Welcome to Katalusis for progressive views on politics, religion, environmental issues,
and popular culture. (Photo of the Mississippi River
from the University Club in St. Paul, MN.)
Even as the Democratic Party takes seriously the possible candidacy of loose-lipped, gaffe prone Joe Biden, the Republican Party is picking up the pieces after the loose-lipped Kevin McCarthy tells us what most of us already knew: the Benghazi Hearings were yet another attempt to bring down Hillary Clinton.
Over at the NY Times, economist Paul Krugman gets the word out:
So Representative Kevin McCarthy, who was supposed to succeed John Boehner as speaker of the House, won’t be pursuing
the job after all. He would have faced a rough ride both winning the
post and handling it under the best of circumstances, thanks to the
doomsday caucus — the fairly large bloc of Republicans demanding that
the party cut off funds to Planned Parenthood, or kill Obamacare, or
anyway damage something liberals like, by shutting down the government
and forcing it into default.
Still,
he finished off his chances by admitting — boasting, actually — that
the endless House hearings on Benghazi had nothing to do with national
security, that they were all about inflicting political damage on
Hillary Clinton.
If you’ve been reading Katalusis since its inception in August 2007, you’re well aware that economics is not one of my areas of expertise. My usual response to the topic has been to marvel at a system that functions best when the middle class is heading daily to the mall to spend its hard-earned cash on stuff it doesn’t need instead of saving a few dollars for a rainy day.
In recent years, many of us have been suckered in by credit card swindlers to spend more than we have at usurious interest rates. At the same time, a significant number of low income seniors have racked up credit card debt to pay for emergencies like car repairs, dental bills, new eye glasses, and doubled or tripled electric bills from running the air conditioner during summer heat waves.
Then came word in the fall of 2008 that the economy was tanking fast. One of the scariest scenes for me since the announcement of the global financial meltdown was Alan Greenspan’s public admission that the model he had believed in over the years had proved to be wrong. What model would that be, I wondered.
Nearly a year later, I surprised myself by printing Paul Krugman’s 11-page dissertation in the NY Times Magazine titled How Did Economists Get It So Wrong? More surprising, I gathered it up and took it out to my kitchen table and with yellow highlighter in hand sat there and read the whole thing. No kidding. Written in lay people’s terms, the article was readable even for a novice like me, and I now have a much better handle on economic theory and practice; heck, I even know the difference between “fresh water” and “salt water” economists. Hint: lots of fresh water economists are from Chicago.
Krugman writes:
It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. On the theoretical side, they thought that they had resolved their internal disputes. Thus, in a 2008 paper titled “The State of Macro” (that is, macroeconomics, the study of big-picture issues like recessions), Olivier Blanchard of M.I.T., now the chief economist at the International Monetary Fund, declared that “the state of macro is good.” The battles of yesteryear, he said, were over, and there had been a “broad convergence of vision.” And in the real world, economists believed they had things under control: the “central problem of depression-prevention has been solved,” declared Robert Lucas of the University of Chicago in his 2003 presidential address to the American Economic Association. In 2004, Ben Bernanke, a former Princeton professor who is now the chairman of the Federal Reserve Board, celebrated the Great Moderation in economic performance over the previous two decades, which he attributed in part to improved economic policy making.
In yesterday’s NY Times op-ed, Paul Krugman zeroes in on “the vast expanse of corporate influence” in the congressional struggle for health care reform:
We tend to think of the way things are now, with a huge army of lobbyists permanently camped in the corridors of power, with corporations prepared to unleash misleading ads and organize fake grass-roots protests against any legislation that threatens their bottom line, as the way it always was. But our corporate-cash-dominated system is a relatively recent creation, dating mainly from the late 1970s.
And now that this system exists, reform of any kind has become extremely difficult. That’s especially true for health care, where growing spending has made the vested interests far more powerful than they were in Nixon’s day. The health insurance industry, in particular, saw its premiums go from 1.5 percent of G.D.P. in 1970 to 5.5 percent in 2007, so that a once minor player has become a political behemoth, one that is currently spending $1.4 million a day lobbying Congress.
That spending fuels debates that otherwise seem incomprehensible. Why are “centrist” Democrats like Senator Kent Conrad of North Dakota so opposed to letting a public plan, in which Americans can buy their insurance directly from the government, compete with private insurers? Never mind their often incoherent arguments; what it comes down to is the money.
Krugman points out that more is at stake than health care reform:
And what about other challenges? Every desperately needed reform I can think of, from controlling greenhouse gases to restoring fiscal balance, will have to run the same gantlet of lobbying and lies.
As you read Krugman's conclusion below, recall that a major campaign pledge by Barack Obama was to bring a new politics to Washington in large part by banning the influence of lobbyists from his administration. Krugman writes:
I’m not saying that reformers should give up. They do, however, have to realize what they’re up against. There was a lot of talk last year about how Barack Obama would be a “transformational” president — but true transformation, it turns out, requires a lot more than electing one telegenic leader. Actually turning this country around is going to take years of siege warfare against deeply entrenched interests, defending a deeply dysfunctional political system.
It's no wonder that 93 readers of Krugman's op-ed recommended this response by Paul M. Coopersmith of Inverness, California:
One of your best-ever columns, Paul. A rather devastating, but totally accurate indictment of the current state of affairs in 21st-century America.
Until we liberals and progressives take to the streets, fill the town hall meetings with our bodies, and let our elected officials understand in no uncertain terms that they will lose their jobs if they continue putting their own needs above those of their constituents, conditions in this country, for all but the very wealthy, will only continue to deteriorate.
The debate on health care reform continues this Monday morning in August. Scanning various reports of out-of-control town hall meetings on the subject and editorials across online news sources, it’s obvious there’s still a lot of fear out there among various segments of the population.
