Volatility

August 23, 2009

Krugman and the Evolution of Political Truths

Paul Krugman has long been one of the best commentators from inside the system. His analysis on Iraq (though not the GWOT as a whole), the bailouts (though again, which he sees as wastefully applied, not wrong as such), health care, Republican depravity, government lying, and much else has often been superb.
 
However, the question has come up of how long you can tenably remain a dissenter within the system.? How long can you insist that everything which is being done is being done wrongly before you have to conclude that the entire premise, and not just the tactics, is wrong?
 
As if in response to this, Krugman seems lately to be breaking down and accepting the doctrinaire view of things. Thus even in a column where he strongly expresses how malign is the very existence of the big banks:

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely……

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers………

What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

he still parrots his longstanding line that it has to be done; that we have no choice.

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

 
And more recently, after long resistance, he has begun to accept the green shoots dogma:

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government……

Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. The nation has lost 6.7 million jobs since the recession began. Once you take into account the need to find employment for a growing working-age population, we’re probably around nine million jobs short of where we should be…….
But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year…..

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government……..

In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II…..

I’m still very worried about the economy. There’s still, I fear, a substantial chance that unemployment will remain high for a very long time. But we appear to have averted the worst: utter catastrophe no longer seems likely.

 
I suppose this is an answer to the proposition that where the stakes are so high you can’t honorably remain in loyal dissent forever. It’s not the right answer, but it is an answer.
 
This makes me wonder about a question I’ve long had. Krugman has written excellently on how MSM analysis of the war accepts as the “right” commentators only those who initially supported the war but later became skeptics or detractors, while those who opposed it from the beginning are still ruled out of the discussion.
 
In other words, as far as the mainstream is concerned, the “correct” position is to be brainwashed enough to accept whatever premise the government demands, and whatever its initial alleged evidence is, but to retain enough of a critical faculty that when the new evidence goes overwhelmingly against the initial premise, you can then change your mind. This is the position the MSM considers the correct one because this is what it sees as its own position.
 
But to reject the premise peddled by government and big business in the first place rules you out. You’re antisocial, feral, not a constructive part of the discussion.
 
So far, so good. So I’ve long wondered how this will play out regarding the economic crisis and the system’s doomed attempt to prop up the zombie banks and the zombie debt/”growth” economic model. For example, when we Peak Oilers are proven correct that the system was not sustainable and should have been wound down as rationally as possible, and that NO bailouts were worth doing, will we remain marginalized as wild men not fit for civilized company? Will it be the likes of Krugman himself who will belatedly recognize the truth and thereby become one of the “right people” while still scoffing at us as terminal doomsayers who therefore don’t deserve credit for having been right?
 
In this connection Krugman did once write a blog post (first half of 09; unfortunately my attempts to locate it failed) which went halfway toward dealing with this question. But he only asked the question regarding nationalization of the banks: once the mainstream accepts that it has to be done, will it be only the late adopters who are anointed politically correct while Krugman and others who called for it from the start will remain, as far as respectable conversation goes, outsiders?
 
By now no one still talks about nationalization. By now even longtime dissenters like Krugman accept that we’re committed to acceleration of the status quo until the next, far bigger, far worse crash. I suppose out of psychological self-defense they’ve had to retrench and convince themselves that maybe the corporatists can pull it off.
 
(As for the morality and aesthetics of it, the extrapractical desirability of continuing with such a vile system, I don’t know how they square their consciences.)
 
For those of us who really understand what’s happening and what must happen, we’re back where we started – alone. Oh well, we’re used to it. We’ll listen to the green shoots blather for a while, while hopefully we continue our preparations and perhaps start to find a means of political organization.
 
But I guess we can forget about anyone in this system ever conceding that we were right. That’ll be only for the history books, if there still are history books post-Peak Oil.
 
I’m determined to try to ensure there will be.  
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6 Comments

  1. Let’s take a look at some of the popular “green shoots” of late:

    1. Bank Profits: In a 2 trillion dollar Generational Ponzi Scheme, the banks get their bad paper protected, and then proceed to pick the pocket of the suffering American people with unprecedented late fees and overdraft charges.

