Why Paul Krugman is no longer credible

[anigbrowl]

Every Friday, he gets quoted over and over. He's an economist! and a Good one! And he's liberal! He takes apart those Republican economic 'policies' like rotten tomatoes!

And that's all good. but lately, because of his support for hillary, he's been elevated almost to the status of an oracle. And this is a big mistake, because in his zeal to support the candidate he believes in, he has intellectually compromised himself to the point of being impossible to take seriously any more.

For example, I wonder how he can sit back and endorse her proposed interest rate freeze, which The Economist called 'deeply unsound' and which completely undermines the point of having an independent central bank? Or to take on another aspect of the current financial crisis, and his coverage of it:

How can Krugman write columns comparing the subprime crisis to 1929 without mentioning the Glass- Steagall act? Because Bill Clinton repealed it. That repeal, which removed the regulatory barriers between investment and commercial banking, and is directly responsible for the securitization of mortgages and the consequent over-leveraging of those securities. Krugman, as an economist, cannot be unaware of the significance of Glass-Steagall - it was the longest lived regulatory framework put in place after the Great Depression and defined the boundaries of American banking for three generations. Without its repeal, banks could never have played the game of 'pass the parcel' that has gone on for the last 10 years with mortgage equity being traded, rated, and hedged against in schemes resembling the junk bond euphoria of the 1980s. We've wound up with this huge mess because commercial banks started acting like investment banks when they didn't have the knowledge, and investment banks taking commercial banks assurances on the securities they issued because they assumed (wrongly) that commercial banks were performing the same sort of due diligence on their asset classes as an investment bank would, marking their value to market regularly and so on. This was simply not possible until Glass-Steagall was repealed by Bill Clinton: it was to prevent abuses of exactly this type that it was instituted in the first place.

Here's one of his columns on the subject - http://www.nytimes.com/2008/03/21/opinion/21krugman.htm... After reading this you would be less well-informed on the subject than you were to begin with. Unfortunately, I get this a lot with him - he constantly talks down to his readers and constructs arguments that only make sense to the uninformed. Even when I agree with him on some topic I sometimes get annoyed with his column because he's constructed such a shoddy argument I know that people on the right will be able to rip it apart easily.

He has sold his credibility and I consider his analysis these days to be of little more significance than posts on a forum like DU. When someone who knows a particular field (economics) deliberately omits fundamental but slightly embarrassing facts from their analysis of a situation, then you can't trust them any more. I'm reminded of a doctor on retainer from a tobacco company insisting that there's no scientific proof that smoking cigarettes directly causes cancer...the implication being that it's OK for you to keep smoking.

[FrenchieCat]

1. I know!

I called him on the Deregulation Banking Act that Bill Signed. I didn't get a response.

Clinton signs banking overhaul measure

November 12, 1999
The biggest change in the nation's banking system since the Great Depression became law Friday, when President Bill Clinton signed a measure overhauling federal rules governing the way financial institutions operate.

Congress passed the bipartisan measure November 5, opening the way for a blossoming of financial "supermarkets" selling loans, investments and insurance. Proponents had pushed the legislation in Congress for two decades, and Wall Street and the banking and insurance industries had poured millions of dollars into lobbying for it in the past few years.

"The world changes, and Congress and the laws have to change with it," said Senate Banking Committee Chairman Phil Gramm (R-Texas), who has fought for years for the overhaul. Gramm said the bill would improve banking competition and stability.
http://www.cnn.com/ALLPOLITICS/stories/1999/11/12/banking.reform/index.html

[SunsetDreams]

19. just like the Clinton camp to take credit for the good and

ignore the bad.

[GoneOffShore]

35. Yet another nail in the coffin of Bill's reputation as a liberal.

[anigbrowl]

47. We probably have different definitions of 'liberal'. I think free trade is a liberal policy

...but one that needs certain constraints to work most effectively. Repealing Glass-Steagall was a very liberal thing to do, because the essnce of liberalism is letting people do what they want to the greatest extent that is practical. I'm what you call a 'classical liberal' who basically believes in capitalism but not to the exclusion of government, and I'm anti-socialist (I doubt many of you have ever lived in a socialist country or been in a communist one for that matter). But it would take me many pages to define fully what I mean by this.

