JB on PK vs BHO
Just about everything Paul Krugman says resonates deeply with me, so I was surprised by his less than positive take on Barack Obama’s recent speech wherein the candidate laid out his plans for dealing with both the mortgage meltdown and the ensuing financial mess. I thought the speech laid out some great policy ideas.
This isn’t a “Barack’s better than Hillary” argument. She too has lots of good stuff to say in this area. But I don’t think Paul gave Obama a fair shake. So here’s the skinny on the speech, from one wonk’s perspective.
There’s was lots of Obama-esque rhetoric up front, which I won’t get into except for this: “in our 21st century economy, there is no dividing line between Main Street and Wall Street.”
It’s an important point. I was just out in South Bend, Indiana, talking economics with a bunch of folks from the community. One of their central questions was: how to the dots connect between the mortgage meltdown, the tremors on Wall St., and the recession? Obama’s comment, and the discussion surrounding it, underscores Main St’s vested interest in structuring oversight to avoid the excesses and market failures that got us where we are today. Hillary gets this too. Even Paulson kind of gets it.
Krugman liked this part of the speech too, but he was critical—overly so, I think—of a) Obama’s ideas for dealing with the present problems in housing and mortgage markets, b) Obama’s tax cuts, and c) his tendency toward policies that are too “cautious and relatively orthodox.” So let’s head for the weeds and see if you agree with me or Paul on this one.
Krugman praised Hillary’s endorsement of the type of plans being put forward by Congressman Barney Frank and Senator Chris Dodd. Under these plans, in exchange for a significant write down of the principal, the government provides lenders with insurance against default on the new mortgage.
But Obama endorses the same plan! As he put it in the speech, “To stabilize the housing market and help bring the foreclosure crisis to an end, I have sponsored Senator Chris Dodd's legislation creating a new FHA Housing Security Program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages.”
As far as I can tell, once again, there’s little space between Clinton and Obama on the issue of addressing the meltdown. They both want to hasten loan renegotiations, and pursue generally similar paths to do so. They even both have identically sized—$30 billion—state stimulus packages (hers was first). There’s one point on which they disagree—she’s proposed a five-year freeze on rate resets on subprime loans—but I suspect Krugman doesn’t much like this idea (has anyone seen him comment on it?).
As regards his tax cuts, Obama does go further than Hillary in cutting middle-class taxes, and neither I nor Paul get how he pays for it along with the rest of his agenda. He has, however, been quite bold in proposing necessary tax hikes, from closing the carried interest loophole, to raising high end marginal rates and the capital gains rate, and cracking down on international tax avoidance.
The truth is that none of their numbers add up—none of them clearly enumerate how they would pay for the full set of initiatives they’re proposing. That is not uncommon, and McCain happens to be the worst offender. And anyway, as an avid Krugman devotee, I can’t believe he really wants Hillary and Barack to provide a detailed explanation of how they’re going pay for their priorities. That just sets easy targets for your enemies to shoot at. I’m sure they both recognize, as does Paul, that at this stage, you stay within the realm of fiscal reality (i.e., you don’t promise the moon without identifying some new revenue), you broadly stress your priorities, your thematics, and you wrestle with Congress later.
Finally, the best part of Obama’s speech from a policy perspective was the six principles he laid out for oversight of financial markets. Read them for yourself. Most are good common sense:
• if you borrow from the Fed, you play by the same rules as other borrowers;
• you need to hold enough capital to cover your bets (see Bear Stearns meltdown);
• “regulate financial institutions for what they do, not who they are” (bring the shadow financial system into the light of day).
Then there’s the standard issue calls for consolidation of redundant agencies, and, granted, some pabulum about the SEC cracking down on fraud.
There’s also kind of a neat, creative idea for a financial market oversight commission that would report to both the president and Congress. I’m not sure what the Obama folks have in mind, and the Fed would argue that this is their turf, but they clearly need some backstopping. Personally, I’d like to see a bubble-watch committee headed up by Dean Baker.
Are these ideas too “orthodox and cautious?” Dunno. And if they are, is that necessarily bad, given the likelihood of implementing uncautious, unorthodox ideas?
The operative question comes down to this: would these ideas improve our economy’s performance and help to stave off big market failures like the one we’re in the midst of. I absolutely think so. C’mon Paul...you do too, right?
I think you've got to remember Mr. Krugman was pretty much an Edwards fan. Given that, I don't think he's very happy with either Dem, but thinks Hillary is the least offensive. Keeping in mind his often undeserved drubbing by Obama fans, I understand he's human, and doesn't want to give them any satisfaction...yet.
That's probably going to change soon. I'm glad the candidates are finally back on policy.
The column appeared to me to be mostly a warning about McCain, and to remember that he'll be just as bad as Bush has been on the economy. At least that was my take this morning. Maybe I'll have another look, though.
March 28, 2008 3:16 PM | Reply | Permalink
I don't think Krugman actually was a Edwards supporter at all. Krugman is a longtime Clinton apparatchik. It was clear early on that Edwards couldn't win the nomination or even close. It's the oldest political fake out to endorse a populist for street cred, when you know they can't win. Which is exactly what Krugman did with Edwards and Hillary.
In fact, Krugman's stated opinions over the years make his genuine support of Edwards an impossibility.
Edwards ran as a populist opposed to NAFTA in favor of protectionism, increased regulation, and so on. All of which Krugman has been against his entire career as basically a so-called "neoKeynesian" and "neoLiberal." Krugman was a leading advocate of NAFTA and deregulation. He's big on "free markets."
