President Obama is the only world leader who has attempted a Keynesian stimulus programme. Why has it been only minimally effective? Why do most other western leaders still insist the only way out is to tighten our belts and pay off our debts, when that clearly isn't working either? And how come the bankers, credit agencies and bond traders are still treated with cowed reverence—don't frighten the markets—when they got us into this mess?
These mysteries were beginning to make me feel as if I must be going mad—but since reading Paul Krugman's new book, I fear I'm in danger instead of becoming a bore. It's the sort of book you wish were compulsory reading, and want to quote to anyone who'll listen, because End This Depression Now! provides a comprehensive narrative of how we have ended up doing the opposite of what logic and history tell us we must do to get out of this crisis. [...]In the years following the Great Depression, governments imposed regulatory rules upon the banking system to ensure that we could never again become indebted enough to make us vulnerable to a crisis. "But if it's been a long time since the last major economic crisis, people get careless about debt; they forget the risks. Bankers go to politicians and say: 'We don't need these pesky regulations,' and the politicians say: 'You're right—nothing bad has happened for a while.'"
That process began in earnest in 1980, under President Reagan. One by one the regulations on banking were lifted, until "we lost the safeguards, and it meant there was an increasingly wild and woolly financial system willing to lend lots of money". Politicians were in part persuaded to deregulate by the argument that it would make us all richer. And to this day, "there's this very widespread belief that there was, in fact, a great acceleration in growth. But this really isn't hard. You sit down for a minute with the national account statistics, and you see it ain't so."
If we divide the period between the second world war and 2008 into two halves, "the first half is a really dramatic improvement to living standards, and the second half is not." It was certainly dramatic for the top 0.01%, who saw a seven-fold increase in income; in 2006, for example, the 25 highest-paid hedge fund managers in America earned $14bn, three times the combined salaries of New York City's 80,000 school teachers. But between 1980 and the crash, the median US household income went up by only roughly 20%. "So it's a total disconnect."
Why would economists claim ordinary people were getting much richer if they weren't? "The answer, I think, has to be that you need to ask: 'Well who are the people who say these things hanging out with? What is their social circle?' And if you're a finance professor at the University of Chicago, the people that you're likely to meet from the alleged real world are going to be people from Wall Street – for whom the past 30 years have, in fact, been wonderful. If you're a mover and shaker in the UK, you're probably hanging out with people from the City. I think that is the story of the disconnect." [...]
Since the crash Krugman has become the undisputed Cassandra of academia, but he jokes: "I'm kind of sick of being Cassandra. I'd like to actually win for once, instead of being vindicated by the disaster coming – as predicted. I'd like to see my arguments about preventing the disaster taken into account instead."
The likelihood of that is a fascinating question. Krugman is not the most clubbable of fellows. In person he's quite offhand, an odd mixture of shy and intensely self-assured, and with his stocky build and salt-and-pepper beard he conveys the impression of a very clever badger, burrowing away in the undergrowth of economic detail, ready to give quite a sharp bite if you get in his way. His public criticisms of the Obama administration have upset many Democrats in the US, while his more vociferous criticisms of George Bush used to earn him death threats from angry rightwingers.
Blast from the Past. At Daily Kos on this date in 2010:
If they spoke English, "What the hell [did we do to deserve this]?" might well be what the 'gators in the Louisiana wetlands would be asking the herons these days as the oil creeps in from the Gulf gusher. But, of course, those are actually the boneheaded words of BP CEO Tony Hayward, whose string of pronouncements over the past five weeks appears increasingly reptilian. The 'gators and herons have nothing to answer for. BP has had nearly 800 recorded safety violations since 2007.
Given BP's arrogant recklessness 800 fathoms beneath the sea and the whacks Hayward's shoot-from-the-lip style have gotten from the media, one would expect that the giant company's PR department would have by now stapled Mr. Hayward's tongue to the roof of his mouth for the duration. But apparently it is as helpless to stanch the flow of toxicity passing through his lips as engineers are to stop the oil gushing from the sea floor.
A politician's staff calls what Hayward is doing "misspeaking" when their boss is caught out. As when he said just a few days ago: "We're sorry for the massive disruption it's caused to their lives. There's no one who wants this thing over more than I do, I'd like my life back." If the 11 dead oil workers could speak, they might have something to say about that. But, of course, Hayward had forgotten all about them in his bellyaching over what he has to put up with to collect his $4.5 million annual compensation package.