Unfortunately, in an upward-rocketing market, Clinton underestimated the possibility of a credit crunch and overestimated the probity of the banks. Like a great many other things, the deregulation looked really good for quite a long time. Considering the huge economic growth and balanced budget of the 90s, and that this all took place pre the dot-com bust, pre-Enron, and so on, Bill Clinton can be forgiven for thinking that he had a Midas touch at the time and not realizing how it would play out.

My OP is not meant as an attack on Clinton over this issue - it was a mistake, but one that would not have been obvious to most people, including myself, 2-3 years ago. The point of the OP is now that we are sadder and wiser, we should be honest with ourselves.

For Paul Krugman, who knows a great deal more about economics than I do, to analyze the problems in our financial markets without addressing the regulatory environment that gave rise to them is dishonest. He has to simplify some of the topics he writes about to fit within the bounds of his column and be accessible to readers, but to me he does so too often, and not just on matters relating to the primary. My problem with him as regards this primary is that he's abusing the trust of his readers by leaving out basic information on subjects whenever it might conflict with his political affiliation - just like when republican economists talk about how 'successful' Reagan was while leaving out the fact of enormous increases in our budget deficit during his administration.

[NJSecularist]

2. He's not credibly anymore because he doesn't support St. Obama

If he did support Saint Obama, he'd be the messiah to all the Obamites.

[gmudem]

4. It's an interesting post if you actually read it

I still like Krugman but his support of Clinton is puzzling to me. I think he should stick more to economics than to the current primary, because it seems that his view is unfortunately being clouded.

[FrenchieCat]

5. You want to speak on the specific, like the economy....which is what we are talking about here.....

not acting like 5 years olds calling names. Try talking issues instead of being clever. It might make you look better.

Now, I'll put you back on ignore. I had given you a second chance. You just blew it. Don't bother to respond, I won't see it.

[splat]

8. I thought bias was the point of the OP -- why try to structure someone else's response?

Public scoldings aren't appealing either.

[FrenchieCat]

9. Excuse me.

Calling Barack, St. Obama will get a comment. But thank you, Ruler of who shall be allowed to structure someone else's response, and who shall not.

[splat]

10. You really think in terms of Rulers? Whew...

[FrenchieCat]

11. Only when someone speaks to me as though they think they are one.

[johnnydrama]

12. so now you're insulting Obama supporters?

Man, so very sad.

[DevonRex]

26. Finally had to put him on ignore. Sad really. I had always

thought him to be somewhat sane and respectful of other people. Not anymore.

[PoliticalAmazon]

65. Hillary routinely insults Obama supporters. No surprise some of her supporters do...

...What is surprising, however, is that some Hillary supporters are begging for "party unity" to put Hillary as Obama's VP.

They are also pitching for "unity," for--if it should happen, and it is mathematically impossible for it to happen--Hillary should be elected the Dem candidate for November, that Obama supporters support Hillary.

I just don't get it. Why would they think that, after Hillary and her supporters have routinely insulted us Obama supporters, that we would then lay down like a good Dem Doormat and meekly support Hillary--who obviously thinks we are worthless, otherwise she would not be insulting us--and join with Hillary's supporters--who have also routinely insulted us?

It's been my observation that these insults come from the weaker posters, who cannot build an argument or give evidence to ethically support their candidate.

But then it seems Hillary is unable to do that herself, to support her own candidacy. Otherwise, she would not spend so much time insulting Obama and his supporters, and wallowing in the use of pig-slop of Karl/Rove politics.

[nichomachus]

23. No -- because like many Hillary supporters he checked his rationality at the door.

When he talks about the economy, he makes a lot of sense. When he has wandered off and gets into politics, he has said some things that are just factually wrong or illogical, and he's ignored some important factors that change the equation. He's let his support for Hillary get in the way of intellectual rigor. It's very disappointing.

[QC]

25. Rudely phrased, but essentially correct.

We have seen it again and again here: good progressives who have not hopped aboard the Hopemobile are shit now, while anyone who supports Obama is a genius and a saint.