March 28, 2008 7:06 PM | Reply | Permalink
Um, Krugman was pretty nasty to Clinton in 1998 and 1999. He backed Edwards for sure, and even wrote an column singing his praises when he dropped out.
I don't think you're a regular reader or you'd know this.
The Times has made their archives free to all comers. Check it out.
March 28, 2008 9:21 PM | Reply | Permalink
Koz
Here is Krugmans column on Edwards:
http://www.nytimes.com/2008/02/01/opinion/01krugman.html?_r=1&scp=1&sq=Krugman%2C+Edwards&st=nyt&oref=login
March 28, 2008 9:43 PM | Reply | Permalink
I'm quite familiar with PK.
You have to be kidding to say he was hard on the Clintons. Maybe a bit of token criticism to establish his "independence." But the reality is he's at the NYT to by and large represent... who?
The NYT picks editorialist to represent various establishments. Krugman is the advocate of Clinton style economics of the 90s which can basically be called neo-Keynesian with the main policy implementations being NAFTA and various deregulation. A more accurate name might be "un-Keynesian economics."
***
Krugman is smart enough to know Edwards had no chance. He was always a distant 3rd. He's also smart enough to know attacking a candidate as popular as Obama would damage his credibility and popularity immensely. Especially after backing NAFTA, deregulation, ENRON, etc. i.e. everything that's gone sour since and has his and Clinton's fingerprints all over them.
Point being, praising a popular but impossible candidate is an easy way to rack up some popularity and position oneself. It's just fluff and pandering, maneuvering to back Hillary eventually.
Brooks for example might fluff Fred Thompson, Huckabee, or whoever, knowing full well they don't stand a chance. It's a nice way to broaden his audience and popularity. But he'll invariably wind up endorsing whoever neocons choose.
Krugman is no different. If they go too far off the reservation they won't be long in the job.
***
The evidence:
Krugman backed the major fiascoes under Clinton during the 90s. He has long ties to the Clintons and was expected to officially join the Clinton Administration.
PK praised Edwards' plan, specifically the similarities to Hillary's, positioning for an Edwards dropout. Krugman switched to Hillary quickly, before Edwards was even out.
PK criticizes Obama on experience, but didn't seem bothered by Edwards' lack of experience. Totally hypocritical.
PK, like the Clintons, is against any protectionism and many of the populist elements of Edwards' rhetoric, which contradicts his endorsement.
In most regards Obama is closer to Edwards than Hillary, yet PK has nothing but scorn for him, and passed Obama over on the way to chilling for Hillary.
It's all phony. Pandering and positioning to endorse Hillary was all it ever was. Just as he backed them on major issues in the 90s.
March 29, 2008 9:46 AM | Reply | Permalink
Nice little game kozmik. If Krugman says something that hurts your position, just dismiss it. You're always right.
Either you don't know Krugman as well as you think, you don't understand him or you don't want to.
Krugman, as a kindred spirit of Stiglitz, has a great deal of skepticism about so called "free" markets. His support of "free" markets includes a healthy dose of regulation.
I think Krugman went out of his way to whack Obama a few times - and he was wrong - but the reaction by hard core Obama supporters to his initial comments was just plain silly.
Obama supports "free" markets doesn't he?
FYI, I am a former Kucinich, then Edwards supporter. I hope Obama wins the Democratic nomination. (Of course, since I don't agree with you, I'm just saying that to get "street cred.") But his most ardent supporters - as with Clintons - have just gone over the edge on a lot of these "issues" including the attacks on Krugman.
March 29, 2008 3:56 PM | Reply | Permalink
You're talking credentials, semantics and theory. I'm talking real world policies and economic records.
PK can write about unicorns and rainbows for all I care. Pundits are fond of deluding themselves and living in a hypothetical world while sadly lamenting the real world outcomes of their failed polices as somehow not their fault.
In the real world, PK supported all of Clinton's major policy blunders which are deregulatory in nature and flirting with laissez faire ideology. Policies which were un-Keynesian rollbacks. Clinton was handed a great economy due to many decades of fundamental economic prosperity after the New Deal and America's post WWII advantage.
The vast majority of "fixing" of the economy by both Republicans and Democrats since the 80s has been disastrous.
The S&L meltdown, NAFTA and other lousy trade deals, deregulation of markets, duopolist financial mergers, sloppy accounting, duopolist media consolidation, increased copyrights and DCMA as a result of anti-competitive lobbying by duopolist, innovation stagnation in most US economic sectors, telecoms duopoly squashing US tech innovation and standards, the dotcom bubble, the housing bubble, etc.
All of these policies are directly traceable to the laissez faire supply side ideology of Reagan Republicans and Clintonian New Dems, DLC, etc.
March 30, 2008 8:25 PM | Reply | Permalink
kozmik,
One more thing, have you ever read Krugman on Keynes?
March 29, 2008 3:58 PM | Reply | Permalink
http://www.alibris.com/booksearch?qwork=2550635&matches=114&author=Keynes%2C+John+Maynard&browse=1&cm_sp=works*listing*title
March 29, 2008 4:05 PM | Reply | Permalink
Jared,
What would you say to this: the problem isn't just that there's no dividing line between Wall Street and Main Street it's that there's no dividing line between bank activity broker activity, stocks, bonds, commodities, derivatives, real estate and the money supply. But we regulate all of these things separately with the SEC handling stocks and bonds, the Fed and Treasury handling the money supply and interbank loans, and the CFTC handling commodities and futures...
