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Disaster and Denial
When I first began writing for The Times, I was naïve about many things. But my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs.
And to be fair, it does happen now and then. I’ve been highly critical of Alan Greenspan over the years (since long before it was fashionable), but give the former Fed chairman credit: he has admitted that he was wrong about the ability of financial markets to police themselves.
But he’s a rare case. Just how rare was demonstrated by what happened last Friday in the House of Representatives, when — with the meltdown caused by a runaway financial system still fresh in our minds, and the mass unemployment that meltdown caused still very much in evidence — every single Republican and 27 Democrats voted against a quite modest effort to rein in Wall Street excesses.
Let’s recall how we got into our current mess.
America emerged from the Great Depression with a tightly regulated banking system. The regulations worked: the nation was spared major financial crises for almost four decades after World War II. But as the memory of the Depression faded, bankers began to chafe at the restrictions they faced. And politicians, increasingly under the influence of free-market ideology, showed a growing willingness to give bankers what they wanted.
The first big wave of deregulation took place under Ronald Reagan — and quickly led to disaster, in the form of the savings-and-loan crisis of the 1980s. Taxpayers ended up paying more than 2 percent of G.D.P., the equivalent of around $300 billion today, to clean up the mess.
But the proponents of deregulation were undaunted, and in the decade leading up to the current crisis politicians in both parties bought into the notion that New Deal-era restrictions on bankers were nothing but pointless red tape. In a memorable 2003 incident, top bank regulators staged a photo-op in which they used garden shears and a chainsaw to cut up stacks of paper representing regulations.
And the bankers — liberated both by legislation that removed traditional restrictions and by the hands-off attitude of regulators who didn’t believe in regulation — responded by dramatically loosening lending standards. The result was a credit boom and a monstrous real estate bubble, followed by the worst economic slump since the Great Depression. Ironically, the effort to contain the crisis required government intervention on a much larger scale than would have been needed to prevent the crisis in the first place: government rescues of troubled institutions, large-scale lending by the Federal Reserve to the private sector, and so on.
Given this history, you might have expected the emergence of a national consensus in favor of restoring more-effective financial regulation, so as to avoid a repeat performance. But you would have been wrong.
Talk to conservatives about the financial crisis and you enter an alternative, bizarro universe in which government bureaucrats, not greedy bankers, caused the meltdown. It’s a universe in which government-sponsored lending agencies triggered the crisis, even though private lenders actually made the vast majority of subprime loans. It’s a universe in which regulators coerced bankers into making loans to unqualified borrowers, even though only one of the top 25 subprime lenders was subject to the regulations in question.
Oh, and conservatives simply ignore the catastrophe in commercial real estate: in their universe the only bad loans were those made to poor people and members of minority groups, because bad loans to developers of shopping malls and office towers don’t fit the narrative.
In part, the prevalence of this narrative reflects the principle enunciated by Upton Sinclair: “It is difficult to get a man to understand something when his salary depends on his not understanding it.” As Democrats have pointed out, three days before the House vote on banking reform Republican leaders met with more than 100 financial-industry lobbyists to coordinate strategies. But it also reflects the extent to which the modern Republican Party is committed to a bankrupt ideology, one that won’t let it face up to the reality of what happened to the U.S. economy.
So it’s up to the Democrats — and more specifically, since the House has passed its bill, it’s up to “centrist” Democrats in the Senate. Are they willing to learn something from the disaster that has overtaken the U.S. economy, and get behind financial reform?
Let’s hope so. For one thing is clear: if politicians refuse to learn from the history of the recent financial crisis, they will condemn all of us to repeat it.
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68 Comments so far
Show AllDoublethink, indeed.
