Posts Tagged ‘Krugman’

Vice President Biden said it very clearly – we “misread how bad the economy was”.  That’s the good thing about Joe Biden; he just tells you straight, just like it is.  He doesn’t try to finesse things or put the right political spin on things – he just blurts out the truth as best he knows it.  It’s kind of refreshing, isn’t it?  A day or so later. President Obama tried to correct Joe’s statement by saying “we had incomplete information”.  Apparently Paul Krugman wasn’t suffering from incomplete information, nor was Nouriel Roubini. Back in January, Nobel Prize winning economist Krugman criticized the Obama plan saying that we needed a stimulus package twice as big as the Obama plan. Meanwhile, Nouriel Roubini, the economist who predicted the worldwide economic meltdown, thereby earning the title of Dr. Doom and simultaneously qualifying for a Nobel Prize himself, also said that the Obama stimulus was insufficient.  So how is it that noted economists like Krugman and Roubini had enough information to come out and say that the Obama plan wouldn’t be enough?  How can the President of the United States have incomplete information? It seems that the truth lies more in Joe’s words – they just didn’t realize how bad things were – despite being told how bad things were by these preeminent economists.  In other words they chose not to listen to Krugman and Roubini. I wonder who they did listen to? Geithner? Bernanke? Summers? In any event, they got it wrong and the time has come to correct it.

Now of course the Republican Party has a different opinion.  The are more or less saying, “See, we told you a stimulus wouldn’t work”.  Their plan is to  just  remove all the rules, regulations, and taxes from businesses and restart a free for all economy with no rules – the sort of thing created by Clinton and Bush that created the worldwide meltdown.   Here’s an analogy: let’s suppose your house is on fire and the Obama Fire Department arrives with garden hoses. They spray water on the fire but it doesn’t go out.  Then the Republicans show up – not the Republican Fire Department (because they don’t have one), just a bunch of gawkers who hang around sniggering and making comments like, “See, we knew you can’t put out a fire with water!!  That’s why we don’t even try!  Say, why not try gasoline? That might work!”  The thing is this: we need firehoses, not garden hoses.  It’s a big fire.  Joe was right.  So was Krugman and Roubini. Obama needs to admit it.  They thought unemployment would peak at 8%.  It didn’t. We’ll probably break through to 10% unemployment within a month.  It could go a lot higher.  Meanwhile only 10% of the stimulus money has even been spent. Do I detect a certain lack of understanding here? The house is on Fire!! Break out the firehoses and put the fire out!!  Now!!

Meanwhile, perhaps the Republican “Fire Department” could just step back and keep out of the way. If you’re not part of the solution then you are part of the problem, and we don’t have the time or the luxury to start playing politics while our economy continues to go up in smoke.  I’m glad Joe Biden gets it. He needs to have a talk with President Obama – a Joe Biden kind of talk – and let him know, in no uncertain terms, that we don’t need finesse right now. We don’t need to calculate the exact cost of the remedy and then determine not to spend a penny more.  What we need is Stimulus Part II – and this time, let’s use the firehoses.

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On November 20th of 2008 the Dow Jones Industrial Average closed at 7552.  Today, the 5th of January 2009 the Dow closed at 8952 – a gain of 1400 points in a little over a month.  Why is this of interest? It’s because while investors have been steadily, more or less, coming back to the stock market many of the world’s leading economists have been offering dire predictions for the economy.  Today, Paul Krugman, a columnist for the New York Times and the recent winner of the Nobel prize in economics, wrote in his column that, “This looks an awful lot like the beginning of a second Great Depression.”

Am I missing something here? Here we have Krugman and others saying that, based upon everything they see, we are about to go off a cliff, and people are buying stocks like the economic catastrophe we have been dealing with was just a 2008 sort of thing.  Somebody is clearly really, really wrong here; the question is: who?  Here’s a little bit of data:  “Vehicle sales in the United States tumbled more than 35 percent in December, dragging the Detroit automakers’ full-year totals down to their lowest levels in nearly half a century.” This is from an article in today’s New York Times. Everyone knows that Detroit is staggering, barely hanging on to life, and even with their bailout things look iffy, to say the least. The interesting news in this NYT article is that it isn’t only Detroit that is hurting.  The Japanese and German car manufacturers have been hammered too.

Yet, there has been a steady month of buying activity on Wall Street. Why? Do the investors know something we don’t know? Has the market already hit bottom, priced in all the forseeable bad news, and now, as usual, the market will lead the actual economy? Or is this only a bear market rally – a sucker’s rally? Is the market about to nosedive again? I guess it depends on your point of view, people look at the same set of data and interpret it differently all the time. The thing is this: they can’t both be right.  Someone has it completely wrong.  Somehow, I don’t think it is the world’s leading economists.

Which brings me to Barack Obama.  As Krugman points out in his article, Obama is calling for a massive spending plan to stave off Great Depression II. Meanwhile, Krugman wonders if Obama’s massive spending plan is massive enough. He is also worried about Congressional Republicans who may try to block Obama’s legislation.  The Republican’s could halt the passage of Obama’s rescue plan because the Democrats don’t control enough seats.  One has to wonder: how in good conscience could the Republicans do that?  Don’t they care about this country? Well, yes they do – in a way.  It’s just in a different way from the Democrats. The Party of Herbert Hoover and George Bush doesn’t see things the way the average American does. Which, by the way makes it incredible that a lot of  average Americans actually vote for them – but they do.

It’s not that there is an issue about financial management techniques and what will work and what won’t.  Sure, Krugman points out that there are philosophical differences between economists who follow Friedman and those who believe in Keynes, but in the end that isn’t the issue.  Keynes has already been proven correct in the past and Friedman has been shown to be incorrect – yet Republicans won’t embrace Keynsian economics. Why?

Well, as John McCain might say, it comes down to the “redistribution of wealth”.  Keynes was an advocate of truly massive government spending to create employment for the average person as the best method of getting the economy out of a death spiral like the one we are in now.  Friedman believed that the solution was to simply give lots of money to the banks to increase “liquidity”. This was the plan that Treasury Secretary Paulson pushed through on behalf of his cronies at Goldman Sachs and the other banks.  The problem is that while the banks have been reimbursed for their losses from their foolish investments they don’t want to lend any more money.  Once burned, twice shy, as they say.

We are now at a moment, a defining moment, as Barack Obama might say. We are about to see a proxy struggle in Congress waged between two classes of society: the wealthy versus the average American.  If the wealthy win, i.e. the Republicans, we will get the Herbert Hoover result: a grinding Depression full of misery.  If the average American wins we will get the Franklin Roosevelt result: a slow climb out of economic abyss.  This is our moment America.  This is the moment that will define us and how we live for the next generation or more.  It’s not just a difference of opinion about the best technical method to solve a problem; it is, as John McCain said, class warfare.  Except that this warfare will be waged in Congress camouflaged with lots of speeches and chest thumping and flag waving and appeals to patriotism.  Just remember, it’s really only class warfare.  It’s a struggle to determine whether the wealthy will get to keep their massive fortunes while average Americans starve, or instead will democracy and fairness finally prevail in this country that has suffered so much under the Imperial Presidency of George Bush.

Pull up a chair a couple of weeks from now and watch.  It’ll be great theater, full of wonderful performances, and the  best thing of all is – you’re in the play!

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