If Krugman supported Obama, we would be hearing every day about what a genius he is and how wonderful it is that a world class economist, a man on the Nobel short list, is on Obama's side.

And, in all fairness, the dynamic is the same on the other side.

Sometimes I wonder if this is the first election for many people on the site.

[DevonRex]

27. QC, once again you demonstrate that folks can disagree

yet be nice about it. Thank you.

[QC]

30. Thanks so much! n/t

[anigbrowl]

36. I disagree, which was why I picked G-S as an example

I understood why Clinton repealed it...because he is a liberal in the classical sense, as in allowing people to do what they want economically and fiscally as well as socially.

It's important to clarify that I am not blaming him for the subprime crisis. Repealing Glass-Steal probably looked like a very good idea at the time - this was before the dot com bust and came after a sustained period of economic growth, technological innovation, and with a balanced budget in his back pocket. And although I point to that repeal as an unfortunate decision now, it took almost a decade for its consequences to come to light.

Such is the way with liberal policy of any kind: its the nature of freedom that you don't know what people are going to do with it. Sometimes the consequences are overwhelmingly positive, as with the liberalisation and accessibility of the Internet, which has been a boon for the developed world and has brought benefits even to the poorest countries. On the other hand, the internet is also easily leveraged by people like Al-Qaeda so forth for ignoble purposes. But if we look at it from a cost-benefit standpoint, it's a Good Thing.

Financial liberalization is, to my mind, largely a good thing too. I am strongly for free trade, though not to the point of having it completely unregulated - I believe that you need to have agreement on labor and environmental standards, and I acknowledge that trade as an economic force does result in a lot of 'creative destruction', which needs to be planned for and cushioned.

Arguably, repealing Glass-Steagall created enough new wealth creation and secondary market opportunities (hedging) that it was partly responsible for the fact that the dot-com bust (and indeed Enron and suchlike which came soon after) was mild. Because it was easier for commercial banks to operate in the investment sector, it was easier for Americans to securitize their homes, and this provided n important financial cushion for the economy as a whole that allowed individuals and business to ride out the 2000-1 economic downturn with relative ease, by leveraging secure assets (commercial and residential property). This is, in fact, exactly what the financial market is supposed to do.

Where it went wrong was in being too successful - much as with the dot com thing, financial folks assumed that their new environment was recession proof, innovative, and could only go upwards. It even looked prudent. It was not at all obvious to most people (including myself) that it was sowing the seeds of a major market crash.

Even last year, people were comparing it to the 2001 recession and then to thins like the 92 recession. As soon as I learned what mechanisms lay behind the subprime situation I called it as a repeat of the 80's junk bond scandal and got laughed at for being a nervous nelly, though several months later I turned out to be right and managed to collect on some beer bets as a result. I still don't think it's analogous to the 1929 crash and subsequent depression because of the major structural differences, though it is likely obe the most severe financial crisis for quite a while.

So all this is a long way of saying that while I wish Bill Clinton had been a bit wiser and foresighted before enthusiastically signing the repeal of Glass-Steagall, it was an understandable mistake. If he hadn't passed it, either Bush would have or the 2001 recession would have been rather more severe than it was and Clinton's legacy would have been tarnished by it.

You live and learn - and even though this subprime crisis is hurting badly, many of the financial innovations discovered in the last few years are actually good tools, that will improve the functioning of the markets if employed with restraint, and if we have a more financially educated citizenry that knows how to read the small print and distinguish between a good and bad deal...just like you need to put your thinking cap on when you first come in contact with the internet, so that you're not taken in by spam emails, 'free' offers, and enticements to 'Click here!!111!'.

Getting back to Krugman, it's not because he doesn't support Obama that I am criticising him. It's because he's writing columns on things like the subprime crisis without addressing the actual origins and progress of the issue. It is, simply, bullshit to write about the subprime crisis and the need for new regulation without acknowledging the major shift in the regulatory environment that took place in the late 90s.