The thrift bank crisis started in 60's long before Reagan was president and the first thing the government did to deal with it was increase regulation in the US more than anywhere else in the world. This made things even worse and the legislation at the end of the 70's was less deregulation than a subsidy, you know a bailout which you love Krugman. This also made things worse and increased speculation and moral hazard like all government subsidies and guarantees, once again the kind of thing you love Krugman. The S&L Crisis is proof of how wrong the thinking is behind the policies you promote and what the Obama and Bush administrations have done. Our economy from WW2 has been based on enormous increases in government and private debt. Any theory on that period which doesn't mention this aspect is pointless. Furthermore, doesn't the easy money policy and moral hazard of the Fed's mismanagement of the economy in the past decade have something to do with the credit crisis? When I think of everyone I know who bought a house they couldn't afford, they said they did it because of the low rates. The role the deregulation really played in recent years was making it legal for politicians to force the bailouts and bank mergers on us. I would think you'd be glad about that deregulation considering how much you supported the bailouts. You say you think people should support more regulation. Considering how the Fed, government corporations and debt got us this mess, it is a wonder how anyone can support more of the same as you do.
Sounds a little like the 'bizzaro' world Krugman mentions. De-regulation is THE culprit. Thanks to Obama, none of this has been repaired, yet.
Key Republican-led legislation leading to the credit crisis (through deregulation leading to massive derivatives (Ponzi schemes) created by the 'shadow banking' system). These and other actions completed a roll-back of depression-era laws created to prevent another great depression caused by runaway, unregulated capitalism. Wall St fought bitterly against these in the 30s and finally got them repealed in the 90's and 00's.
1.
http://en.wikipedia.org/wiki/Commodities_Futures_Modernization_Act (see: 'Enron loophole')
2.
http://en.wikipedia.org/wiki/Financial_Services_Modernization_Act. The final nail on the coffin for Glass-Steagal. Pieces were taken out since Reagan at the start of much of the deregulation we have today. Republicans had spent millions on trying to get this through for many decades since Glass-Steagal was created after the Great Depression. Support from Rubin, Summers and other neo-liberals, gave democrats and Clinton the green light. Some dems (and only dems) voted no. Of course, it was Rubin, Greenspan and Summers that fought against Brooksley Born from regulating derivatives when we had the chance.
Nobel-prize winning economist (and critic of IMF, World Bank, globalization, and "free market fundamentalists") Joseph Stiglitz, on Glass-Steagal "He called its repeal the "culmination of a $300 million lobbying effort by the banking and financial services industries...spearheaded in Congress by Senator Phil Gramm".
3.
http://www.hud.gov/offices/hsg/sfh/res/mrgbrkrl.cfm
In 1995, Republicans gained power in congress (after a nearly 50 year hiatus), and a Republican-led deregulation effort started with changing the RESPA anti-kickback rules which allowed mortgage brokers to push higher-interest loans to those who didn't need them. (as this was no longer considered a 'kick-back').
4.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
1999: Gramm-Leach-Bliley Act: Destroyed the depression-era dividing line between investment banks, insurance, securites and retail banking. Almost all no votes from Dems. Gramm: "By and large, credit-default swaps have distributed the risks. They didn’t create it.. " A partial factor in allowing investment banks (which are not banks, but now are), to bundle mortgages into CDOs
5.
http://en.wikipedia.org/wiki/Henry_Paulson
As a follow-up to Gramm-Leach-Bliley, In 2004, at the request of the major Wall Street investment houses (including Goldman Sachs, then headed by Paulson) the U.S. Securities and Exchange Commission agreed unanimously to release the major investment houses from the net capital rule, the requirement that their brokerages hold reserve capital that limited their leverage and risk exposure.
http://online.barrons.com/article/SB122246742997580395.html
"Only five firms -- Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley -- were granted this exemption; they promptly levered up 20, 30 and even 40 to 1."
Bear Stearns had $33 in debt for every dolllar in equity when they collapsed. They claimed they had new mathematical models which showed they didn't need the reserves.
6.
Not as important, in my opinion, but key taxes on capital gains for home sales were removed in 1997. All republicans and almost all democrats supported the bill.
http://en.wikipedia.org/wiki/Taxpayer_Relief_Act_of_1997
http://www.calculatedriskblog.com/2008/07/q2-homeownership-and-vacancy-rates.html
7.
