The Midas Letter has posted Newsweek’s cover story on Paul Krugman this Monday morning, and it’s a good read. Never thought I’d feel a bond of admiration and affection for an economist but the Princeton professor and NY Times columnist warms my heart. It helps that his colleague at Princeton, historian Sean Wilentz, apparently feels a similar sense of kinship to the rebellious Nobel-Prize winning numbers guy.
Recall that Krugman recognized the superiority of Hillary Clinton's health care plan to Obama’s during the Democratic primary and come to think of it, Wilentz methodically debunked every egregious attempt by the Obama campaign to smear the Clintons as racists.
But back to the NewsWeek article by Evan Thomas. Here’s the deal:
Paul Krugman has all the credentials of a ranking member of the East Coast liberal establishment: a column in The New York Times, a professorship at Princeton, a Nobel Prize in economics. He is the type you might expect to find holding forth at a Georgetown cocktail party or chumming around in the White House Mess of a Democratic administration. But in his published opinions, and perhaps in his very being, he is anti-establishment. Though he was a scourge of the Bush administration, he has been critical, if not hostile, to the Obama White House.
In his twice-a-week column and his blog, Conscience of a Liberal, he criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that Obama "has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing. It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street."
If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?