As with my earlier analogy, it would be like a doctor writing an article on medical progress in understanding lung cancer without mentioning cigarette smoking. I'm a smoker myself, and while my brain knows full well how nasty, unhealthy, and dangerous it is, I haven't managed to stay quit. I'm in sort of the same position that the banks were - they didn't deliberately cook up this crisis because they're evil, they over-extended themselves and were unable to unwind their positions as easily as they had thought they could.

I'm not expecting Krugman to take a public dump on Bill Clinton, or even to criticise him sharply - as I'e shown above, you can analyse and identify mistakes without pointing the finger of blame. He could even have mentioned Glass-Steagall and blamed the Evil banks for fucking it all up by failing to follow Clinton's excellent example of keeping your budget balanced. But for Krugman to sound off on financial crises and why Democrats are the ones to fix them, without even mentioning the biggest regulatory change in ~70 years...that's just not credible.

[Duke Newcombe]

56. anigbrowl...thanks for your posts...

your detail and backstory increase the signal to noise ratio here greatly--you're contributions don't go unnoticed.

Duke

[PoliticalAmazon]

37. Krugman was Bush Jr's eager little butt-boy for years. Now he's Clinton's....

...Krugman is the same whore, with a new john.

[QC]

44. Nice to see you doing so much to elevate the tone here, as always! n/t

[PoliticalAmazon]

51. Ignore my posts. Your sense of entitlement to judge others is not welcome. n/t

[QC]

52. I don't do ignore.

Besides, if I ignored your posts, I would miss out on so much of the lunatic comedy that is GD: P.

:toast:

[Skittles]

61. it's something, isn't it?

:puke:

[dkf]

3. Yeah, it makes me mad that he could be doing some very important

explaining on what is going on in our economy but instead he wastes his time cheerleading Hillary and doing a Tonya Harding on Barack Obama.

He's made his agenda paramount, and he's made it too obvious.

[Cha]

55. It will interesting to see when

Obama is President and krugman is still whinging.. making himself more irrelvant.

[Political Heretic]

6. I try not to do "x is dead to me" type things to people who support Clinton

I think Krugman's arguments have been exceptionally weak and incredibly easy to counter. But mostly, I just ignore him for now. He has a right to his opinion, and the right to write an article a day if he wants supporting his candidate. When Obama is the nominee, I may start reading him again.

[sandnsea]

7. Omitting "embarrassing facts"

is a problem that just about every journalist has, across the spectrum. About the only publication I've ever read that gets all the facts is the Christian Science Monitor. If you only read liberal material, you're no more informed than the right is.

[Citizen Kang]

13. Excellent points

Krugman has lost all credibility. Of course he is going to omit the contributions that Bill Clinton had to building this current credit crisis. Why? Because Krugman was an economic adviser to Bill Clinton and if he admits that Clinton played a part in the current mess we find ourselves in, then he admits that he himself had a part to play in this mess and is, by extension a poor economist.

You've made some excellent points. But truth, honesty, reason, logic, math and democracy are not something Clinton and her supporters are interested in these days, so this post will most likely fall on deaf ears.

[paulk]

58. Krugman worked for Clinton's '92 campaign

mostly attacking Bush pere's rhetoric about how wonderful the economy was. It's kind of misleading to say that he worked as an ecomomic advisor, in fact when Clinton hired Robert Reich as his economic advisor, Krugman was pretty pissed about. Relations between the two after that were not exactly friendly.

Krugman says what he believes and he doesn't care who it angers. Either agree with his conclusions or disagree, but the ad hominum attacks on him from the Obama camp only serve to make you all look petty and vindictive.

[OutNow]

14. Glass-Steagall Act repeal - A Big Problem!

Henry B. Gonzales D) San Antonio was head of the house banking committee for many years. He often said, with passion, that the Republicans would repeal the Glass-Steagall Act over his dead body. He retired in very ill health in 1998 and died in 2000. Most of the regulations of the Glass-Steagall Act were "repealed" in 1999.

Henry knew that the regulations put in place during the depression were instrumental in ensuring that the credit crunch that was the main reason for the crash would never happen again. Well, all those regulations are gone folks. And what do we get? A massive global credit crunch that may make 2009 look a lot like 1929.