Maybe all of these regulatory agencies (and indisurty self regulators) need to be brought under one umbrella. A Department of Economic Security, if you will.
March 28, 2008 3:30 PM | Reply | Permalink
I think your idea has merit. Can anyone doubt, at this point, that there's an inadequately understood and under-regulated connection between real estate and financial markets, eg? (BTW, the Fed does have some degree of a mandate to oversee lending practices in mortgage markets, but the were asleep at the switch.)
There may well be some of this sort consolidation coming down the pike, though don't look for everything under one roof. That may be over-consolidating. EG, the Fed should oversee the banking system, which now has to include the non-bank lenders. But I don't see them regulating commodity markets.
March 28, 2008 3:47 PM | Reply | Permalink
I agree with most of your points, and you're right about Krugman's anti-Obama bias here. However, the Fed (Greenspan) wasn't asleep at the wheels with the mortgage bubble, he actively promoted it with aggressive rates lowering, and when the bubble was on the verge of bursting, recommended suicidal ARMs to borrowers! Even Krugman himself was warning about the crazy bubbles and the untenable debt, along with a host of well-regarded economists, eg. GAO's Walker who quit recently. Greenspan also didn't warn of the dire consequences for the average Joe wrt the bankruptcy bill passed by the Republicans with Clinton voting with them.
March 28, 2008 10:46 PM | Reply | Permalink
There's no dividing line because people like Krugman lined up in the post Reagan era behind laissez faire ideologues and enabled the sabotage of regulatory safeguard designed to prevent another Great Drpression.
He helped enable the short sighted mentality that tore down the firewalls between Main Street and Wall Street, such as Glass/Steagall, dismantled by Bill Clinton and the Republicans, with extensive Democratic complicity.
Krugman was a champion of NAFTA. We not only praised it endlessly, but viciously derided critics, claiming they just hadn't gotten with the program and lacked his economic vision.
Let's not forget Krugman was also a big fan of ENRON and "consulted" for them for $43K while praising them as a "new paradigm" of free market efficiency.
***
Years ago I read and liked Krugman too.
But, the more I learned about his actual record and predictive utility, the more I realized that he's a classic sort of apparatchik, party loyalist, and attack dog. Much as Brooks is for Republicans. He serves that purpose well.
But, he's not capable enough to be a truly independent thinker or economist in his own right. He's certainly not someone you want to rely on for advice.
March 28, 2008 7:21 PM | Reply | Permalink
I don't agree with this. Krugman is a very good analyst of economic affairs although he does seem to play favorites - first Edwards and now Hillary.
March 28, 2008 10:04 PM | Reply | Permalink
kozmik,
If you think Krugman is "not capable enough to be a truly independent...economist in his own right," then you clearly didn't learn enough about his "actual record." Krugman is an economics professor at Princeton, was formerly a professor at MIT, and is one of the most respected academic economists in the world. He's a candidate to win the Nobel prize in economics every year. If he's "not capable enough to be a truly independent economist in his own right, then who is?
March 28, 2008 10:10 PM | Reply | Permalink
I think this is as good a post on the situation as any. What isn't explicitly stated in the article or the dialogue is how we got here. I work in the financial services industry and the idea has never change to make as much money as you can as quickly as you can, and that's on the backs of the masses.
In order to accomplish that most effectively, you get in first, you create a market and you profit from the speculative aftermath. We've seen it with the internet bubble and now we've seen it with the housing bubble. The trouble is it came in a very different guise this time, but it amounts to the same thing: the mega-trend. It is something that gets a lot of free attention from the MSM and regular Joes buy into it. That's where the real money is.
Anyway, when it goes on for a significant amount of time, and with markets significant time could mean several years - both the internet and real estate bubbles fit in those timeframes - the people in first make huge cake and bail when they feel they've made enough.
Not sure what's going to be next, but my stomach turns thinking that there are only too many people out there thinking about it and speculating on making it happen. It won't change until regulation creates some sort of oversight.
March 28, 2008 10:45 PM | Reply | Permalink
Thanks JB. I guess you're right that putting it all under one agency is too much. But we do need to stress the interconnectedness of markets. Our regulatory system was built around a lot of markets being practically and physically separate.
March 28, 2008 4:01 PM | Reply | Permalink
Krugman, who I, too, have admired during the GWB years has been a supporter of Ms. Clinton during this campaign. Some of his posts on his blog (as opposed to his column in the Times) have been critical of Obama (especially the absence of mandates in Obama's healthcare plan). Krugman wrote a post against Obama before S. Carolina when Obama stated he wanted to repeat Reagan's success at galvanizing support from a wide base and become a transformational president. Krugman claimed Obama supported Reagan's policies, which Obama clearly does not and did not. Some of Krugman's criticsm of Obama has been both less substantive and less well substantiated than I am used to reading from Krugman. This has been disappointing.
I find Krugman's insights into the economy valuable but I find his political claims less impressive.
March 28, 2008 4:02 PM | Reply | Permalink
Jared,
Is it fair to say that the biggest difference between Clinton and Obama on the mortgage meltdown is over Clinton's proposal for the five-year freeze on subprime rate resets?
Could you briefly cover the pros and cons of this proposal? Who benefits and who is hurt?
March 28, 2008 4:03 PM | Reply | Permalink
Good question.
Short-term:
The direct winners would obviously be borrowers who avoid a costly reset for a bunch of years. Ancillary winners would be their neighbors and communities if the freeze helps them to avoid foreclosure.
