Congratulations to Paul Krugman, sole winner of the 2008 Nobel Prize in Economics!! He joins the likes of Bill O'Reilly,... oh wait.. or did he win the Polkbody award?
As a handful of you know, I've got a degree in Economics with a specialization in international econ. So I'll continue with some economics and leave the jokes to those who are good at them :)
Paul Krugman is my hero! I first heard about him in college when I read, "Pop Internationalism" where he describes the myths of internationalist CW. Which is primarily what he received his nobel prize for. To my great delight in 2004 I read "The Great Unraveling" as well. Not only was Krugman my economic guru, he was as anti-Bush as I, and with facts! For years whenever I brought up Krugman, people would say what a liberal he is. As if that were some kind of disqualifying factor to his economic theories. As the world has come to Krugman's camp on Bush being a moron, now they are coming to his camp on international trade theory. This diary after the fold- quotes from his books that I love, and a Krugman pic and video.
Congratulations Paul Krugman wins Nobel Prize for Economics
Let's start this off with a metaphorical spanking for the MSM. I blame them for discrediting Paul Krugman. It makes me sick that it's as common to say the New York Times is a discredible news org. as it is to say that about Fox. How many Nobel laureate's work ove there at newscorp? It's this notion that somehow being a 'liberal' is wrong because it's to the left. And that a good newscaster is one who stays centered between the two parties. What a crock of shit that is. The left and right are immediately equated in moral terms, and discounted. I want my newscasters centered on the truth. To say that the truth lies in the middle is a joke. If that's where the truth is, then why are neither of the two interest groups lobbying for that position? The truth is almost always on one side or the other. If that means you have to say that McCain is lying more than once in a news session, SO BE IT! I get heatedly upset when people say that MSNBC is the mirror of Fox News. That's just insane. MSNBC has some commentators and hosts that give their point of view, but it's nowhere near similar. One side is fact based p.o.v. the other is p.o.v. based 'facts'.
Ok back to the man!! Paul Krugman. Genius economist; here's what the prize was for. From Pop Internationalism (1998);
As a starting point, I would like to quote a typical statement about international economics...'We need a new economics paradigm because today America is part of a truly global economy. To maintains its standard of living, America now has to learn to compete in an ever tougher world marketplace. That's why high productivity and product quality have become essential. We need to move the American economy into the high-value sectors that will generate jobs for the future. And the only way we can be competitive in the new global economy is if we forge a new partnership between government and business'... People who say things like this believe themselves to be smart, sophisticated, and forward-looking. They do not know that they are repeating a set of misleading cliches that I will dub "pop internationalism"
This is the same mindset that led to the "soft form of fascism (or corporatism)" that Dr. Ron Paul talks so often about. The merger of corporate interests with government, that the last 8 years have exemplified. Remember those words from the Clinton years; anti-trust. Where have they been as small businesses have been destroyed, corporations have swelled to 'to big too fail status'? Paul Krugman goes on...
It portrays America as being like a corporation that used to have a lot of monopoly power, and could therefore earn comfortable profits in spite of sloppy business practices, but is now facing an onslaught from new competitors... Unfortunately, it's a grossly misleading image, because a national economy bears very little resemblance to a corporation....So what do undergrads need to know about trade? They need to know that pop internationalism is nonsense--and they need to know why... Probably the most important single insight that an introductory course can convey about international economics if that it does not change the basics: trade is just another economic activity subject to the same principles as anything else.
This really goes to some of the notions that I've written about in past diaries. We've lost control of what America actually produces. The great emphasis has been put on the Dow Jones and NASDAQ. These overall macro barometers are so misleading to the health of our nation. They tell you a big broad vague number. This focus on the stock market has pointed hundreds of thousands of our brightest and most educated businessman, to become gamblers. 90% of the CDS (Credit Default Swaps, Insurance on a security) were Naked CDS- The person didn't have to even own a stock to insure againsts it's default. What public good do Naked CDS (A 54 TRILLION dollar industry) do for America? Also the CDO obligations; securitizing multiple mortgages into a collateralized debt obligation. Then people invest in that as a security. What public good does this provide? It's just people swapping around paper, and bidding up the value of assets.
We need the biggest and brightest to come out and start companies, that create products or services. Enough with the gambling and paper swaps, day trading and speculative loophole nonsense! Also let's remember who opened the market up for this type of BS: Phil Gramm and the Republican party. That's a different blog for a different day (see: Bondad; Who's to Blame For the Mess We're In?, our hero Dr. Krugman goes on, in what should be a popular chapter around here: Challenging Conventional Wisdom (1993)
I expect that many people here have heard of the last economist Carlos Diaz-Alejandro. Professor Diaz was not only s fine economist, he was something very unusual in that profession, a man of wisdom. And he pointed out something that is very important if you want to try to make good judgements about the world economy: the difference between real economic knowledge, and the conventional wisdom that prevails at any given time.