Henry Gonzales was a progressive Texan, and at one time there were many of them. Another example of sound financial regulations was that for 150 years Texas did not allow a home equity loan on your house for anything but home improvements. It was written into the Texas Constitution to ensure that the greedy bankers did not steal your house out from under you. This prohibition was ended in 1997. The governor was a big supporter of unlimited home equity loans. His name was George Bush.

I took the time to write this to illustrate that the Republicans are the problem in this country and should be the focus of our discussions on DU. The endless sniping between supporters of Clinton and Obama is not very productive. Let's save our venom for the Republicans.

[anigbrowl]

38. Excellent catch - I did not know about that, very interesting

I wish I had been paying more attention to things and people like that at the time.

[judasdisney]

15. Forget Obama vs Clinton, the Glass-Steagall omission is very troubling

I have paid to see Paul Krugman speak at Town Hall in Seattle, I own most of his books, and during the past 8 years, Krugman has been the ONLY U.S. mainstream media voice for me with ANY credibility -- including anyone at the repulsive Air America, etc.

I have stopped reading his columns because I don't have time to sort-out my feelings of dismay at Krugman's sudden blind-eye.

It is possible to appreciate the Clinton presidency while disagreeing vehemently with certain portions of it.

Any responsible citizen would not succumb to the bogus conflation of Clinton with pure progressivism. Clinton's sins include the Telecommunications Act of 1996, the deaths of too many Iraqi children, and the ANTI-FDR, ANTI-NEW DEAL dismantling of Glass-Steagall.

Anyone with a working knowledge of COINTELPRO would begin to suspect that many of the ostensible Clinton supporters on DU are part of a scam to divide the Democratic Party by creating a "Clinton vs Obama" meme whereby Clinton cannot be thoughtfully criticized.

Krugman appears to be playing into that COINTELPRO trick -- at best.

Unfortunately, I agree with "anigbrowl" that "When someone who knows a particular field deliberately omits fundamental but slightly embarassing facts, then you can't trust them anymore."

Sorry to say, I agree 100%. I don't know why Krugman is doing what he's doing. I have no answers. I have no theories. But I do not trust him any longer.

[EV_Ares]

16. Rupert Murdoch who unfortunately bought the Wall Street Journal is actually

giving him a column now on the Opinion Page of the Journal. They are hailing this as a first for the Journal Opinion Page giving a column to a liberal type. Of course Murdoch held that huge fund raiser for Hillary at his home. Maybe it all connects, he is trying to buy another huge paper and is going to make a run at the NY Times.

[anigbrowl]

39. That's disappointing...I'd rather a more serious economist like Joseph Stiglitz

I do understand it; Krugman is certainly an able writer and has shown his ability to command an audience, so it's a good business decision by Murdoch. I'm wary of reading deeper motives into it. After all, there are plenty of economists who can't write and Joseph Stiglitz doesn't necessarily have the same way with words. Ultimately the business of a newspaper is to sell advertising by maintaining strong circulation, not to provide free education to its readers. Oh well.

[EV_Ares]

50. You brought up some good points, can't disagree at all. I understand your

being wary of reading deeper motives into it but with Murdoch, I have trouble not doing it. All in all you are probably right as he is a business man but I do feel he is consolidating too much of the media business. The other day when the top guy on the Journal quit, they mentioned the fact he has not put his own political views on the paper yet but that he was getting his own people in there which again is not too surprising as I have never seen a CEO come into a new company and not bring those he trusts and is familiar with; so there you go; it is only a natural progression of things.

I really did hate to see him get hold of the WSJ because it is the best or close to the best in the business. I never agree with the editorial page but it is interesting to read even if you don't subscribe to that radical of a viewpoint.

Thanks for the reply.

[SunsetDreams]

17. anigbrowl, thank you,

I've wondered about this myself. Barack has received wide acclaim from Economists and Professors for his economic policies and speech, and it seems there is this one lone voice out there that says that it's crap. That made me question him highly. It seems he has became so wrapped up in his support for Sen. Clinton, he has lost his ability to be objective. Now with regard to the Glass-Steagall act, that is highly troubling to leave that out indeed. How can a REAL economist leave that out of the analysis? I go back to him being so wrapped up in his support for her, that just like Sen.Clinton he is willing to risk his credibility, and try and ignore the bad that came out of Bill Clintons' presidency, while only shining light on the good. In Sen. Clintons' case, going so far as to take credit or partial credit for that good, but denying the bad. It doesn't work that way!