Before 1982, the US had a tightly-regulated system of mortgage banking through S+L's, for many decades. Reagan-era deregulation helped to remove long-standing regulations on S+L's. Although 2 main pieces of legislation were a large part of the process, the first passed under Carter, both passed under a democratic congress with support of democrats and republicans, both initially sponsored by a democrat from Rhode Island (St. Germain):
Depository Institutions Deregulation and Monetary Control Act of 1980 (rolled back usury laws)
Alternative Mortgage Transactions Parity Act of 1982 (AMTPA).
"..Thrifts were not-for-profit cooperative organizations.. While banks offered a wide array of products to individuals and businesses, thrifts often made only home mortgages primarily to working-class men and women. Thrift leaders believed they were part of a broader social reform effort and not a financial industry. According to thrift leaders, B&Ls (eventually renamed to S+Ls) not only helped people become better citizens by making it easier to buy a home, they also taught the habits of systematic savings and mutual cooperation which strengthened personal morals."
http://en.wikipedia.org/wiki/Savings_and_loan_scandal
http://www.nytimes.com/2009/06/01/opinion/01krugman.html
BTW: Spending what we don't have is always a problem; we can thank Republican administrations in the last 30 years for almost all of that. But more important than the budget right now is spending on jobs. We need a new CPA (Depression-era jobs program) to repair roads, bridges, install alternative energy.
Of course, the entire reich-wing, and the corporate MSM are all talking deficit. Last thing they want is to ease up on the middle-class which is what a new CPA would do.
Krugman appears to me to still be naive. Anyone who thinks the Dems aren't adherents to the neolib/con philosophy is either naive, in denial or both.
The Dems in the US and the Liberals in Canada have done just as much harm to their citizens as the Cons have. They just put on an air of caring to mask their true beliefs
Sure thing Krugman, put our faith in the democrats, not those nasty republicans, yeah, yeah that's the ticket.
Krugman sez: "Are (centrist [sic] democrats) willing to learn something from the disaster that has overtaken the U.S. economy, and get behind financial reform?
Let’s hope so.
***
"Hope", again? Geh.
I was hooked on hope for a short while, and the detox was brutal.
Cicero: "Freedom is participation in power."
"Talk to conservatives about the financial crisis and you enter an alternative, bizarro universe in which government bureaucrats, not greedy bankers, caused the meltdown. It’s a universe in which government-sponsored lending agencies triggered the crisis, even though private lenders actually made the vast majority of subprime loans. It’s a universe in which regulators coerced bankers into making loans to unqualified borrowers, even though only one of the top 25 subprime lenders was subject to the regulations in question."
If only we had the old pre-1980s Big Three network TV news operations that were still kept separate from the entertainment divisions and staffed by veteran actual journalists who reflected the more authentically liberal public spirit of those times. If only we didn't have the 24/7/365 news cycle to drum the worst propaganda and human interest into the masses skulls like God's own writ in the tablets of the Covenant.
A remembrance of things past. In those days the CRUCIAL critique of the current GOP that Krugman made in that one paragraph I quoted above would have actually received some network TV airplay. One or two of the old school White House correspondents would have stuck a mike in some politicians' faces and put them on the spot about it.
But absent a legitimate forth estate, the masturbatory GOP version of Housing Bubble McHistory will be broadcast hill & yon serenely unquestioned and even Oprah lacks the background knowledge to say anything about it. I listened to that exact same propaganda line about regulators forcing banks to loan to unqualified borrowers ("We have to do it to compete with Fannie Mae!!) a year ago from my own banker--whose bank was one of the largest bailout recipients. I no longer bank there and now only use a credit union.
I left two cents in that account and that's my two cents;-P
Sioux Rose
METAL: As usual, sterling post. It's always easiest to blame victims as they seldom have the power to challenge the charges levied against them. And by making it seem that the poor brought the whole financial ship down, the old business of graft, corruption, and nonsensical abstractions of wealth can continue. Because no meaningful regulations have been re-instated, I am convinced our economy is being held up by smoke and mirrors right now, and the true and unfolding impacts of the recession/depression are hardly over.
Cicero: "Freedom is participation in power."
