Where do we go from here?
Paul Krugman and Charlie Stross had a conversation about the future at Anticipation World Con, every paragraph of which is worth reading.
Though a few exchanges caught my mind.
Paul Krugman on the acceleration of change:
(T)here hasn’t been that kind of dramatic change … If you walked into a kitchen from the 1950’s it would look a little pokey, but you’d know what to do. It wouldn’t be that difficult. If someone from the 1950’s walked into a kitchen from 1909 they’d be pretty unhappy – they might just be able to manage. If someone from 1909 went to one from 1859, you would actually be hopeless. The big change was really between 1840 and the 1920’s, in terms of what the physical nature of modern life is like. There’s been nothing like that since.
The Economy Is In Worse Shape Than We Realize
Maybe some sacrificed chickens will fix the economy...
East Coast Economics has posted a dramatic visual explaining just how much borrowing our government has been doing over the last few months.
Check out the following which shows the $$$ amount borrowed by US banks from the Fed through Dec 2007; the spike marks the Savings & Loan Crisis at the end of the 1980s with borrowing maxing out at $8b.
[Then scroll down and] take a look at the [second] chart. It is the same graph as above, but [at a different scale, panned out, and] updated through the beginning of November ‘08.
So where is all of this borrowed money going? Paul Krugman delves into the details of the ongoing policy debate about how to deal with failing banks.
Old-fashioned voodoo economics - the belief in tax-cut magic - has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.
But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.
[Krugman sets up an excellent hypo detailing how this would work -- well worth reading.]
Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word - nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover.
Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.
Unfortunately, the price of this retreat into superstition may be high. I hope I'm wrong, but I suspect that taxpayers are about to get another raw deal - and that we're about to get another financial rescue plan that fails to do the job.
[Both articles via Robot Wisdom, image by Olly Moss.]
Politics Trumping Reason In Stimulus Debate
Politics transforms a reasoned system into a tool for control.
Nobel-laureate Paul Krugman is "perturbed by the state of debate over fiscal stimulus. ... This has not been one of the profession’s finest hours."
There are certainly legitimate arguments against spending-based fiscal stimulus. You can worry about the burden of debt; you can argue that the government will spend money so badly that the jobs created are not worth having; and I’m sure there are other arguments worth taking seriously.
What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion.
Everyone he lists in his post is politically conservative, to which he says...
That’s their right: economists are citizens too. But it’s hard to avoid the conclusion that all of them have decided on political grounds that they don’t want a spending-based fiscal stimulus — and that these political considerations have led them to drop their usual quality-control standards when it comes to economic analysis.
Think back to the time between 9/11 and the Mission Accomplished press conference, when anyone who disagreed with President Bush was deemed, at best, a partisan opponent and, at worst, a traitor. Reasoned, honest debate was squashed as disingenuous political maneuvering.
Those were challenging, uncertain times, but the scale of that threat is dwarfed into absurdity by the systemic economic collapse continuing around us today.
When met with a crisis, we look to detached, objective experts to provide leadership and to create a path to safety. Economists who, thanks to their past, excellent work, have emerged as experts and leaders are brought front and center under the spotlight of societal need.
To revel in the spotlight and masquerade political plays as reasoned opinion is an abuse of trust and tarnishes the reputation of these experts. While the personal harm may be great, even worse is the harm to society. Krugman left the gloves on for that post, but should the posturing continue, I hope he ignores restraint and unleashes fury.
I expect that Obama and his team will have the confidence and security to cut to the truth. The real question is how will Congress respond? The last, Democratically-led Congress was weak. Hopefully now the leadership will be hitting their stride and will similarly be able to work for the public good. If, instead, politics trumps objectivity, we're all in trouble.
[Image by Warren Noronha, used under a Creative Commons license.]
Krugman Wins The Nobel Prize For Economics
Professor Krugman (photo via the NY Times)
One of our great economists won the Nobel Prize today. He won for his work...
[O]n international trade and economic geography. In particular, the prize committee lauded his work for "having shown the effects of economies of scale on trade patterns and on the location of economic activity."
He has developed models that explain observed patterns of trade between countries, as well as what goods are produced where and why. Traditional trade theory assumes that countries are different and will exchange different kinds of goods; Mr. Krugman’s theories have explained why worldwide trade is dominated by a few countries that are similar to each other, and why some countries might import the same kinds of goods that it exports.
I began reading Krugman's op-eds in the NY Times in 2001, and have found great relief in his clear, focused, in-depth analysis of the Bush tax cuts, the costs of Bush's proposed social security privatization, the effects of different proposed national health care plans and the debunking of the Bush administration's national economic health numbers, doctored and manipulated to make everything seem rosy.
The one topic Krugman nailed before I heard it mentioned anywhere else, (much to his own dismay, I'm sure), is the economic crisis currently rippling across the globe. Krugman criticized Greenspan early and often for his complicity in the Bush tax cuts, and then again in his decision to keep interest rates too low for too long. He understood that the housing bubble was real, and that most of the value inflating the economy was junk. Professor Krugman saw this coming and shouted that the heavens were falling, but no one listened.
Many of his detractors use words like shrill, pessimist, anti-American when they describe Krugman and his writing. Yet he has been such a beacon of hope in the darkness for so many of us over the last eight years that, after receiving a number of requests to do so, Krugman also started writing political opinion pieces in the Times. He also started a blog to discuss timely matters or those not worthy of an entire column. (How he has the time to do all of this writing on top of his teaching is a mystery.)
Still, I always prefer when the Professor sticks to economics. He has a gift for cutting to the core of economic issues and for explaining what is really going on, pointing to the crucial indicators and showing his readers what to look for and what to expect in the future.
As we've seen from the repeated disasters of the Bush administration, one of the most important factors a citizen should consider when casting their vote is to look at who that candidate would appoint to key positions in the executive branch. I expect that if Obama is elected President next month, Krugman will be named as one of his economic advisors, and today's award suggests that the world would welcome this nomination. Well done Professor! Thank you, and keep up the great work.
(Also see: The Unofficial Paul Krugman Archive)