[anigbrowl]

40. Indeed. If you take a lookat my message #36, I'm not trying to take a dump on Bill Clinton

and nor am I asking Krugman to do so. Clinton's foresight may have been lacking in 1999, but hindsight is always 20/20. Having achieved a great deal in office with regard to the economy, I'm sure it seemed like an excellent idea at the time.

[fasttense]

18. In 2003, he was cheering Greenspan on with the rate cuts.

He thought, God forbid, we might have deflation. Boy was he wrong.

[Thickasabrick]

20. I've always like Paul but he is seriously jeopardizing his credibility.

I will start reading him again after this nomination thing is over. Hopefully he will start commenting on the comparisons between the two party's economic plans. You would think that him being so good at math he would have figured out who the nominee is going to be by now - but he's so smitten with Hillary it's making his math fuzzy.

[Eurobabe]

21. Krugman is an economist, not a politician or commentator on

things political. He should stick to what he's good at, and not quit his day job.

[BeyondGeography]

22. The point here is that he hasn't even been good at his day job in this campaign

His pro-mandate columns, which have almost completely ignored the problems that Massachusetts has been having, could be added to this most excellent analysis.

[QC]

24. Does that mean that Olbermann should stick to sports commentary? n/t

[Evergreen Emerald]

28. Translation: anyone that dares DARES to write anything

that resembles criticism of Obama is DEAD TO ME.

[anigbrowl]

41. I have not once complained about his criticisms of Obama

although I could. I gave solid reasons showing why his examination of the financial turmoil is misleading and leaves readers ill-informed, and why this seems to be motivated by his current political position.

[KaptBunnyPants]

59. No, that's the way a small minded authoritarian person like a Hillary supporter thinks.

He's lost his credibility as an objective analyst in this race, but normal people don't write other people off completely unless they demonstrate malicious intent. I have hope that Krugman will return to reason once his head has cleared.

[bicentennial_baby]

29. He did some great work back in the 1980s on development

and growth theory. He should go back to that. I prefer it when economists stick to their field. And I say that as a (hopefully) future economist.

But, he did fuck up back in '91, when he said that NAFTA would have "no effect on American jobs", in Foreign Affairs. It was either that or Foreign Policy. The article was titled "The Uncomfortable Truth About NAFTA"

[Arkansas Granny]

31. Watch out Krugman. Here it comes!

[HamdenRice]

32. Repeal of Glass- Steagall did not lead to securitization of mortgages

I agree with a lot in the OP and the criticism of Krugman, but point of information: the repeal of Glass Steagall had little to do with securitization of mortgages. That had been going on long before repeal of G-S.

The main effect of the repeal of G-S was to allow commercial banks to acquire, be acquired by, or behave like, investment banks. That meant that they could underwrite the issuance of stocks, bonds and other securities.

The main way this is related to securitization is that a commercial bank could turn to its own investment banking division to securitize its mortgages, rather than having to hire an outside investment bank.

But the securitization would have been happening anyway, just at a higher cost to the banks.

[unblock]

33. thanks, saved me from having to post this myself :)

mortgage securitization started, or at least had it big initial boom, in the early-to-mid eighties, iirc.

[anigbrowl]

43. You have a point, but:

my intention was not to deconstruct the entire subprime crisis, which would have required an in-depth examinations of collaterized debt obligations, credit default swaps, structured investment vehicles and so forth.

You are correct about the fact that mortgage securitzation already existed, but prior to the repeal of Glass-Steagall the illiquid nature of such securities meant they were traded pretty conservatively, as they should be. With the barriers removed, mortgages issued by a commercial banking division could, as you say, be easily repackaged and marketed by their investment banking arm, and so forth. I mentioned the failure of the banking system to adequately mark such securities to market (not least because it isn't obvious how best to do that) and how there was an assumptions among different financial institutions that everyone was doing their due diligence and so forth, leading to a deadly excess of mutual confidence.

