I know it is not nice to rain on someone's parade on the day he wins a Nobel Prize, but when Paul Krugman was announced as the winner, Forbes contacted me to see if I would write a brief commentary. Out of that came my article, "Krugman-in-Wonderland."
Granted, my commentary went against the grain, as most articles praised Krugman to the High Heavens for his "brilliance" and all the other nonsense that goes into lauding someone who is famous for distorting history. I figured that someone needed to sound a different note.
Anyway, that was the genesis of what would become this blog.
Thursday, February 25, 2010
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“Krugman begins to view U.S. economic history from a distorted lens, one in which all administrations run by Democrats are Good and Virtuous”
Obviously this article was written before Obama was elected, but his harsh criticisms of the administration in his blog and column clearly prove this statement false. I could also dig up some critiques of the Clinton administration as well.
“Krugman has laid literally all of the recent financial meltdowns on free markets and deregulation”
He laid all the blame on deregulation? Is this really true? It’s no coincidence the banking system nearly collapsed within a decade of the removal of Glass-Steagell, shortly after Bush and Paulson removed leveraged restrictions on the investment banks, and cut the GSE’s capital requirements in half. So clearly, deregulation played a role. But Krugman also laid a lot of the blame on monetary and fiscal policy.
Few criticisms in this blog refer to links, research, or references that support many of your claims. This would be a helpful feature to your posts.
Sorry, Steve. Krugman's "Reagan Did It," which I critiqued earlier, blames all of the deregulation on Reagan and "free-market ideology."
The Austrians have been firm in saying that deregulation PLUS moral hazard is a formula for disaster. However, a lot of the policies that came from the past 30 years were not based on ideology, but rather other factors.
Look, the DIDMCA bill, the first major deregulatory move, was passed in March, 1980, signed by Jimmy Carter, and approved by a Congress that was overwhelmingly Democrat.
Krugman's criticisms of the administration have been based on his belief that the government has not spent enough, borrowed enough, and printed enough money.
“"Reagan Did It," which I critiqued earlier, blames all of the deregulation on Reagan and "free-market ideology."”
Yes, in this article, you are exactly correct. He did lay the blame on Reagan (some of it appropriately). But to ignore the dozens of columns he wrote earlier this decade criticizing fiscal and monetary policy and the disaster it would eventually (and did) lead to is a bit misleading. He does put a lot of blame on deregulation. He also (correctly) roasts Greenspan and the abysmal fiscal policy under the prior administration.
“Look, the DIDMCA bill, the first major deregulatory move, was passed in March, 1980, signed by Jimmy Carter, and approved by a Congress that was overwhelmingly Democrat.”
True, but the Garn-St. Germain Depository Institutions Act, as Krugman pointed out, was signed in ‘82. Is it a coincident that debt exploded shortly afterwards? What do you believe are the reasons behind this graph?
“Krugman's criticisms of the administration have been based on his belief that the government has not spent enough, borrowed enough, and printed enough money.”
True. I was not commenting on the validity of his criticism. I was rebutting your statement that he lets democrats off easy, which is not true.
Garn-St. Germaine was passed by a heavily-Democratic House, and had a number of Democrat co-sponsors like Steny Hoyer, Charles Schumer, Walter Fauntelroy, and Claude Pepper. It was not a wise piece of legislation, but from the research that I did (and in a paper I am about to send to a journal), I find that Democrat support was as strong as Republican support.
Unless you are going to tell me that Hoyer, Schumer, Fauntelroy, and Pepper were ideological Reaganites, I think the point is being made strongly that there were other factors involved. To say that Reagan suddenly sprang ideology upon us is silly.
“Unless you are going to tell me that Hoyer, Schumer, Fauntelroy, and Pepper were ideological Reaganites, I think the point is being made strongly that there were other factors involved. To say that Reagan suddenly sprang ideology upon us is silly.”
No, I would not tell you that that Hoyer, Schumer, Fauntelroy, and Pepper were ideological Reaganites because, well, they are not. But Reagan championed this bill, and something very clearly changed in the 80’s (as my graph above shows) Maybe the answer to this question is in your paper, but what other factors were there? I mean, even Bruce Bartlett holds Reagan’s ideological shift at least partially responsible for the mess today.
You are being very generous w/ your time by responding to my posts, and I appreciate that. However, I would have hoped you could have taken more of your valuable time to respond to my economic related questions, like the ones under the ‘Green’ post, and my question on the chart above. If this blog is more about debating ideologies, then I apologize for misinterpreting its contents.
I don't doubt that there were changes in the ideological undercurrent, but in my research, I find that Congress, not the administration, aggressively pushed Garn-St. Germaine. I found a Business Week article from late 1981 that said the administration was "dragging" its feet on the bill.
What I am finding is that changes in regulatory structure of industries come about not so much because of ideology, but because of current issues. The S&Ls wanted out of the regulatory regime of 1982 because they could not offer higher interest rates to savers, due to government regulations. The NY Times even editorialized against Regulation Q and it supported these changes.
I just sent a paper to a journal this afternoon that goes into these issues in more detail, and I want to do some more research in so-called regulatory regime changes to see what is behind them. Look, in 1980, we had double-digit inflation, high unemployment, and high interest rates. It did not take an ideologue to see that there were real problems in the economy.
BTW, Steve, I commented on your post on the "green jobs" topic.
I have not put as much work into the deregulation of the 80’s (and would be real interested in seeing yours) but I have put a lot of work into the deregulation of the late 90’s and early 00’s that lead to the credit bubble, and it’s pretty clear to me that ideology played a big role.
I have not done any work on the 1990s, although given that Bill Clinton was in the White House most of the time, I cannot imagine him being an ideological Reaganite. Nonetheless, I would like to see some research on that time.
Unfortunately, as all of us know, what we got were some regulatory shackles lifted, but at the same time, moral hazard, if anything, was increased. The famous "Greenspan Put" certainly covered the backs of Wall Street, which was in a "heads I win, tails you lose" situation.
Interestingly, I know of no Austrian economists who approved of the arrangement that a lot of financial deregulation gave us.
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