The losers would be mortgage holding lenders who receive smaller loan repayments than was specified in the original contract.
Longer term:
Many worry that this type of intervention will chill mortgage markets further--if the gov't can renegotiate a contract like this, they say, it creates too much uncertainty for lenders. Possible, but who knows. Courts renegotiate contracts frequently, though this is a lot more sweeping.
The Wash Post, in a fairly muddled editorial today, pointed out that HRC intends this to be "a voluntary plan, worked out with the mortgage industry." Sounds strange to me, and I've only heard the most hostile reactions from the industry to this idea.
Another potential downside is that this plan could just be putting off the inevitable. There are, of course, those who got too far in over their heads re the debt they took on, and the best thing for them and the larger market is to get out sooner than later.
Finally, some view this like a wage or price control, such that after it's released (five years) there will be huge pent up upward pressure on borrowing rates.
Personally, I see all these up and downsides and come out thinking this ain't a great idea. Better to resolve things more quickly with a permanent loan renegotiation or just call it quits if the deal is unsustainable.
March 28, 2008 10:53 PM | Reply | Permalink
Can you really classify them as losers? I mean, they'll still be making a profit, albeit a more modest one, over a longer period of time. Hardly a "losing" proposition.
Hum. As someone who has effectively had a "wage freeze" due to market conditions for at least 5 years (when did Bush get into office, again?) I'd have to say, if I can weather it, so can they. We ALL need to tighten our belts, not just us regular Joes.
Nah. This is simplistic. May of us that are in "over our heads" had no idea that Medical and Energy prices would increase by the 100%s and that our earnings would remain, for the most part, flat. Why would we? Our "productivity" is up, up, up! Neither, I might add, did our Bankers expect this. The hurt is really due to these issues, and it should be borne equally in an equal society. I I heard it said, long time used to be, that the U.S.A. is an Equal Society.
How long again was it before the minimum wage got an increase? About the same amount of time Banks were making "record profits?"
One of the problems in 1929 was that the well-off refused to tighten their belts, even a little. That selfishness led to some pretty dismal times. If you have any doubts, I suggest you visit the Library of Congress, and look at Depression era photos. Let's hope it never has to get that bad again before we understand that the burden has to be shared proportionally. Then maybe we'll all get by.
March 28, 2008 11:48 PM | Reply | Permalink
No, the biggest difference is the new FINANCIAL OVERSIGHT structure, perhaps the re-installation of Glass-Steagall. Most of the problems of today's close to $1 trllion (yes, that's the safest estimate of the coming meltdown and that's the floor, not the ceiling...) mess stem from the lack of regulations and Wall St gone wild devising new instruments to make money out of thin air, each broker stashing away millions knowing the meltdown will arrive one day.
The rates freeze is a very bad idea now because it's not only the credit crunch that's shattering the economy, there's also the plunging dollar value. If the rest of the world starts shunning the Dollar en masse, it'll definitely go Weimar.
March 28, 2008 10:58 PM | Reply | Permalink
How about a rate cap, instead?
March 29, 2008 1:58 PM | Reply | Permalink
If ARM rates were capped on existing bundled loans wouldn't the mortgage debt paper involved just drop in price overnight on the market, reflecting the reduced value of that paper versus the value of higher interest rate paper? Then the holders would ask the Fed/taxpayer to make up the difference.
At the same time this move would not make the homeowner or speculator whole as they might still owe more than the reduced value of the house, and if they had no down payment, they could send in the keys in spite of it all, as many bought houses more as a quick buck scheme than as a domicile.
March 29, 2008 9:20 PM | Reply | Permalink
I think you're absolutely right that it's rather silly to demand that the candidates come up with nuts and bolts right now. In the first place, anyone who thinks anyone's plan is going to make it through Congress unscathed is not thinking.
Aren't we really more at the idea stage of this thing, than the "prove it" stage? I mean, how can either candidate say for dead certain they will do thus and so when they don't really know what is waiting for them. No one knows the whole of what's waiting for whoever is elected. It always seems to change right after a president takes office and gets a first look at the real state of affairs and I daresay the real state of affairs that Bush is leaving behind is hair-raising. I'd rather have someone who is flexible enough to work with the reality.
This part of campaigning is always more about generalities, I think, necessarily. It's only when someone stands there, like McCain does, and claims black is white and up is down that you can really point to it and say: this is worthless. At least that's how I see it.
I'm sorry Krugman isn't supporting Obama, cause I really respect Krugman a great deal. But I hardly think he's anything other than a fallible human being, and I think he's made a mistake here.
March 28, 2008 4:41 PM | Reply | Permalink
JB in your reply to a poster you said
"Can anyone doubt, at this point, that there's an inadequately understood and under-regulated connection between real estate and financial markets, eg?"
In fact, doesn't much of the current calamity have something to do with mixing up the paper for investors by tossing in sub-prime vehicles with grade A material?
March 28, 2008 4:44 PM | Reply | Permalink
Damn right. The mortgage debt, including the subprime slime, was "securitized"--bundled with other IOUs and sold to investors, many of whom weren't aware of what was toxic and what wasn't. Rating agencies that should have pointed this out, missed it.
The rest is history in the making.