It's like junk bonds...that's something we associate with the 1980s because of Michael Milken's spectacular fall from grace, even though he had been trading them very profitably since the early 70s and the use of junk bonds themselves dated back to the depression. I picked on the repeal of Glass-Steagall as the innovation that allowed mortgage securitzation etc. to take off in a really big way resulting in a big expansion of credit, rather than meaning that nobody have ever securitized a mortgage before that.

I apologize if my attempt to simplify the picture for a quick summary was misleading in any way. To be honest I didn't expect the thread to generate very many responses, since few people on a forum like this know or care very much about the ins and outs of the financial markets, so I assumed that people who did get would be satisfied with a brief sketch of the issue.

[HamdenRice]

63. My point is that Glass Steagal had nothing really to do with securitization

First of all, mortgage backed securities are not illiquid, nor were they "traded pretty conservatively." In fact, mbs were cash and t-bill equivalents. They were used by banks as the main vehicle for parking cash and settling inter-bank transfers. If they had been exotic or illiquid, then there wouldn't be a crisis. It's the fact that they were the bread and butter of banking that has caused the crisis. It's as though the system suddenly discovered that a certain portion of $100 bills were fake. That's what has caused the whole system to freeze up.

The reporting on this topic has been appalling, so I can see why lots of intelligent people don't quite grasp what happened or what went wrong.

The repeal of G-S may be bad for other reasons, but it simply has nothing whatsoever to do with the expansion of the mortgage backed securities market.

[Skittles]

62. it's a rightwing talking point n/t

[OzarkDem]

34. He doesn't support St. Obama and his GOP-lite economic policies

Why would you find that surprising? GOP economic policy has been proven wrong - as our current economy shows. Every crazy theory they've had is wrong, yet Obama keeps selling it.

At the same time, the Democratic party is expected to reject its own successes in fixing the US economy and protecting jobs, just because Obama is running against the wife of the guy who helped do it.

Sorry, but the Democratic Party should embrace its successful economic policy record and build on it. Krugman is very right about that.

[hfojvt]

42. which GOP-lite economic policies is Obama selling?

You mean things like tax credits and balanced budgets?

[OzarkDem]

60. Check the details not the talking points

[knixphan]

45. bingo, anigbrowl

[denem]

46. Thank You - Applause for your informed, careful analysis

I am embarrassed to see an intricate argument ignored in favor of such partisan enlightenment as 'Paul Krugman is a butt boy'.

I am however less optimistic about the future course of the ecnonomy. The secularization of debt has created a vast invisible market, which has taken at least a 1929 crash. There is no S&P for higher level derivative.

2.25% is the number. The discount rate. 2.25% above a depression, not in terms of the depth of the downturn, but the length. Japan 1990 - 2005 may prove that the Keynes liuuitiy trap can stuntgrowth very hard indeed, but I see another factor.

Since the early 1980 it has been been assumed that the Fed can manage the economy. Yes, it may overshoot, but it's an article of faith that both inflation and growth can be managed over the medium turn.

As you so well pointed out, secularization and perhaps a unity of patriotism, saved the illusion of the Fed's omnipotence in 2001. I don't think we will get off so lightly this time. If consumers come to doubt a firm floor the 'panic' may be a lot like the bad old days.

And all the time, the government is denied the power to print money, but only raise more debt at say, 0% interest?

[anigbrowl]

48. Excellent points

While America's economic and political culture is far less sclerotic than that in Japan, deflation is a big issue. I worry as well about the dollar coming under a sustained attack in the way sterling did in the early 90s, which had rapid and painful consequences. Having found myself on the sharp end of this at the time (in brief, seeing my mortgage payments in the UK rise several percent in a single week), I am not as sanguine as Paul Krugman about wage and price 'stickiness'.

Meantime, one of the reasons I support Obama is his fairly hard-nosed approach to fiscal policy even though he sugars the pill as much as possible by pointing to the long-term benefits of the medicine he is prescribing. By contrast, I really have no idea what Hillary Clinton will do to improve matters; I know what she says she'll do, but proposals such as interest rate freeze alarm me - it absolutely reeks of moral hazard, and although I am not a trained economist, it flies in the face of everything that I do know about economics. Maybe I'll do another post explaining why I think it's a disaster on wheels.

