http://www.nytimes.com/2009/12/28/opinion/28krugman.html?emc=eta1
Now that we've arrived at a new decade, we have the luxury of hindsight to view what happened over the last 10 years. I am, once again, happy to sign on with Paul Krugman for his perspective on the economic aspects of what brought us here. His take on it is the "Big Zero". It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.
For those of us who think "job creation" is important, private-sector employment has actually declined between December, 1999 and December, 2009. There is no decade on record where that has ever happened.
There were zero economic gains for the typical family. By 2007, median household income was lower than it was in 1999. And, it got worse from there.
Right now housing prices, adjusted for inflation, are roughly back to where they were at the beginning of the decade. 45% of all home owners have a mortgage where loan is for more than their house is worth.
And, it was a decade of zero gain for the stock market. Last week, the Dow closed at 10,520 which is about where it was ten years ago. What happened to that best seller "Dow 36,000"?
Krugman quotes Lawrence (don't call me Larry) Summers, the President's top economic adviser, on what he said in 1999 about why our economy is working so well: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well functioning financial system. And, the percentage of all this that turned out to be true: zero.
So, in the decade of the "Big Zero", we achieved nothing and we learned nothing. Perhaps, in this decade, we could learn a little something by looking back at the mistakes of the last ten years. "Zero" is a good number when it signifies the number of mistakes made.
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I enjoyed both your blog and Krugman’s article. However, I respectfully disagree with the assertion that we have learned nothing. Before 2001 we lived in a pretty unprecedented time of peace and prosperity. People of my generation do not remember war or struggle - the energy crisis and Vietnam happened when I was too young to understand and the consumerism of the 80s is what I remember most.
ReplyDeleteSo, we learned the lesson in the early part of the decade that we are not immune to terrorism and recession. We are not isolated from the world, but heavily interconnected through commerce and policy. As a result of the major happenings of this decade, I would say that most of us are left with anxiety and caution. Anxiety about travel, terrorism, job security, and the future costs of education and healthcare. Caution about spending, job choice, and moving. So, I disagree with Krugman's statement that we learned nothing - our eyes were finally opened to the harsh realities of the world and this may be a good thing overall. Ignorance is not bliss.
And you know what I think of "Larry" :)
I don't know if I agree, Tracey. You and *I* may have learned something, sure, but with bank reform looming and looking to be as much of a circus as health reform was, I'm not certain we'll get a result that prevents the kind of widespread malfeasance that even still today exists in the system.
ReplyDeleteLiterally nothing has changed from a regulatory standpoint in many areas of our economy since the collapse, and the token gestures made in others (like derivative trading) wouldn't prevent the same kinds of abuses that got us here.
So I agree with you in a way, we are wiser, but I believe our system places disproportionate power in the hands of the people who created this mess, and they're not really interested in doing anything that would hurt their own interests.
My prediction: The proposed reforms will look good on paper, be almost entirely written by Wall Street lobbyists, and be full of loopholes. It'll pass, we'll all cheer it, and a decade from now, we'll be talking about what a mistake it was, like we do now about repealing Glass-Steagal.
We'll see ;)
Dr. TR - Great commentary! That was so well written that it should be a "Blog Post"!!! While it is impossible to disagree with what you've written, I submit that "Congress" is essentially political, which involves compromise in order to pass laws (what will you trade me for my vote, etc.). To me, our political system is the "...convoy moving only as fast as its slowest ship." In the "collective" of us, which Congress represents, we've learned nothing because our "votes", or our approval of proposed laws, get us only what the majority can agree with.
ReplyDeleteCraig - Good perspective, but Dr. TR has made a point about what "we", as individuals, have learned. About that, she's right. Collectively, we have learned nothing because our political institutions only work thru compromise. I am reminded of what Walter Wriston (who many have credited as the father of modern commercial banking, creator of Citicorp before Sanford Weill ruined it, and in whose organization I had the good fortune to work) said before Sarbanes was passed in 2002, "You can't legislate ethics." Sarbanes did nothing to prevent the worldwide financial crisis, and exactly the same practices that destroyed Enron (off balance sheet entities, etc.) were involved again. Worse, I have seen no change in regulatory oversight since proposals were made to Congress on that subject. Why, because the agencies themselves refuse to give up "turf". Did Nero fiddle before Rome burned?
I don't disagree, and perhaps I didn't make my words as clear as my thoughts. I think we've all learned something, but I also think we keep managing to forget "that something" right before another disaster like this.
ReplyDeleteUltimately some people will do whatever it takes to make an awful lot of money, even if that puts our economy at large in peril. Congress should take a hard look at how to break that cycle.
Regardless of the lessons we've learned, the lesson some of the worst players in the current scandal have learned is that doing whatever it takes to get paid is ok, because you'll never be held accountable, as long as it's a gray area.
Obviously Enron was breaking the law, so those at the top paid for that. Those few at AIG who were making big money making big bets AIG couldn't pay on, and put the company, the shareholders, and potentially our entire financial system at risk?
Walked away with a ton of money.
Until the end of those kinds of stories change, I submit nothing will, regardless of what other irrelevant measures Congress takes.
Craig - Actually, you made my point: Congress is not organized for anything more than "compromise". This means that they are not organized to take a relevant step.
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