http://www.nytimes.com/2010/01/18/opinion/18krugman.html?emc=eta1
While we continue to search for a clear picture of the polar bear's future, I want to salute those who commented on that post because they elevated the debate to some very high level thoughts. I would also like to thank those who "missed" our posts for their concern and we want to point out that some semesters are busier than others as we get them started but we're back now.
Krugman's post from 1/18 (attached) corrects those of us who felt the Obama administration tried to do too much at the outset. Krugman defines our position as: Obama should have put health care to one side and focused on the economy. While we might quibble with that definition, we'll ride with it until we get to Krugman's point.
Krugman's "point" is that the administration's troubles are the result not of excessive ambition, but of policy and political misjudgments: "The stimulus was too small; the policy toward the banks wasn't tough enough; and Mr. Obama didn't do what Ronald Reagan, who also faced a poor economy early in his administration, did - namely shelter himself from criticism with a narrative that placed the blame on previous administrations."
Again to quote Krugman: "About the stimulus: it has surely helped. Without it, unemployment would be much higher than it is. But the administration's program clearly wasn't big enough to produce job gains in 2009."
Krugman goes on to point out that he and other economists called for a larger stimulus package in 2008 but the administration backed away from that because they didn't think it was economically necessary or politically feasible. My personal favorite here is Christina Romer (Chair of the President's Council of Economic Advisers) reassuring Congress that the current level of "stimulus" would keep the rising rate of unemployment from going above 8%!
I like Christina Romer but she, and the "Economic Team" were wrong, and they didn't miss by a little - they missed by a lot! This is my issue with the "dismal science": we (the editorial "we") call ourselves "economists" but we can't even get the largest issues right. We align here with James K. Galbraith (the son of a world renowned economist and holder of a chair at the LBJ School of Public Affairs at the University of Texas) whose observation about most of the 15,000 professional economists who did not see the credit disaster coming is that the theoretical framework that most economists teach is "fundamentally useless."
Now, to the banks. We agree that the banks have not suffered a hard line approach to what's needed to fix "finance". Again, to quote Krugman: "But the light-touch approach to the financial industry further entrenched the power of the very institutions that caused the crisis, even as it failed to revive lending: bailed out banks have been REDUCING (my caps), not increasing, their loan balances." So, of course, there are disastrous political consequences with the administration placing itself on the wrong side of popular rage over bailouts and bonuses.
Just a quick question on the re-regulation of "finance": has anybody seen new regulations and/or new oversight agencies or responsibilities of agencies?
So, now we go to health care. For those of you who have shared classes with me, you know I don't think it takes 1200 pages of health care legislation to fix the two main problems with our health care system: denial of health insurance for previously existing conditions and removal of health insurance for people who "cost too much" in health plans (or, as the insurance companies like to call that: "cessions"). The latter of those two situations occurs at the rate of 20,000 individuals per year.
Another quick question: has passing a health care bill come down to campaigning in Massachusetts for the Democratic candidate to replace Senator Kennedy? What happened to passing health care legislation because it's right!
Getting back to the question of whether the Obama administration bit off more than it could chew, I don't think Krugman has proved his point. As always, we agree with most of what he has to say, but we take the position that the Obama team took on way too much at once (inclusive of other issues as well, like Copenhagen) and was mistaken about what to do in most cases. Read Krugman and decide what you think.
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Public opinion trumps truth.
ReplyDeleteCountering arguments to spend such extravagant amounts of money is too easy. The public generally will not investigate a subject as esoteric as economic crisis policy. The same goes for regulation and healthcare.
About the failure of economics... When companies follow models too much, they become predictable. Predictability can allow competitors create a model that undermines their rivals. This search for destroying rivals will always challenge economists by creating new situations they have never seen before, like leveraging a company to its doom.
Perhaps the greatest flaw of economics is making assumptions, but that is less about economics and more about human nature.
About Obama:
The Democrats misinterpreted their victory as the citizens loving them when, in fact, they were tired of the Republicans. The latter paraphrases a political campaign consultant. This illusion probably drove them to take on so much because they thought it would be easy due to public pressure. Whatever. Live and learn.
Interesting observation on Congress behavior from a physicist:
http://www.technologyreview.com/blog/arxiv/24711/
Josh - all good points! Krugman didn't prove his point though. The Obama administration did take on too much (or, at least, "politically" too much). Certainly, they made mistakes (stimulus vs. unemployment rate, etc.), but part of the reason why was the "volume" of issues they addressed.
ReplyDeleteBloomber reports demise of debt commission:
ReplyDeletehttp://www.bloomberg.com/apps/news?pid=20601070&sid=akvUsoiu_yI8
"Public Debt is Stupid" so to speak
http://www.nber.org/papers/w15639
Only the abstract; use Google to find the paper.
Do not politician know that public debt could severely cripple America?
Political parties have too hard of hearts. They will fight each other while putting America's future at risk. This is just a fight over who will take the blame on changing entitlement programs. What do I mean by that? Like moving the eligibility age for social security 65 years old to 75. If Republicans can force the Democrats to do something like that before elections, they can use that as ammunition in their political campaigns. Democrats engaged in similar tactics as demonstrated throughout the healthcare legislation. Not that healthcare is wrong, but tactics used, on both sides, to move or impede it were extremely deceptive. Politics brings the worse out of humans for sure. At least it is less fatal in America.
Politicians can easily hide behind the complexity of D.C. to deceive citizens, all in the name of the collective good. This Machiavellian philosophy is a cornerstone of politics. The top of any organization of humans sets the tone of the entire organization. What are the likes of political parties saying to mainstream America?
Returning back to Krugman... There really is no way to be sure about the details of politics. All the cards are held to chests of a microscopic portion of America. Once reality of the economy set in, did the same amount of backing for addressing climate change (or whatever you call it) still exist? I do not know. What is the state of cap and trade anyways? Obama surely did not make any new friends at Copenhagen.
Krugman said that Obama's Administration made misjudgments? When is there ever a perfect judgement in politics? Some people always win and lose. Furthermore, most people both win and lose (compromise), which makes forecasting "political capital" difficult. America is close to being 50/50 or 60/40 on all issues (I am not 100% confident on this), they would not be an issue otherwise. What is the history of this anyways? From a practical perspective, I will formerly side with Professor Hazzard just since measuring political capital is so imprecise. Pushing the limits is the equivalent to gambling. Nobody will ever quite know how much a political situation was misjudged. The best poll is never going to tell the whole story. Only elections say the most. Clearly, Massachusetts confirms Democrats flew too close to the sun. However, nobody will ever know the critical point of when Democrats lost the majority of the aggregation of public opinion in Massachusetts. Would Democrats have taken Massachusetts if they avoided climate change stuff? I don't know.
Politics is not my forte.