Two points:

First, I always ask myself this when reading an op-ed about the economy: How will the policy adopted effect the pundit personally? This is concommitant with my view that the further away the pundit is from feeling the ramifications of any change up close [in, say, his or her wallet...or his or her reputation as a savvy intellectual] the more abstract, cerebral and/or pedantic their vantage point can be.

It's like George Will twisting the facts about the Great Depression in a recent op-ed piece so as to convince others it was reallly more the government's fault that things got much worse. If only the bureaucrats and liberal idealists had let the market sort things out itself, everything would have unfolded much less traumatically for, among others, Amity Shlaes "forgotten man".

Secondly, look how many things the pundits have already gotten wrong about the economy over the last few years. From envisioning the dow at 36,000 to predicting that the price of a barrel of oil would shoot to 200 dollars. Krugman I respect because the trajectory of his prognostications have come closer to the way things actually unfolded and [unlike effette class snobs like Will] he actually cares about the millions of forgotten men and women down in the mddle or at the bottom of the capitalist food chain.

Let's face it, when Henry Paulson plays pin the tail on the recovery and Barack Obama picks a guy for Treasury who was mentored by Robert Rubin, how hopeful can we be that the new economic pie will have a lot more peices this time around.

Or maybe Joe the plumber's new book will turn the country around. If not, we'll probably have to wait for Sarah Palin's inaugeration in January 2013.

George Walton

I don't know about the depression, but in Japan, some analysts have called it a "balance sheet" recession. And many of the causes (inflated home values) are similar. The problem is that individuals and banks have assets which are declining, or, worse, unknown in value (home values, mortgages, CDOs) and so they hoard cash against a catastrophy. In this environment, a tax rebate or cut is nearly useless, because people will use that to save more or cut borrowing (which is the same thing). Look, in this year so far, the savings rate has increased, the first time since 9/11, and generally bucking the trend of the last 15 years. So, the only way to stimulate spending is directly BY spending.

The Economist - where the editors begin each morning genuflecting at a shrine for Adam Smith - says the same thing, in a leader entitled "The Perils of Incrementalism." We really are all Keynesians now.

We are all Keynesians now because we are in a situation in which Keynes' teachings have application.  Let's hope the Obama team applies those teachings correctly.  This Republican believes they will.

The danger to a successful Obama policy comes not from the feeble Republican right, but rather the empowered Democratic left.  From the Pelosi-Waxman-Miller wing of the party, who will want to personally design cars, utility grids and who knows what else.  

To me, the most encouraging fact about the new economic team is that Robert Reich is not on it.  

Geoff G writes:

The Economist - where the editors begin each morning genuflecting at a shrine for Adam Smith - says the same thing, in a leader entitled "The Perils of Incrementalism." We really are all Keynesians now.

George responds:

Actually, Economist journalists, op-ed columnists, editors and owners genuflect to those who advertize in their publications. After all, that's where the bulk of their pay checks come from. We often forget how, like all other media publications, broadcasts, internet sites etc., they are not only out to inform us but to make a buck as well.

So, you always have to take with a grain of salt the information you ingest from the media because it will almost always be conveyed so as not to alienate the advertizers.

Ordinarily, though, with regard to to the major political and ecomonic conveyor belts, there is little or no conflict of interest. They are in sync by and large.

But these are not ordinary times. These days, especially in publications like the Wall Street Journal, Barrons, Fortune, Business Week etc., they have to twist their narratives in all different directions because so many of their advertizers are now on the dole. And the bailouts are coming from the much loathed Federal government no less.

Indeed few things are sweeter these days then watching The Wall Street Journal Report on Fox. Paul Gigot and his raw capitalism enablers have to twist the facts into shapes that are nothing short of stuptifying. They all look at each other the way Ayn Rand might have imagined a room full of "looters" grousing about the way things should be and how things really are instead.

george walton

Yea, well, Krugman's reputation and those of the like minded is likely to be just one more casualty of this debacle. I'm sympathetic to his point of view- there really isn't any other option at this point but for the government to step in to keep a floor under demand (and more to the point, credit creation). However, he woefully underplays the risks. He doesn't, as a matter of fact, get it.

Right now the asset-liability mismatch in our net international investment position together with the significantly shrinking denominator is pushing the US current account deficit fraction of GDP in the wrong direction, at the very worst possible time. The extent of this we will not know for some months however, I estimate it could more than offset the decline the ratio would otherwise be undergoing due to the moderating trade deficit. We will know for sure soon. What we know already though is that the Fed is now ballooning wantonly along with increasingly obedient member banks, and the money supply is growing rapidly. The likelihood of capital flight from the US dollar continues to wax with the waning of our increasingly suspect claims, and the confidence underpinning these is supported by a thin reed indeed.