Hi Sioux Rose,
There is a HUGE smoke and mirrors whale shark swimming below the economic surface right now. It is in the degree of TARP money used by the big banks to speculate on the still unregulated $500 Trillion dollar-plus global derivatives black market versus the depth of the bad mortgage paper still held by these banks. Everything about this situation is highly suspicious.
The move to pass a Consumer Financial Protection Act includes language to regulate derivatives. But to truly regulate derivatives means oversight and oversight means surfacing the size of the global derivatives market and exposing the actual credit worthiness (or lack thereof) of the various bundled derivatives products being sold. Then there are the behind the scenes institutional hedge bets and options related to still entirely private derivatives deals between two parties. No telling how much of the money in the derivatives black market is drug, weapons and prostitution money from other global black markets, or illegally offshored, taxable money fronted by dummy corporations. We don't know if our government actually knows how deep underwater the big banks are with respect to bad mortgage paper, and we don't know if they DO know the depth of this problem if they would tell the public the truth about it.
The TARP fueled stock market & derivatives speculation is viewed by many as another desperate, artificially inflated asset bubble that may be one-half legitimate and one-half vaporware voodoo. Lack of real oversight, accountability and restoration of the Glass-Steagall firewall between non-speculatory consumer banks and speculatory investment banks could very rapidly lead to a second, even more devastating asset bubble implosion than the one in 2008.
Sioux Rose
METAL: I agree that the derivatives "market" is a financial weapon of mass destruction that has already embedded itself into numerous nations' economies with very precarious results yet to follow.
In your intriguing interchange with RICH M (I consider you both among the elite posters on this site due to the depth of your ideas) I agree that media was different some decades ago. One thing left out was the power and role of the music industry in fueling the protests and giving youth a sense of connectedness in fighting the same injustices we once again find ourselves reckoning with today. The only difference is that now there's a dearth of passionate protest music!
With Clear Channel buying up something like 1800 radio stations, and the giant TV networks owned by corporations either directly tied to war profits or running tangential to them, so little was allowed ON AIR that spoke against war. That was HARDLY the case during the l960's and l970's. (The same can be said about raising consciousness as per global warming, the bankers' bailout, the health care debacle, etc.) I was very active in protests then, and very moved by music and radio as were the thousands of my (our?) peers.
Thank you for devoting so much of your time to this forum. I think many of us regard this eclectic venue as a highly engaging, educational arena.
There was a great article in the 12 October New Yorker called 'The Secret Cycles' about how various ideas have been used to predict market cycles - the latest is that Pi (3,141 days) can be used to forecast the next up/down turn in the market. If Pi is important to the physical world, the couldn't it have some energetic 'jurisdiction' over the market world? Seems reasonable to me.
There was also a short paragraph on how one wall street analyst claims (without giving his name lest he be considered a kook) that the spring / summer of 2010 will be worse than anything we've seen yet because 'there's just JUNK' in the astrology.
abstract of the article here: http://www.newyorker.com/reporting/2009/10/12/091012fa_fact_paumgarten
SouixRose, any comment?
Sioux Rose
IOWA: I have no planets in the earth element, and so things like finance, or using astrology to predict stock trends is alien to me/my sensibilities. However, I am quite aware of a very powerful astrological configuration that begins in spring 2010 and peaks in August 2010 that could be quite troubling to ANY established systems. I had this sense (just this week) that it may involve a real energetic shift that has positive implications. It would be like millions shifting their frequency and bringing about some unexpected changes, ones I cannot even imagine. Jane Roberts channeled compelling material that speaks about the ancient past and how during those phases we humans were less encased in our bodies. Consciousness itself was more malleable. In India the adepts can do things that science would take to be impossible. The training of the mind can indeed move matter, and if MILLIONS shift, there may be a tectonic equivalent, at least metaphorically.
I wrote about the astrological facts in reference to the Mayan prophecy. The article is posted on my website: www.siouxrose.com if anyone cares to read more.
Thanks for posting the link. I will check it out!
Cicero: "Freedom is participation in power."