    2. Lower Unemployment: July’s “dip” of a tenth of a percent was completely despair-driven. It’s not that more people were working, 247,000 LESS people were working, just that far more than that have exhausted UI benefits and stopped looking and thus have been dropped from the calculation. This is a “green shoot” ripped right out of the hide of the American people.

    3. Sales of Existing Homes: The market is glutted with so many foreclosures, fatcat investors are snapping up poor people’s dreams for pennies on the dollar. This is not fueled by the Joneses buying their dream house, it’s fueled by the Joneses losing their dream house and having it snatched up by an investor at an auction.

    4. Rising Stock Market: The nice way of saying it, is that it is liquidity driven. Which means the banks, flush with your kid’s IOUs, are laundering your kid;s dollars into the back door of the market. It’s funny-money fueling a phony baloney run-up. There is no genuine economic activity behind it, and PEs are way out of whack. It’s fatcats shell-gaming the people’s money, so when they withdraw their profits, they’ll siphon yet another trillion in Ma and Pa’s 401k money along with it.

    Normally, all these items would get Traditional Liberals in a lather. But not now, because they got their guy in the White House.

    We have a cottage industry of green shoots, and nothing except the popping of the bailout bubble will slow it down.

    Comment by Glenn Atias — August 23, 2009 @ 10:08 pm

  2. That’s right on the mark, Glenn. A bailout bubble being bellowed by green shoots propaganda.

    And it is sickening how many liberals are suddenly silent about the very policies and practices they yelled about under Bush.

    (Really, I can’t discern any significant policy difference at all. Even the vaunted change in tone from loutish anti-intellectualism to at least the semblance of conscientousness seems to have faded.)

    Regarding the unemployment figures, I put up a post on just that not long ago, which is listed in the above right column for anyone who wants to click on it.

    Comment by Russ — August 24, 2009 @ 5:59 am

  3. You cannot win a Nobel Prize explaining why the entire economic system is rotten. Not even if you are right and particularly not if you are right. Perhaps the rottenness began when Hamilton’s plan to federalize the State Revolutionary War debt at par created a privileged class of speculators which could then buy up all the western lands and force the settlers to take on mortgages they could never quite liquidate, but our current disaster was ushered in by the Eurodollar and Nixon’s flight from gold. Infinite money traveling at the speed of light has left us with giant financial institutions feeding off usury and speculation, while technology has enabled the flight of production to low wage countries and imperial ambitions plunder nearly half our income in the name of one phantasmagorical bugbear (terrorism) after another (communism). I don’t know how any mainstream academic economist can look himself in the mirror, but perhaps the tenured salary and the occasional prize make it all worthwhile.

    Comment by jake chase — August 27, 2009 @ 12:47 pm

    • Sometimes I wonder what it would be like to be part of some mainstream establishment organization. I can’t even imagine the level of cognitive dissonance it must require if one is otherwise intelligent and basically decent.

      Comment by Russ — August 27, 2009 @ 5:31 pm

  4. Did you read his last editorial? Seems he may have turned a corner.

    Comment by juliet — September 1, 2009 @ 8:02 am

    • This one was good. A line like “our political system’s ability to deal with real problems has been degraded to such an extent that I sometimes wonder whether the country is still governable” gets at the core of the issue.

      So does:

      “Actually turning this country around is going to take years of siege warfare against deeply entrenched interests, defending a deeply dysfunctional political system.”

      That’s why it’s annoying that he keeps buying into the green shoots theme, and keeps stipulating that we need to keep these big banks around, that they really are “too big to fail”.

      That contradicts his general, I think accurate, viewpoint as expressed in a column like this latest one.

      I’m inclined to analyze contradictions like this as contradictions between one’s training and one’s real perception. This happens alot.

      Here Krugman realizes deep down that we cannot solve anything so long as we’re in the clutches of finance corporatism, and yet his training doesn’t allow him to easily conceive a world without it. So he has this dissonance.

      Oh well, just a stab at armchair ideology-psychoanalysis. 🙂

      Comment by Russ — September 1, 2009 @ 9:11 am


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