[depakid]

49. Interesting take that's been floating around the blogosphere

since his column in March.

That wasn't one of his better works, to be sure- and he's been criticized for it. Rightly so, I think.

But that doesn't make every other take that he write non-credible (anymore than it renders others who aren't enamored with Obama ipso facto non-credible.

Seems to me that the bottom line on Krugman is that he smelled a phony early last fall, about the time when Obama was in his "evangelical phase" and was naively promising unity with Republicans and a seat at the table for lobbyists.

Around that time Obama also released a less than ambitious health care plan, that (like his position on social security) he tried to shore up with the usual right wing talking points.

That struck many of us at the time as odd -or incongruent, and it set off a lot of seasoned bullshit detectors. Anyone who's read the Book "Blink" understands what I mean about that about that sort of intuition.

Gladwell cites a case in point early in the book about a the Greek Kouros that the J. Paul Getty Museum purchased in the 1980's.

A short segment of that is reprinted here- and will tell you a LOT about the thought processes many of us went through around that time with respect to Obama:

http://vkritis.blogspot.com/2007/06/in-september-of-1983-dealer-by-name-of.html

It's a great read, irrespective of one's take on the issue at hand.

[QC]

53. Excellent post, and thanks for the link. n/t

[anigbrowl]

57. Good post. What I'd keep in mind though...

continuing your analogy, is that while you say people 'smelt a phony' with Obama's proposaed policies last year, this observation can be equally applied to Clinton.

I don't want to get into a long comparison of policies over healthcare and so forth (just because it would spin out of control and likely end up with bitter recrimination) - let's agree about the fact that we genuinely disagree over which candidate has the better policies. Like the Kouros, when I looked at her plan and saw the mandates I just thought 'that is never going to work'.

Don't get the idea that I'm hostile to universal healthcare - I grew up in Europe and I coul deliver long arguments about why healthcare is something that should be socialized based on market principles - a capitalist argument for universal healthcare, if you will. Our disagreement is about the most practical way of getting there from where we are now; and to my mind, a universal mandate looks like what we would like to see, but isn't - and I feel that when people realize what the difference is, they'll reject it and (like the Getty museum) we'll have expended a deal of political capital to no good effect.

[Cha]

54. Thanks for your post, anigbrowl..

One can only wonder what paul krugman's hilary agenda is from his demonstrably panderous, opinion eds.

[jumptheshadow]

64. Krugman is credible

His columns about Obama don't seem personal to me. They are a logical extension of several years of essays in which he has defended Social Security, advocated as an economist for universal health care, highlighted the lunacy of extensive tax cuts during wartime, decried the incompetence of the Bush administration and has generally been an advocate for the middle and working class, among other things. May I add that he did this all before it became "fashionable" and back in the time when his was a lonely voice.

He doesn't agree with how Obama would implement his health care plan. He believes that some of Obama's statements on Social Security give Republicans, who want to radically change a system that has been working, an ax with which to start chopping away at it again. He believes that Democrats need to highlight the prosperity of the Clinton era in order to win the general election. All of these are thoughtful points, and they are very much in keeping with the entire body of his work.

As I have said, I have mixed feelings about both candidates. I have felt doubts about the Clintons ever since Bill allowed that mentally retarded prisoner go to execution before his Presidential run. All their decisions seemed based on political or personal expediency. Yet during the Clinton years, aside from anything having to do with Bill's zipper, you felt there were intelligent forces at work. Our standing in the world was high. We were prosperous and our country's budget was solid. We were faced with an oppositional Congress yet we knew we were safe from the Scalias of the world.

Obama is an almost luminescent presence and he is clearly a brilliant man who has overcome a difficult childhood and has changed the world views of many people. He holds great promise as an international leader. Krugman's points, however, resonate because he has been such a voice of integrity and he has been an accurate and courageous voice when so many other media voices have failed.

As I said, I will happily vote for either of them. Thank you for this thoughtful thread.