March 28, 2008 11:12 PM | Reply | Permalink
The irony of thia is that, even though in commercial securitized loans, the lender due diligence is very high (because the principal amount of a single loan might be $50-100 Million or more), the lending community is now choking it off despite the fact that the bulk of the crisis is a subprime loan collapse built on bundling tens of thousands of small "retail" loans where the due diligence is handled by a mortgage broker and a residential title company in a very "check the box" manner. So lenders, throwing out the baby with the bathwater, choke off commercial credit, which in turn exacerbates other recessionary forces that are brewing right now. You can't create growth without investment and you can't attract investment without leverage, and you can't leverage off invevstment if banks won't make loans.
Candidly, I think the economy is defying gravity right now . . . but not for long.
March 29, 2008 2:57 AM | Reply | Permalink
Hey, Jared.
I'm not surprised by Krugman's overly critical comments on Obama's plan. Krugman has been totally biased in favor of Hillary, and in that regard this is consistent.
Krugman (and Josh) pounded Obama for talking about the coming Social Security mess last summer or fall. Wrongly, I believe, but there it is.
As you pointed out, there isn't a big difference in the rhetoric coming out of the Clinton and Obama camps regarding the economy. But I believe some seriously bad things are coming in the next 4 to 8 years, economically speaking. And whoever is president will take care of the people who put them there. For Clinton, that would be the establishment of Wall Street and all the big money backing her candidacy. For Obama it would be me and all the other small contributors who have financed his campaign.
-- ARG
March 28, 2008 5:04 PM | Reply | Permalink
Today I have lost all respect for Dr. Krugman. The reason was this paragraph:
"Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive."
What credit can I give to the opinions of a person, even a Bates Clark medalist, who believes that there is absolutely no reason on Earth to criticize Hillary Clinton. More, he shares such believe in the most insulting tone possible, and in the week his favored candidate has been proven to be a liar.
March 28, 2008 5:10 PM | Reply | Permalink
I've lost a tremendous amount of respect for PK during this campaign. While his column has been slightly titled away from Obama, he has been very unkind, and very unfair, to Obama in his blog. His latest take on Obama's speech on the economy is a glaring example of his bias against Obama. Considering the similarities of his position to Hillary's, which is really just Dodd's position (sponsored by Obama, not Clinton), PK has exposed his distaste for Obama, and he doesn't seem to be backing away from this at all. It is because of this lack of objectivity that I have lost respect for PK. I think his credibility is certainly damaged, and I am leery of anything he writes now.
March 28, 2008 5:11 PM | Reply | Permalink
In particular, I think we need to regulate the creation and distribution of securities. I see no reason that these should be left to the animal spirits and whims of the quants in various quasi-banks. Just as we regulate pharmaceuticals, all securities should first be vetted by a board - maybe a sub-board of the SEC - for their necessity, their downsides, etc. And then we need to make sure everybody knows what they are dealing in. Banks that don't even know what they are swapping are like people wearing blindfolds, playing roulette.
Except of course when they lose, we pay.
March 28, 2008 5:23 PM | Reply | Permalink
Krugman is undoubtedly concerned with more than the specifics of Obama's proposals. He doesn't believe in Obama's theory of a post-partisan presidency, so he figures anything the man puts forth will be quickly watered down anyway. I completely agree.
March 28, 2008 5:26 PM | Reply | Permalink
Professor Krugman does seem to get a little disoriented when Hillary Clinton comes up. As workerbee mentions, he could keep his bearings pretty well while Senator Edwards was in the race, but since then has mysteriously favored Senator Clinton (while sharing my suspicion of Senator Obama's will to bipartisanship.)
March 28, 2008 5:46 PM | Reply | Permalink
Maksuov, wait - you mean if we have a partisan president and plenty of anger across party lines in Congress, then the proposals don't get watered down? Maybe true, the minority party will just fight like hell to kill them and you have the usual gridlock.
Obviously it depends on how big a majority one party has, but in any case your statement doesn't make sense to me.
In any case Krugman's really disappointing me too - he's pretty clearly crossed over the line from analysis to a grudge. And its a strange grudge that seems to go deeper than just some kind of loyalty to Clinton.
March 28, 2008 6:07 PM | Reply | Permalink
Krugman's been in the camp for Hillary for a long time ... I'm not really clear why, but it's true. I love reading him when he's not talking about candidates, but as soon as he starts comparing them, his bias really does come out and he doesn't seem to give a fair shake. And the non-mention of the economically insane rate freeze proposal (which is probably just a bit of electioneering and not an actual policy belief .. since it would never pass) is the perfect example.
March 28, 2008 6:12 PM | Reply | Permalink
Krugman has had a bug up his ass about Obama all along. He's turning into Joe Klein.
March 28, 2008 6:55 PM | Reply | Permalink
For years, the first thing I turned to in the NYT on Monday or Friday is Krugman's column. It's been disappointing to see his commentary on Obama. It's disappointing because his support of Hillary has reached the point where he uses the kind of disingenous tactics against Obama that he deplores when they are used against liberals. Bernstein flagged the most obvious example: Clinton has been talking for months about imposing a five-year freeze on interest rates. It's been the boldest and most distinctive policy she had made on the economy. Yet Krugman, who likely thinks this it is a terrible idea, ignores it, even in a column reviewing all three candidates' economic proposals.
For a long time, it appeared that Krugman didn't believe Obama could withstand the Republican attack machine. He wrote not too long ago that he worried Obama would be "Dukakised," or Swift boated. (Much like his colleague Maureen Dowd, who called him Obambi before coming around.) Then it was because HRC's health plan called for mandates and Obama's did not.
But now Krugman is basically peddling the idea that Obama is somehow a centrist, whereas Clinton is the real populist. Hard to believe he could be taken in again by these people.