For one brief shining spot between the early '60s and late '70s the old Big Three reporters and editors and many more in the print media still had the balls to stand up and question authority from time to time. Now they are rare as hen's teeth and almost entirely absent from TV except for a tiny, aging handful. Even Greg Palast and Amy Goodman are no spring chickens.
I never said the old days were perfect. But I remember how the TV news ops used to cover an entire range of corporate, political and even labor-related issues they won't even touch now. Let alone environmental issues. They'll go on for days about increases in breast cancer and medical research to combat it. But the difference was that in the old days they would question what, precisely, in the environment CAUSES such a rapid increase--knowing full well it is this or that corporate industrial toxin poisoning our food, air, or water. Nowadaze corporations are entirely blameless for pollution and if they polluted in the past its the tax-payers' "responsibility" to clean it up. The old school news use to resist this somewhat. Not anymore and not for a very lonnnnnng time.
Deregulation of S&Ls was begun under Jimmy Carter. Democrats have simply paved the way for Republican extremism. It is naive to suppose that the leopard will now change his spots.
I watched the first segment of 60 minutes last night. Obombya was talking tough to the banksters. He looked like a brown Howdy Doody sitting on a Wall Street Bankers lap. What a pathetic asshole.
Cicero: "Freedom is participation in power."
"...a brown Howdy Doody sitting on a Wall Street Banker's lap."
The entire political class is now such a steaming herd of plutocratic brown-nosers that they should be required to wear brown shirts with little crooked swastikas on their arms so members of the public can see them coming at a distance.
Worship of wealth and the wealthy prevails in Amerika among not just the Pols but also among the rapidly being impoverished masses. It seems as we are driven deeper into poverty by the policies of the wealthy and their hand maidens the Political class our devotion to these people deepens for some unknown emotional reason? I suspect its something along the lines of why gamblers even though they onlt rarely win at the slots are driven back to their losing seats over and over again. The enormous psychological power of intermittent reward and punishment! ( every man that is pussy whipped understands this power.)
RichM, you are right about the problem, as ususal.
Take this quote: " the 2-party system is organically unable to address this country's problems." I concur.
So as opposed to Krugman's "weak note," what are strong solutions to fix the 2-party system? What, in the real world in which we live would work to fix it?
Here in Canada we have 4 parties that gain enough votes to win seats in Parliment and a fifth(Green Party) on the cusp of breaking through and yet the results have been the same as yours.
It doesn't matter how many parties you have if the electorate are ignorant of the issues.
Our only hope is for those of us who are aware to keep talking to our friends,family and neighbours and to take direct action no matter what form that takes. Our ranks are growing with each betrayal and one day if we persist we will reach a critical mass of supporters.
Quite right. What happens to the third parties is that they feel they have to Move towards the other two parties in order to gain more "Seats" in the house thus the distinctions between the parties grows less and less over time.
The only real way around that is IMHO some form of PR voting system.
The NDP of today is not anything like the old CCF which was the forerunner of the NDP. They are more like the liberals of 20 years ago and the Liberals are like the Progressive Conservatives of 20 years ago.
The Conservative party is like the Conservative party of 1867 except for being less visionary and to the right.
All of this IMHO is due to the ever rising power of the most undemocratic of all institutions, the Corporation.
The NDP of today is actively propping up the neocon Harper Government.Why because their poll numbers aren't where they would like.Which i guess proves your point.
PR would be good start but again if the electorate remains uninformed then even PR will prove ieffective
PR systems of structuring legislatures and voting are the standard the world over for advanced democracies. However, the issue of public opinion being the problem is complex. In the US public opinion is quite progressive. (Do a search for "progressive majority" and find the stats.) The largest part of the problem in the US is not public opinion, but legislatures that do not reflect it, thus we have a huge gap between public opinion and public policy. This is to be expected with the corruption of big private money influencing elections and a non-proportional system of structuring legislatures. Plus, in the US at the national level, there are no processes for initiative, recall, or even voting. US citizens can decide no question nor elect any citizen to national office. For president and vice-president we vote for "electors" who make the decisions in an Electoral College. This is absurd.