Let’s start with the rebellion of seniors to a provision in the House versions of the bills that would reimburse doctors who counsel Medicare beneficiaries on “end-of-life’’ issues. Certainly, end-of-life counseling has its merits as Bill Clinton pointed out in a speech last Thursday before the Netroots Nation conference of liberal bloggers.
What Clinton failed to mention was the origin of the uproar about the end-of-life provision. The problem for seniors began with the Administration’s scary introduction of the proposed counseling on this very personal and critical issue as a means for cost cutting in the Medicare program. Many seniors heard the proposal as limiting expensive procedures such as hip replacements for people who might die within a year or two anyway. This was not good PR for health care reform, especially within a context already disrespectful to seniors in which our president, along with leaders of both parties, habitually refer to Social Security and Medicare as “entitlement programs,” i.e., government handouts.
I repeat: seniors paid into Social Security and Medicare throughout their working lives, and Medicare deducts a sizable chunk of change from their monthly retirement benefits.
As for the overall health care reform bill that might ultimately emerge from congress, Paul Krugman offers a calm voice in the midst of the current storm:
So where does Obamacare fit into all this? Basically, it’s a plan to Swissify America, using regulation and subsidies to ensure universal coverage.
If we were starting from scratch we probably wouldn’t have chosen this route. True “socialized medicine” would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper than a Swiss-style system. That’s why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.
But a Swiss-style system of universal coverage would be a vast improvement on what we have now. And we already know that such systems work.
So we can do this. At this point, all that stands in the way of universal health care in America are the greed of the medical-industrial complex, the lies of the right-wing propaganda machine, and the gullibility of voters who believe those lies.
I would add to Krugman’s list of obstacles, the Administration’s condescension and disrespect for America’s senior citizens.
When the Democratic Party selected neophyte Barack Obama as its nominee over the seasoned and experienced Hillary Clinton in 2008, no one anticipated the global financial meltdown that left Americans in a recession with soaring unemployment. Early on, President Obama surrounded himself with a squadron of financial advisors, including Larry Summers and Timothy Geithner. Having no background in economics, Obama made his decisions based on the advice of said advisors while ignoring warnings from folks like the Nobel-prize winning economist, Paul Krugman. Krugman has graciously refrained from saying “I told you so,” but he has urged the increasingly defensive president to take action soon. In a recent column, Krugman wrote:
Now, it’s bad enough to be jobless for a few weeks; it’s much worse being unemployed for months or years. Yet that’s exactly what will happen to millions of Americans if the average forecast is right — which means that many of the unemployed will lose their savings, their homes and more.
To head off this outcome — and remember, this isn’t what economic Cassandras are saying; it’s the forecasting consensus — we’d need to get another round of fiscal stimulus under way very soon. But neither Congress nor, alas, the Obama administration is showing any inclination to act. Now that the free fall is over, all sense of urgency seems to have vanished.
Unemployment is rising. Foreclosures are surging. Lending is still constrained. So why exactly is the Obama administration waiting to act?
The editorial discusses three main areas in which the Obama Administration should at least lay the groundwork at the present time despite its current preoccupation with health care reform: stimulus spending, foreclosure relief, and bank rescue.
The editorial concludes:
If wait-and-see is anything other than a near-term tactic, it’s bound to be a miscalculation. The need for expanded relief and recovery efforts is compelling. Rather than avoid those fights, the Obama team must win them.
Times reader Dwight Bobson of Washington, DC pointed out:
Most all that Obama and the Dems have done is play it too safe. They had a super majority and knew what must be done. They acted by hiring the insiders and rewarded the criminals in the financial community again benefitting from self-induced bonuses. When it came time for the working class to receive some help, they got $250 to spend wildly on basic food and clothes for their kids. The more things change the more they remain the same.
Katrina Vanden Heuvel in The Nation offers a thoughtful critique of Obama’s Georgetown University speech on the economy in which he cites the Sermon on the Mount, appropriate for a politician whose oratory imitates that of an evangelical preacher.
Vanden Heuvel writes:
I think the speech is important for what it reveals about Obama's understanding of the task ahead--building a new economy out of the ashes of our failed one.
But real and grounded concerns about the administration's bank bailout plan remain. As Nobel prize-winning economist Joseph Stiglitz wrote recently in a New York Timesop-ed the Obama administration's plan is "far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses...the kind of Rube Goldberg device that Wall Street loves -- clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets...." Other good thinkers share this view, including Paul Krugman, Simon Johnson, William Greider and Robert Reich.
Vanden Heuvel goes on to say:
While Obama's speech lays out some strong principles for a new foundation, the administration's financial team remains unwilling to understand that we're not just going through a financial crisis or a panic, but the failure of a whole model of banking. We are living amid the blowback of an overgrown financial sector that did more harm than good.
As The Nation's Greider has argued we need a new banking system--smaller and more diverse and responsible to the public interest. Creating this new system is where public resources should be committed, not to saving banks that are "too big to fail". We should create public banks and non-profit savings and lending cooperatives to serve as an important check on private commercial banks. We need to make banks the servants--not the masters--of our economy. Only when we do that will a new regulatory framework do what's needed; it would be a mistake to simply re-regulate the shadow banking system which got us into this mess.
Paul Krugman has been the voice crying in the wilderness during the financial meltdown, desperately trying to get the attention of our inexperienced, economically challenged president and his minions as they continue to waste taxpayer dollars propping up failing banks.
In this morning’s op-ed, Krugman examines the history of the banking industry in the United States and reminds readers of how remiss the Obama transition team was in vetting Larry Summers as head of the National Economic Council:
Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a “catastrophic meltdown.” But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan’s concerns.
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.
Go, Princeton!
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?