March 28, 2008 6:59 PM | Reply | Permalink
Well, I don't want to overdo this. Paul K is one of the most important progressive voices in the world, and not just on econ policy, but on the war too.
When he goes on vacation, I really miss his column, and how many writers can you say that about?
And he's right: HRC has a lot of good ideas too--her health plan trumps Baracks, eg.
I just thought he uncharacteristically missed some good stuff in O's speech.
March 28, 2008 11:29 PM | Reply | Permalink
It interesting that many are saying they always admired Krugman, but can't understand his preference for Clinton's economic statements. If you admire him and think he has been mostly right in the economic arena, why think he is showing partisanship instead of simply stating what he believes. Maybe, instead of Krugman being blatantly biased, you are. Personally, I have some problems with Obama's economic advisors, especially with Jeffrey Liebman. I get a little wary whenever I hear an economist talk about partial privatization of Social Security or write a book putting forth the case for privatization having a more equitable outcome.
March 28, 2008 7:02 PM | Reply | Permalink
It should be clear to anyone who has actually read both Senator Clinton's and Obama's remarks, as well as Mr Krugman's colum; that your understanding of this issue is a best weak, or at a worst deliberately distorted to make your favored candidate come out looking better.
The crux of Mr Krugman's argument is that Mrs Clinton's plan to deal with foreclosures goes further than Mr. Obama's, and therefore while Mr. Obama's rhetoric might be high flying, his policy prescriptions are lacking. Mr Krugman argues that we ought to look at policies as the best indicator, an argument you seem to ignore in your rush to gush over Mr. Obama's speech.
You attempt to equate Mrs Clinton and Mr Obama's approach by claiming both support Frank-Dodd What you leave out is that Mrs Clinton makes clear in her speech the need to go beyond that measure, something Mr Obama does not. To quote Mrs. Clinton:
,i>But given the severity of today’s housing crisis, simply facilitating this auction process might not be enough to get our economy moving again. That’s why I believe the Federal Housing Administration should also stand ready to be a temporary buyer - to purchase, restructure, and resell underwater mortgages.
Just as it has in the past, this kind of temporary measure by the government could give our economy the boost it needs and families the help they certainly need. It would not require a single new federal bureaucracy, it would be designed to be self-financing over time - so it would cost taxpayers nothing in the long run.
It is a sensible way for everyone - lenders, investors, mortgage companies and borrowers - to share responsibility, keep families in their homes, stabilize communities and the economy.
I find it hard to believe you could have missed this considering it comes right after the part where Mrs. Clinton discusses the Frank-Dodd proposal, but I guess acknowledging it would make it impossible for you to float this garbage out in defense of Obama. It is clear both support the Frank-Dodd proposal, it is also clear that Mrs Clinton wants to go a step further. You may see little difference between the two plans, but that to me seems to say a lot more about your bias than the actual facts. How you could make an argument that you see little difference as a response to Krugman and then not even address the major difference between the two plans that Krugman points is simply intellectually dishonest.
March 28, 2008 7:02 PM | Reply | Permalink
Well, Obama does offer (quoting from last week's speech):
"For homeowners who were victims of fraud, I’ve also proposed a $10 billion Foreclosure Prevention Fund that would help them sell a home that is beyond their means, or modify their loan to avoid foreclosure or bankruptcy."
How does this differ from Clinton's proposals to go further than the Dodd bill?
March 28, 2008 9:19 PM | Reply | Permalink
rjpjr: You really think that "The FHA should stand ready to be a direct buyer..." is such a big deal? I think you're way overstating it.
Frank/Dodd is a much bigger deal. It's active legislation that the D's will be trying to move soon, I'm sure.
If it fails, and it will be many months before that is known--the HOLC, upon which its based, was around for years--and believe me, by then everyone will be suggesting alternatives.
And btw, how will we know if this alternative is to be invoked? HRC's expert panel--Greenspan, Rubin, and Volcker--will tell us. How you like them apples?
You're trying way too hard to create differences that aren't there. The big difference that is there is her five year freeze, not this idea which may never even be invoked.
March 28, 2008 11:08 PM | Reply | Permalink
In this column today, Krugman says Obama's economic plan was "significant" but then, because he hasn't explained in detail how it would be funded, "raises questions about how determined he really is to pursue a strongly progressive agenda."
My point is simply that Krugman, in what is ostensibly a fair-minded assessment of policy, gives the benefit of the doubt to Clinton but not to Obama. In doing so, Krugman is truly embracing hope over experience.
Krugman writes that Clinton's policy "proposals continue to be surprisingly bold and progressive."
I live in NY state and have yet to anything in the legislative record of my junior senator that qualifies as bold or progressive.
March 28, 2008 7:28 PM | Reply | Permalink
Well first of all, the race is over: Hillary is done. If Krugman has any agenda at all, it's that he wants to position himself as a center-left economic policy commentator on President Obama.
But frankly, I think he's just calling 'em as he sees 'em.
Now, on the topic of interest rate caps, criticisms of Hillary are overblown, IMO.
1. From Clinton's speech, I put forward an aggressive plan for a 90-day moratorium on all subprime foreclosures and a voluntary five-year freeze on interest rates for all subprime mortgages.
If that's it, I'm not too concerned. "Voluntary" often means, "I'm not going to do anything at all". Same goes for McCain's voluntary plan.
2. I'd have to see the details of any rate cap plan. For example, if all ARMs were transformed into 5-year fixed rate mortgages, with rate adjustments afterwards, I can't see how that would be bad, provided the fixed rates were set at market-clearing levels. After all, banks regularly write 30 year fixed rate mortgages: there are plenty of financial whizzes who can adjust the term structure of a bank's assets and liabilities. As always, details matter.