The US should follow the PR example of New Zealand which switched to a PR system in the 1990s.
It is also important to note that democratic systems like public financing/banning private money, PR systems, runoffs and instant runoffs are both remedies for bad government and causes of a more informed citizenry. Australia has laws that prevent non-fact based commercials. Most democracies ban advertising and private money during election cycles.
The US has a primitive system of politics that has been hijacked by corporations.
Change will require a massive effort for structural reform.
Join the American Socialist party;
Never vote again for a Democrat that does not agree to truly serve the people - litmus test.
"...I actually believed that influential people could be moved by evidence..."
Wow - that's like super-duper naive.
It's like saying, "Gee, I believed, since everybody knows drunk driving kills, that nobody drove drunk anymore."
They don't - after they kill someone. At least for a little while anyway...
"Gee, I believed that people would stop gorging on fastfood as soon as they realized it was making them obese and stupid."
'F**k you - I ain't drunk" "F**k you - I ain't fat."
'F**k you - I ain't greedy. I 'earned' and 'deserve' $100 million dollars a year. I'm doing God's work!!!"
That is super-naive for an intelligent person who has witnessed recent events. I got over that illusion quite young. As a child I thought that if only white people knew that black people were just normal people, racism would end. Oh if only the President realized the madness of the Vietnam war, it would stop. Oh and if we knew people were starving, we would stop dumping surplus food. I thought evidence, concern for humanity and common sense would rule, if only people knew.
Then I learned that very few people function based on evidence. If they are making money from something, that is all the evidence they need. They have to be FORCED to change by people who are being harmed. The world is not run based on rational intellect and good intentions. Power and money are the driving forces. Power and action are required to turn things around.
One Glass-Steagall Act will trump 1000 nice arguments about the long term harm of speculative banking. A RICO conviction works well too.
Joe
I've noticed that Krugman's articles lately are somewhat brief and short on solutions and what is glaringly absent from his and others is the condition of our physical economy. The financial and monetary system is finished. This present system could never be saved no matter how many bailouts they throw at it. At the same time, however, we have dismantled our physical productive capabilities. The policy of free trade and globalization have left this country a post industrial wasteland. Even is we had a FDR New Deal policy from the WH (which we don't and most likely won't) where we decided to launch some major infrastructure projects to build our way out of the Depression, we don't manufacture jackshit here anymore. We probably don't even produce nails let alone high tech machine tool capabilities. We should build a high speed maglev rail system but we can't cause we don't manufacture them. We could rebuild our water systems in our major cities (they are rotting) but we don't have the stuff to do it. We shut our steel mills, we shut our factories, we closed our R & D development facilities, we allowed our industries to be exported.
All this talk about pieces of worthless paper while our real wealth (the ability to produce and the human creativity behind it) is ignored by these "economic experts".
Cicero: "Freedom is participation in power."
Yep. Michael Moore is brilliant on this subject compared to the entire Ivy League economics establishment, Krugman included.
Don't give these corporations your labor. Don't buy there products. Don't go into debt. Don't use credit cards. Don't cooperate with their system. If you have to have a car buy used and fix it as needed with local mechanics, or better yet learn to do it yourself. Avoid corporate owned companies when doing business. Set up your own enterprise. Set up housing co-ops and take over foreclosed and abandoned buildings. Demand land and resource reform. Work to repeal regressive taxes and to re-establish a progressive income tax that falls heaviest on that upper 1%. Work to get rid of laws giving corporations preferential treatment. Hell better yet get rid of corporations entirely. The lessons in South America can be learned here. When Capitalist fled there the people took over the factories for their own enterprise.
How can anyone, Mr. Krugman, of even moderate intelligence, believe that the Democrats will honor anyone but their corporate masters? How can anyone think the Dems are different from the Repubs, when push comes to shove? How have the Dems, including our oreo president, done anything to help the major crises we face? These crises are: climate degradation, no health care in the US, runaway corporate ownership of our government, illegal and immoral wars to control resources in the Middle East, the use of lobbyists to control legislation. These are the most important ones which come to mind, followed closely by NAFTA, GATT and the WTO. Do you really think the 32 real representatives in Congress can do anything about these problems? Can you believe, for one moment, that the Dems will abandon their financial benefactors to do right? Can you believe, for one moment, that there is honor and integrity in Washington D.C.??
