- Top Features:
- War Room
- Glenn Greenwald
- Broadsheet
- Joan Walsh
- Camille Paglia
- Since You Asked
- Follow Salon:
Read other letters about this article
Brad DeLong has on more than one occasioon posted what he calls his Krugman rules. They basically go like this:
1. Paul Krugman's analysis is correct.
2.If you think that Paul Krugman's analysis is incorrect, see rule number 1.
Normally, I agree. Paul Krugman doth has no biggger fan than I. But...
Paul Krugman did not see the financial meltdown coming in advance. Paul Krugman did not see a deep recession brewing in advance. In fact, even on the precipice of the fiasco back in the spring of 2007, Paul Krugman was more or less discarding such concerns and more or less sanguine that the Fed and the tools of monetary policy would guide us safely, if not necessarily smoothly, through any looming troubles. Essentially, he was saying that there was no need for us to have a recession, or a housing bust (though he surely saw the bubble, he expected much more of a slow deflation akin to the way a child's helium balloon slowly leaks its contents.)
Krugman, for all his wisdom, is not divine. He does in fact make mistakes. I think he is making one here, at least in regards to the idea that meltdown has been necessarily averted and the danger of such collapse is more or less past.
The housing issues? They are not over. Subprime is contained but the coming wave is a wave of mortgage recasts in the OptionARM/Alt-A/Pick-a-Pay market that has nothing to do with interest rates and everything to do with home values and loan to value ratios. This is a BIG wave.
The banksters? They are still carrying all that toxic debt on their balance sheets and valuing it at 90-100 cents on the dollar. Yeah...that's gonna work out well.
Middle class jobs? Well, we've effectively killed the unions, and while the US may manufacture more now in terms of dollar amounts than ever, the fact is that we employ many fewer and pay them much less to do it, and even those jobs are disappearing.
Unemployment? Increasing. Wages? Stagnant or in decline. Credit card debt? HUGE!
Where does recovery come from? What sustains it? Who buys and pays for all these houses? What do the masses do for jobs? And as our fiscal condition further erodes, what nation/people do we turn to in order to finance our deficits?
As far as Obama is concerned, I am not a fan. Never was. Never will be. The man is a moderate Republican and he has squandered the early chance to make real, substantive liberal leaning change in the mold of FDR.
Krugman's muting of his criticism of Obama seems to have coincided almost precisely with that White House lunch that he, Joe Stiglitz and Larry Summers had with the president. That's not to say that Krugman has copped out on his principles in exchange for a lunch date, it's merely saying that I am sure he was asked (and agreed) to back off a bit and give Obama time. In other words, he fell under the spell of the supposed 11th dimensional chess master. I think Krugman will ultimately regret backing off. And I think that the seeming calm we are in right now (things aren't better but the winds are no longer raging) is similar to the relief people felt back in the day before we understood hurricanes. We are in the calm at the eye of the storm. The second wave is coming. Watch for it.