March 28, 2008 7:51 PM | Reply | Permalink
I just have to fervently disagree with the pervasiveness of the argument that taxing carried interests as Long-Term Capital Gains!! I'm a tax professional who does a lot of work on private equity and hedge funds. Changing the a long-standing broad-based principal of tax-law in order to single out one particular industry is just a bad answer. I am all for these people paying their fair share. I think its a MUCH better idea to raise the marginal rates on capital gains. Why not create a graduated cap gains rate structure, just as we have done for ordinary income? I think this would accomplish the goal of causing the rich to pay their fair share a lot more effectively and it would still reward the investments of low and middle income investors with a progressively lower tax rate (depending on their income).
Doesn't anyone understand that this could be a huge revenue raiser that could be very popular with the general public? And raising the top marginal ordinary income tax rate back to pre-Cheney levels of 39.6% would also help.
At the risk of getting waaaay too technical and specific, I will throw this in... Dividends should continue to follow the LTCG rate structure but by creating a graduated capital gains rate structure you would allow tax-advantaged rates for the working class and still cause the rich to pay their fair share.
March 28, 2008 9:02 PM | Reply | Permalink
Sounds great to me. I've always thought "income is income".
Is there anywhere the concept of graduated/progressive capital gains rates have been studied academically? And just as important for me, have any such studies been translated to english? :-)
March 29, 2008 1:15 PM | Reply | Permalink
What truly baffles me is that Krugman acts as if he's forgotten that Bill Clinton also ran on a progressive platform in '92. I voted for that platform. I came to understand that the fiscal crisis we were in post Gipper/Poppy Bush precluded any real progressive policy so I gave him another shot in '96. Through their continuous triangulations post '94, the Clintons have demonstrated that their platforms aren't worth the paper they are wriiten on. I've voted for two progressive, Clinton platforms, and all I got was this lousy 'FMLA' tee shirt!
March 28, 2008 9:18 PM | Reply | Permalink
Oh please.. another one of those typical obamite "Cry obama" article. there are hundreds of similar article criticizing hillary clinton on almost every issue. I don't see anyone ever crying over it. All these re-inforces the idea that obamites are real cry babies and do not take criticism well. ofcourse that has generally been the problem of elite liberals. The point of being elite is they think they are always right no matter what.
March 28, 2008 9:55 PM | Reply | Permalink
So...does that make you a non-liberal elite who thinks they're always right?
:)
Just wondering.
March 28, 2008 10:15 PM | Reply | Permalink
I see, writing a very fair and thoughtful responsive criticism of an article that purports to find differences between HRC and BHO where they really don't exist, and gives one candidate (HRC) the benefit of every doubt while giving the other (BHO) the benefit of no doubt and the burden of pejorative skepticism, and which is otherwise full of ad hominum argument by assertion"" (which is very unusual for Krugman, at least prior to this campaign), and someone calls that being a "crybaby"?
What has gotten into the water in the Democratic party lately? James Carville thinks loyalty is so important that he rants on the decision of an honorable man (bill Richardsson) to endorse the other candidate as an act of Judas (as if Hillary is Jesus, I suppose) -- on the theory that he owed it to the Clintons to remain silent (even if his conscience told him to do otherwise); Clinton zealot Taylor Marsh goes to Huffington Post to threaten the "Democratic Elite" that the rabid Clinton supporters who frequent her violently anti-Obama website will vote for the GOP againt against Obama in November, or sit it out, apparently because the toothless windbag, Pat Leahy, announced yesterday that wants Hillary to give it up (which, even as an Obama supporter, I think is complete bullshit at this point, before PA, NC and IN are decided) -- comments which, sadly, are much like his empty threats to exercise
oversight over the Bush Administration, and, oh yeah, Taylor is just totally worked up about those horrible moral issues about Obama that are raised by that Rev. Wright tape loop (which she harps on over and over and over) -- which, candidly, I find a bizarre form of negative attack coming from surrogates for a candidate who has lived (for a much longer time period than Obama has been a member at Trinity United Church) with a moral train wreck of adultery, lying and public humiliation without leaving that particular church (of course, I am talking about the United Church of Bill Clinton) -- which involves an equally complex and pesky moral decision about weighing the bad 5% of someone's life against the better 95% of his life and deciding not to throw out the baby with the bathwater -- I mean seriously, does any democrat truly think Obama is a closet racist and anti-semite (and I am a white, jewish male, age 50)?? Fuck no (and I really doubt Taylor Marsh does either, whih is why her rants are doubly irritating); and Clinton supporters troll the internet calling any criticism of Hillary whining, lying, crybabying, etc. as if there is something wrong with objecting to unfair attacks.
And, in turn, Obama supporters do a pretty good reverse mirror image of this themselves, in a manner that lacks all the grace that Obama himself has shown in talking about Mrs. Clinton (and which thereby undermines him and his positive message), and is guarantied to stoke the fire. And even if some think the response is justified because it is in reaction to Clinton campaign tactics that are often dishonest and/or insult the intelligence, these attacks against Clinton are equally corrosive and add to the negative energy that is threatening this election, and that also involves the same violent emotions that prolong the agony -- all of which is far more intense than anything the candidates themselves are saying about one another.