Lets not forget about SPP against which all other betrayals pale in comparison
Absent from this discussion, and economic discussion in general, is a topic alien to economists: The metaphysical foundation of economics. The "free-market ideology" of which Krugman is critical assumes a universe perfectly designed by an all knowing good God. Adhering to unthinking instinct, like the animals, humans will conform to God's perfection. Adhering to thinking reason, unlike the animals, humans will not conform to God's perfection.
In Nineteenth and early Twentieth Century United States, it was assumed instinct was manifest in democracy. In late Twentieth and early Twenty First Century United States, it is assumed instinct is manifest in economy. Thus "conservatives" declare government unable to do anything right, when democracy is a form of government. Necessarily, "conservatives" are anti-democratic.
Represented is the distinctly Protestant interpretation of Scripture of early liberal theorists, including the good Scot Presbyterian Adam Smith. Assuming an infinite universe, when only God can know infinity, humans only conform to the universe by unthinking instinct, not thinking reason. Government is thinking reason, and economics is unthinking instinct. Therefore government will fail and economics will succeed.
Economics being founded on this distinction, Keynsians like Krugman confront a conundrum. As economists, assumed is a perfect universe. Illustratively, Keynes asserts, "in the long run we are all dead." Although we may all be dead in the long run, perfection is still assumed in the long run. Being so, perfection is inevitable. Humans being ignorant, though, their intervention only can disrupt the inevitable perfection. Therefore, humans should not intervene.
If we are all dead in the long run of God's goodness and perfect knowledge, human intervention only can accelerate the death in the short run of humanity's imperfect knowledge. Escape from this conclusion is possible only by a reconstitution of the underlying metaphysics of economics. This not appearing in the offing, "progressive" economists like Krugman cannot justify their conclusions within the context of economics.
Cicero: "Freedom is participation in power."
There is also an important biological dimension to this discussion. That is the influence on social and economic morality and ethics exerted by obsolete, primitive Social Darwinism versus more recent and better evidenced theories of evolution that reveal there is as much cooperation and interdependence within and among species in a given habitat as there is competition for dominance between individuals and species within the same habitat. The more complex the biome, the more interdependence and cooperation.
19th, 20th and early 21st century capitalists operate from the primitive, obsolete Social Darwinist mindset because it serves conveniently (to the point of perfectly insular selfishness) to embolden their religion of over-concentration of wealth in the hands of the most economically and politically powerful. They misguidedly feel they are entitled to this usurping and wasting of broader social potential because, as the wealthiest and most powerful, they are genetically and psychologically superior to lesser beings to whom they condescend to provide "order through chaos" by forcing them to furiously compete with each other for basic survival necessities while they, the god-like plutocracy, serenely steer the ship of State to their own home port laden with the nation's and the world's riches whose profits only they alone are evolutionarily worthy to pocket. It's like my elderly Republican landlord (who never worked a day in her life and spent her days playing tennis at the country club) once told one of her tenants, "Now just you don't worry about George Bush and how he's governing the country."
Good comments.
Lynn Margulis writes on this topic from a microbiologist's perspective. More importantly, were the human mind more in tune with cooperation, rather than solely competition, we would see some rapid changes globally. In fact, I don't think progress can be made in the human condition by relying on a supra biological Darwinian interpretation of life. I really think Game Theory, used by the world order today completely thwarts democracy and must be abandoned. We must turn to full out cooperation, and the exposure that entails. I see no other way.
"Metal" This is a BRILLIANT analysis.
I cannot agree more. The elite has found a philosophy that serves it well and Economists have - knowingly or unknowingly - created a pseudo science to back them up.
