting
policies during the Bush years shouldn't be allowed to pass themselves off
as deficit hawks; people who praised Ireland as a role model shouldn't be
giving lectures on responsible government.
But the larger answer, I'd argue, is that by making up stories about
our current predicament that absolve the people who put us here there,
we cut off any chance to learn from the crisis. We need to place the
blame where it belongs, to chasten our policy elites. Otherwise, they'll
do even more damage in the years ahead.
Inflation and Economic Hooliganism [May 11]:
This one ran in the Sunday Magazine, so it's a little more expansive
(but not much).
Emerging economies never had the luxury of complacency. The decades
before the storm were a time of relative economic calm in America and
Europe, but it was an era of repeated crises in the developing world:
the Mexican crisis of 1994-95, the Asian crisis of 1997-98, the Argentine
crisis of 2001-2 and more. And this history of crisis fed a mood of
caution, both on the part of governments -- which paid down their debts
and accumulated huge reserves -- and on the part of the private sector,
where debt-equity ratios and other measures of financial fragility fell
sharply from 1998 onward.
As a result, by the time the big crisis in wealthy nations struck,
emerging economies were far less vulnerable to disruption than they
were in the 1990s -- and, as it turns out, far less vulnerable than
many advanced economies. In the panicky months after the fall of Lehman,
past prudence wasn't enough to insulate countries from the global
recession. But once the free fall ended, the emerging world staged
a strong recovery, even as advanced economies struggled.
In fact, once the acute phase of the crisis was over, the difficulties
of advanced economies actually had the effect of promoting growth in the
emerging world, as investors -- finding few good opportunities in
debt-burdened wealthy nations -- began funneling money into up-and-coming
economies, turning those economies' recoveries into runaway booms.
These booms are, in turn, causing inflation to rise in the emerging
world. China and India grew more than 10 percent last year, Brazil more
than 7 percent. These economies are overheating, and inflation is the
By contrast, in the United States and Europe, the only serious
inflation is taking place in prices of raw materials. And what's
pushing up raw material prices? Mainly, it's rapidly growing demand
from the emerging world, with its voracious appetite for steel,
copper, cotton and, above all, oil. [ . . . ]
For while some countries have a problem with homegrown inflation,
we don't. Our problem is unemployment. And to deal with our job shortage,
we need low interest rates and, yes, continuing budget deficits to keep
our economy growing.
What about complaints from other countries that they're suffering
inflation because we're printing too much money? (Vladimir Putin has
gone so far as to accuse America of "hooliganism.") The flip answer is,
Not our problem, fellas. The more serious answer is that Russia, Brazil
and China don't have to have inflation if they don't want it, since they
always have the option of letting their currencies rise against the
dollar. True, that would hurt their export interests -- but economics
is about hard choices, and America is under no obligation to strangle
its own fragile recovery to help other nations avoid making such
Seniors, Guns and Money [May 12]:
This is the sort of thing that makes people like me think the Republicans
aren't just stupid and greedy but flat out evil: they not only have no
interest in helping people get quality medical care; more than anything
else they seek to protect the opportunities for health care businesses
to rip us off. One way they do this is to divide the population into two
camps, one of which foolishly thinks it's protected from the predators
because they're not like the other camp who never get a chance. Ryan's
scheme to divide medicare eligibility into two groups -- one that can
keep their coverage while the companies rip off the government and the
other that has nothing to look forward to but empty promises -- is just
Nor is demography the whole story. Over the long term, health care
spending has consistently grown faster than the economy, raising the
costs of Medicare and Medicaid as a share of G.D.P. Cost-control measures --
the very kind of measures Republicans demonized last year, with their
cries of death panels -- can help slow the rise, but few experts believe
that we can avoid some "excess cost growth" over the next decade.
Between an aging population and rising health costs, then, preserving
anything like the programs for seniors we now have will require a
significant increase in spending on these programs as a percentage of
G.D.P. And unless we offset that rise with drastic cuts in defense
spending -- which Republicans, needless to say, oppose -- this means
a substantial rise in overall spending, which we can afford only if
So when people like Mr. Boehner reject out of hand any increase in
taxes, they are, in effect, declaring that they won't preserve programs
benefiting older Americans in anything like their current form. It's
just a matter of arithmetic.
America Held Hostage [May 16]:
Every time since the founding of the republic that the government has
found itself approaching the statutory debt limit, Congress has passed
a new and higher limit. The need to do so was already established by
the budget that Congress passed, the costs of doing so are zero, and
the risks of not doing so are catastrophic. So why are the Republicans
who control the House dragging their feet and threatening doom? Mostly
because they get a kick out of extorting favors from spineless Democrats,
especially the one in the White House.
Six months ago President Obama faced a hostage situation. Republicans
threatened to block an extension of middle-class tax cuts unless Mr. Obama
gave in and extended tax cuts for the rich too. And the president essentially
folded, giving the G.O.P. everything it wanted.
Now, predictably, the hostage-takers are back: blackmail worked well
last December, so why not try it again? This time House Republicans say
they will refuse to raise the debt ceiling -- a step that could inflict
major economic damage -- unless Mr. Obama agrees to large spending cuts,
even as they rule out any tax increase whatsoever. And the question
becomes what, if anything, will get the president to say no.
[ . . . ]
What has changed? The answer is the radicalization of the Republican
Party. Normally, a party controlling neither the White House nor the
Senate would acknowledge that it isn't in a position to impose its agenda
on the nation. But the modern G.O.P. doesn't believe in following normal
rules. [ . . . ]
So hitting the debt ceiling would be a very bad thing. Unfortunately,
it may be unavoidable.
Why? Because this is a hostage situation. If the president and his
allies operate on the principle that failure to raise the debt ceiling
is an unthinkable outcome, to be avoided at all cost, then they have
ceded all power to those willing to bring that outcome about. In effect,
they will have ripped up the Constitution and given control over America's
government to a party that only controls one house of Congress, but claims
to be willing to bring down the economy unless it gets what it wants.
The piece has more details on what would happen if there is no
agreement, except the critical question of who the voters will wind
People read this stuff and get the silly idea that Krugman is some
kind of radical, but he's nothing of the sort. He qualifies as being
on the left because he thinks that a more equitable society is a good
thing; that people should be able to feel more secure, and that we
are all better off when people have more opportunities and freedom,
but he's no utopian: he's pretty happy within the bounds not just of
most modern social democracies but within the exceptionally modest
one we enjoyed from the New Deal through the Great Society. He's
really moved very little since he worked for Reagan 30 years ago.
What's scary is how far the right has slid past him, how dogmatic
and intractable they've become. Even so basic an idea as that the
government should provide deficit-financed countercyclical spending
to lessen the damage caused by recessions is now fought tooth and
nail by a party whose own presidents (as late as G.W. Bush) were
first in line to open the tap.
Thought I might do a
post about Krugman as a bonus, but it's taking me too long to
sift through the comments (which are worth sifting), so maybe