During the primaries, Krugman consistently criticized Obama, ostensibly for not pushing an agenda that was progressive as that offered by John Edwards or Hillary Clinton. Fair enough. He had a point.
Since Obama took office, Krugman has consistently bemoaned that Obama's bank plan is woeful (while only grudgingly offering any praise of his budget). Certainly, many economists agree.
But in today's editorial, Krugman has convinced me that he is unalterably opposed to anything that Obama touches.
Take a look at what Krugman wrote.
He begins by noting how times have changed:
The market mystique didn’t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.
Further, Krugman explains that the financial system decades ago, even in the 1960s, was small:
Even during the "go-go years," the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P. The relative unimportance of finance was reflected in the list of stocks making up the Dow Jones Industrial Average, which until 1982 contained not a single financial company.
Moreover, Krugman observes that those were the good old days:
It all sounds primitive by today’s standards. Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation.
But, Krugman continues, things changed for the worse during the Reagan era of deregulation:
Underlying the glamorous new world of finance was the process of securitization. Loans no longer stayed with the lender. Instead, they were sold on to others, who sliced, diced and puréed individual debts to synthesize new assets. Subprime mortgages, credit card debts, car loans — all went into the financial system’s juicer. Out the other end, supposedly, came sweet-tasting AAA investments. And financial wizards were lavishly rewarded for overseeing the process.
And, as we all learned:
But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
Sooner or later, things were bound to go wrong, and eventually they did. Bear Stearns failed; Lehman failed; but most of all, securitization failed.
I agree with all of this, as I suspect most here would. But what does this have to do with Obama, you ask?
Well, it seems that Krugman thinks Obama has a magic wand that he can use to reverse the course of history entirely. He complains:
In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.
To be fair, officials are calling for more regulation. Indeed, on Thursday Tim Geithner, the Treasury secretary, laid out plans for enhanced regulation that would have been considered radical not long ago.
But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.
Now, while I'm no Nobel-winning economist - and could barely pass my college economics courses - this critique seems pretty darn silly to me. Is Krugman really arguing that Obama should try to overhaul the entire financial system so that we return to what existed pre-1980? It may have been nice back in Ozzie and Harriet days, but common sense tells me that 28 years of history cannot simply be wiped clean that easily? Sure, Krugman acknowledges - briefly - that Geithner has proposed regulation that "would have been considered radical not long ago," yet clearly that is not enough for him.
So all can do is conclude that Krugman will never be satisfied with Obama.
Update
I just want to add one point, in response to some of the comments.
I should have made it clearer that my problem with Krugman here is that this last editorial asks Obama - I think - to recreate an environment and economic system that existed decades ago, with absolutely no acknowledgment that it could be difficult.
Further, Krugman offers no specifics (here) about what else Obama should be doing. Had he said bring back Glass/Steagal, for example, I would have been cool with that. But in this editorial, there are no specific suggestions, which makes me suspect that Krugman has in mind such a fundamental change in our system that it may well be impossible.
And at this point, I sincerely wonder whether Krugman does harbor a personal grudge of some kind. I say this because I have come to expect more details and nuance from Obama when it comes to critiquing others.