Reagan helped them all out calling it "trickle down economics". Many Americans thought it made sense (after all water trickles down from an accumulation point: a dam, a glacier); few had the guts to say the opposite happened, in the history of Capitalism.
Chris
Sum up the article this way: The United States is finished. Its suicide is assured. Nothing can stop it because most of the people in this country don't give a damn. The most powerful fantasy of the majority of Americans is to be the head of Goldman Sachs, rip the suckers off and then get out with the stolen billions while laughing their heads off.
I'm inclined to agree with you. The question, increasingly, is: where do we go from here? Watching the healthcare 'debate' shrink up into a foregone conclusion (and now with the Democrats trashing the 'public option' while everyones head is turned toward climate change) has convinced me: we are done people, put a fork in us.
Well put. It needs to be communicated repeatedly just how much money has fled the US borders, since Reagan cut taxes to 'stimulate the US economy'. I'm not surprised to hear its $11.5 trillion in tax havens. They need to move to collect taxes on that money. These are American citizens, driving our roads, enjoying our parks and school system, and they just don't want to pay their taxes, and we're letting them get out of it. And we're suffering because of it.
Note to Krugman: It's a class war.
Ayn Rand wrote "If you want to know when a society is set to vanish, watch the money. Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of moral existence. Destroyers seize gold and leave to its owner a counterfeit pile of papers."
Central banks have been buying gold which would indicate that it has more value than they would like us to beleive.
Hopes and dreams are wonderful but present realities will determine the future.
I'd be careful about putting too much stock in Ayn Randisms.
Money is the destruction of moral existence, not its basis.
Ayn Rand was an utter idiot and could only have become a bestseller in the United States of Moral Morons.
YES! We are in a class war. Unfortunately, the rich control thee government and they simply don't care about the plight of the non-rich. They are doing quite well, thank you even during this latest financial crisis. And they don't have to worry about their children going abroad to fight and die and be horribly wounded in mind and body. They have their mercenaries to protect their vital interests around the globe.
Jim Shea
I wish Krugman would answer these questions:
1) What makes you think what happened is an unplanned disaster?
2) Since when have people with ideologies centered around power and domination ever considered a few million lives not "worth" the ends they seek?
Since when have people with ideologies centered around power and domination ever considered a few million lives not "worth" the ends they seek?
Madalene Albright is proof of this.
I hear that bankers are buying weapons, having private jets at the ready to exit and hiring bodygaurds if they have to appear in public. So should our Congress. Surely there must be Republics around the world that will take them in. Karsai would welcome them to Afghanistan. With every step they legislate it is clear how little you or I matter to them. They are not strategic thinkers, if the going gets rough-- their plan is to take the money and run.
No sense in apealing to them, politician or banker about what they should do to save the country. Well talk among ourselves instead and let them worry about how they will save their sorry skins.
Krugman says "my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs." I guess, when he points that finger, he can't see his three fingers pointing at him. With all the evidence in front of him, Krugman still believes that somehow the Republicans and Democrats are different. He is eagerly engages in perpetuating that myth that there are any major differences in these parties or their followers.
Exactly!
And here's the kicker - how is it that these people can prove to be so serially wrong so frequently that it's almost funny, yet still have their columns printed in venues like CommonDreams regularly?
If I wanted to read a Times columnist I'd read the Times.
May as well reprint Thomas Friedman articles.
Well stated. How many more examples do we need before this fact becomes as plain as the nose on our faces?
Krugman has evidently failed to figure out that our TBTF banks have been on a huge buying-off spree for the last several years or so, buying off not just most of the Republicans, but all of the centrist Democrats as well. So he has yet to figure out that centrist Democrats have suck up most if not all of the oxygen from the Democratic Party, leaving progressive Democrats oxygen-less and without a prayer. One thing I have yet to figure out is how the tea-baggers could be so dumb as to believe that our TBTF banksters could possibly have their best interests at heart. But hey, anyone who is dumb enough to believe that socialist and fascists are one and the same are also dumb enough to believe that most of the blame for the credit crisis should go to peons and ACORN recipients on Main Street, not to the sharks and corporate-welfare queens on Wall Street.