I would count at least four "CW" on economic policy since the early 20th century...If you go back to the 1920s, you find that responsible people...believed in a very simple doctrine: free markets and sound money...By the 1940s, the CW has almost completely reversed...the new doctrine...called for an active economic development strategy plus controlled money...By the 1970s, (CW) called for free-market microeconomic policies... For advanced countries this meant deregulation and competitive markets but active monetary and fiscal policies to stabilize the economy...by the late 1980s a new CW had taken hold, calling for--guess what!--free markets and sound money
Around 1990 this new/old CW had taken almost complete hold of discussion among serious people...But like any CW, it was based more on the circular process of important people reinforcing each other's current dogma than on really solid evidence.
Conventional Wisdom and debunking is what Paul was awarded this prize for. Imagine if he wasn't around, Markos would be getting it ;)
Ok finally, before I make this diary excessively long, I'll throw in a taste of some of my favorite parts from The Great Unraveling 2003
In 2001, even many liberals thought that one shouldn't make too much fuss about Bush's fiscal irresponsibility. The tax cut isn't a good idea, they said, but it isn't all that important. But by 2003, we saw the unprecedented spectacle of an administration proposing huge additional tax cuts not just in the face of record deficits, but in the middle of a war. ('Nothing is more important in the face of a war than cutting taxes,' declared House majority leader Tom DeLay.)
For it is a simple fact that George W. Bush and Dick Cheney got rich through pretty much the same tricks, albeit on a smaller scale, as those that enriched executives at Enron and other scandal ridden corporations. That's part of a larger story: at a time when we really need another Franklin Roosevelt, we are instead led by men who are part of the problem.
From a Fortune Article in 1997 where Paul visited a group of money managers.
Here's what I learned: the seven habits that help produce the anything-but-efficient markets that rule the world:
- Think short term- A few people in that meeting tried to talk about the long term--about what kind of earnings growth U.S. corporations might be able to achieve over the next five years. This sort of thing was brushed off as being too academic...
- Be greedy...
- Believe in the greater fool. Several money managers argued that Asian markets have been oversold, but that one shouldn't buy in until those markets start to turn around--just as others argued that the U.S. market is overvalued, but they didn't plan to sell until the market started to weaken... Implicitly they all seemed to believe that the strategy was safe, because there is always someone else dense enough not to notice until it really is too late.
- Run with the Herd. You might have expected that a group of investors would have been interested to hear contrarian views from someone who suggested that the U.S. is on the verge of serious inflationary problems, or that Japan is poised for a rapid economic recovery...which would have offered a nice challenge to CW. But no: the few timid contrarians were ridiculed. The group apparently wanted CW reinforced, not challenged.
- Overgeneralize. I was amazed to hear the group condemn Japanese companies as uncompetitive, atrociously managed, unable to focus on the bottom line...
- Be trendy:
- Play with other people's money: If, as I said, the people at that meeting were very smart, why did they act in ways that seem so foolish? Part of the answer, I suspect, is that they are employees, not principals; they are trying to make money and careers for themselves. In that position it is hard to take a long view....
One thing that I am sure of is that the Asian leaders who have been fulminating against the evil machinations of speculators have it wrong. What I saw in that room was not a predatory pack of speculative wolves: It was an extremely dangerous flock of financial sheep
Finally I'll end it with Paul's talking about the Asian currency crisis of the late 1990s. It might sound familiar ;)
In all of the countries that are currently in crisis, there was a fuzzy line at best between what was public and what was private; the minister's nephew or the president's son could open a bank and raise money both from the domestic populace and from foreign lenders, with everyone believeing that their money was safe because official connections stood behind their institution. Government guarantees on bank deposits are standard practice throughout the world, but normally those guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In Asian countries, however, too many people seem to have been granted privelege without responsibility, allowing them to play a game of "heads I win, tails somebody else loses." And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansions. The buble was inflated still further by credulous foreign investors, who were all too eager to put money into faraway countries about which they knew nothing... All those irresponsible loans created a boom in real estate and stock markets, which made the balance sheets of banks and their clients look much healthier than they were.
And 10 years later our bubble has collapsed in the same way. This thing wasn't an accident. There were smart economists that had their voices drowned out by the CW makers. I'll leave you tonight with a link to the Federal Funds Rate. This is the rate at which the Fed loans money to other banks. Alan Greenspan (A Republican) slashed the FF rate repeatedly. To flood the economy with cheap currency. It was this effort by the Federal Reserve and Treasury that I blame for this crisis
Check out Paul's blog The Conscience of A Liberal