No doubt we need stimulus. It also has to be large, and sizing the relevant criteria. And deflation is no picnic, and would usher in massive foreign ownership of our capital stock. But we are now playing a very dangerous confidence game with other people's money, and hyperinflation would make the Great Depression look "well contained".

I Majorajam said:

Yea, well, Krugman's reputation and those of the like minded is likely to be just one more casualty of this debacle. I'm sympathetic to his point of view- there really isn't any other option at this point but for the government to step in to keep a floor under demand (and more to the point, credit creation). However, he woefully underplays the risks. He doesn't, as a matter of fact, get it.

Right now the asset-liability mismatch in our net international investment position together with the significantly shrinking denominator is pushing the US current account deficit fraction of GDP in the wrong direction, at the very worst possible time. The extent of this we will not know for some months however, I estimate it could more than offset the decline the ratio would otherwise be undergoing due to the moderating trade deficit. We will know for sure soon. What we know already though is that the Fed is now ballooning wantonly along with increasingly obedient member banks, and the money supply is growing rapidly. The likelihood of capital flight from the US dollar continues to wax with the waning of our increasingly suspect claims, and the confidence underpinning these is supported by a thin reed indeed.

No doubt we need stimulus. It also has to be large, and sizing the relevant criteria. And deflation is no picnic, and would usher in massive foreign ownership of our capital stock. But we are now playing a very dangerous confidence game with other people's money, and hyperinflation would make the Great Depression look "well contained".

George responds:

If Barack Obama's economic team...as with the Bush team now...tells us anything at all about the current economic crisis it is that the line between K Street, Wall Street, the World Bank, the IMF, the global economy and the plutocrats who stage manage the puppet shows that all the eager beavers at Big Media Inc. put on the nightly news each day has gotten less and less opaque of late.

These very powerful masters of the universe have been exposed. They have created these numbingly complex, convoluted mathematical equations that produce capital transactions that, in turn, create a shadow economy so far up in the stratosphere it has become almost impossible now to connect the dots between the monopoly money and the real thing. What is the real nitty gritty relationship between money that is exchanged for actual material goods and services and the financial derivative funds that are securitized then chopped then swapped up in the billowing clouds of speculation?

When I see Barack Obama in his weekly youtube chat exposing how so few could have swindled so many for so long, then I might be more optimistic that the schemers will prosecuted for what they did....for the suffering they caused. And then the economy can be handed over to men and women who are actually down here on Earth with the rest of us.

george walton  

George, another casualty of this crisis, I fear, is that uninformed frustrations such as yours will come to be reflected in policy. Derivatives are simply legal contracts. Those math equations of which you speak are the language of modern economics and finance. There is nothing inherently wrong with any of that, just with the character of the individuals charged with safegaurding the aggregate picture against the massive agency conflicts so common in financial history and so endemic to human nature where money is concerned (our corrupted and easily corruptible political class were not much help either).

In short, whatever its flaws, Obama's version of this is substantially preferrable.

I Majorajam said:

George, another casualty of this crisis, I fear, is that uninformed frustrations such as yours will come to be reflected in policy. Derivatives are simply legal contracts. Those math equations of which you speak are the language of modern economics and finance. There is nothing inherently wrong with any of that, just with the character of the individuals charged with safegaurding the aggregate picture against the massive agency conflicts so common in financial history and so endemic to human nature where money is concerned (our corrupted and easily corruptible political class were not much help either).

In short, whatever its flaws, Obama's version of this is substantially preferrable.

George responds:

Accusing someone of being uniformed is often just another way of suggesting that a more informed point of is analagous to your own.

Many derivatives today are legal contracts that are swapped in an unregulated thicket of largely electronic transactions that spread other people's money [and its relationship to substantive assets and commodities] to the far corners of the globe. A particular home is mortgaged and a local banker sells it to folks higher up on the financial ladder who chops it into tranches and sells them to folks who do not know or care to know who the aggregate  home owners are either on or off the books.

And what difference does it make in assessing the characters of the players involved when the single most important characteristic of them all is that they are in the markets to make money.

Remember when Carmen the computer and Danny Devito's character [Laurence Garfield] in Other People's Money  is confronted by Penelope Ann Miller's character [Kate Sullivan] who insists that, "One day we'll smarten up and pass some laws and put you out of business"?

He says, "They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don't go away. I adapt."

Only he didn't have to adapt by going to Hank Paulson, Ben Bernanke or the American taxpayers, right?

And I am not suggesting that Barack Obama's solutions are not substantially preferrable to the one's John McCain would embrace had he been elected. Instead, I am only speculating that given the team he has put together thus far, he sets aside Albert Einstein's suggestion that you don't hire the people who helped cause the problem to come up with the solution.

I truly hope I am wrong. So many people have underestimated Barck Obama before that I would be a fool not to acknowledge I might be next.

george walton