Take a big fucking chill pill, people. I fully plan to vote for Hillary if Obama loses this nomination, and my wife, who is as virulent a Clinton supporter as anybody I know, would absolutely vote for Obama and support him in the fall if he wins the nomination. I say this even though I think it would be a terrible unfairness if things continue as they have for the past few months and party elites associated with the Clintons hand the nomination to her even though Obama is more than 100 delegates ahead in the the pledged delegate race -- and I fully understand why Clinton supporters, including my wife, are pissed off at comments like Leahy's, that she should give it up now, after winning the popular vote in 3 of the last 4 primaries, which are just ridiculously out of line. I think it's fair for Leahy to suggest (as others have) that the campaigns, and more importantly, their supporters, should tone down any unfair, or violently negative attacks, and to chill out, because the real enemy is not Obama or Clinton, the real enemy is the right wing of the GOP that has controlled our government for far too long. So even I find her campaign's tactics reprehensible (and her choice of Penn and Wolfson to lead the charge revealing in a very negative way about the type of leader she would be), I will still vote for her and try to convince others to do so. The fact is, I think she hurts herself with these tactics, and that while they may occasionally work (as they did when she conflagrated the NAFTA story in OH a few days before the primaty there), more often they blow up on her, as her "ëxperience" attacks have blown up on her in the aftermath of the Bosnia gaffe, and that Obama will do just fine defending himself against anything truly unfair (he's much better at defending himself than his surrogates are). I think he should be allowed to defeat her on the playing field, without interference, rather than party leaders bullying her out of the race while it is still relatively close and the voting process hasd not yet ended. Obama sees this and iunderstands it, and is not afraid of it, and his supoporters need to start seeing it too.
So yes, I do wish HC would tone down the kneecapping efforts, but she has earned the right to be in this campaign, and Obama beating her fairly and squarely will be an important part of the tonic that helps heal the party. My daughters may be harder to convince if Hillary is the nominee -- they both support Obama and aren't used to this type of violent invective, so they may be a tad more embittered if HC takes the nomination after being behind at the end of the voting process -- but I think even they will come around if it plays out that way. And I wish Obama supporters would stop fueling the fire with their violent invective also. Let it play out. The best way to end this is voter rejection of one candidate or the other -- if that is the force that ends this, it would be the most effective and most democratic endgame, and that rejection, I think, is becoming more and more inevitable.
So take a deep breath until it happens. And if you are in a state that hasn't voted yet, and you want this to stop, vote for the candidate whose victory will make it stop -- and I am quite sure you knows which one that is.
March 29, 2008 10:03 AM | Reply | Permalink
Excellent rant, MT.
Thanks for saying what I was thinking.
-- ARG
March 29, 2008 7:30 PM | Reply | Permalink
the Clintons linked directly to the housing meltdown, check the last paragraph.........
Commentary: Hillary Clinton Lied About Outsourcing, Too
By Paul Rockwell 2008-03-25 .....................................
The Clinton administration also passed the Financial Modernization Act of 1999, repealing the Glass-Steagal Act of 1933. That historic New Deal legislation made working-class home ownership possible and safe. The Jimmy Stewart film It’s a Wonderful Life idealized the New Deal arrangement. The savings-and-loan system—a system of small, often family-owned banks—was a bedrock of stability until the deregulation trends of the ’80s and ’90s transformed the U.S. economy into a high-risk casino. The Republican-sponsored, Clinton-backed Modernization Act deregulated the financial sector and encouraged the merger of business and commercial investment banks. Clinton’s “modernization” (he called it “reinventing government”) carved a path to the current sub-prime mortgage crisis. The current anarchy in housing and banking is, in part, a direct consequence of the Clinton deregulation legacy. As banks are failing, working people losing their homes, it takes a lot of gall for Hillary Clinton to take credit where blame is due for her White House experience. Shame on you, Hillary Clinton!
Paul Rockwell is a columnist for In Motion Magazine
March 28, 2008 10:09 PM | Reply | Permalink
"There is no dividing line between Main Street and Wall Street"
And people like Bernstein--who I assume has tons of credentials in economics--want us to believe that this pabulum has any merit other than to garner more devotees to the Obamacult?
I'm not an economist but I think this kind of talk is typical of Obama Fairy Tale talk that is completely divorced from the realities of the world and merely feeds utopian dreams to the un-weary.
It's like saying there is no dividing line between the lender and the borrower.
There is no dividing line between the investment class and the paycheck to paycheck class.
Give me a freaking break. Should we start singing Kumbaya now?
What a clown!!!!
March 28, 2008 10:17 PM | Reply | Permalink
Jared thanks for flagging this. I came to the conclusion a couple months ago that Krugman is a brilliant economist and an awful political strategist. That's ok, that's why he's writing (usually) awesome stuff in the NYT and not running some campaign.
The principles thing of course jumped out at me immediately. More like this! Here's my obligatory flogging of my principles-based progressive economic narrative...
http://www.dmiblog.com/archives/2007/10/post_14.html
The only issue I have is that the principles stuff works better on the big picture. The principles Barack (and Jon Favreau?) laid out in this were way down in the weeds, a little closer to just laundry list items. But they may be headed the right direction at least and that's a good sign.
March 28, 2008 10:17 PM | Reply | Permalink
Few people get the benefit of the doubt more than Paul Krugman. He certainly doesn't deserve his street cred. One only has to read past Krugman articles during the Clinton years when he mocked the union leadership for "overreating" on NAFTA, proclaiming that NAFTA wouldn't hurt blue collar jobs.
Few can argue that during this election Krugman has gone out of his way to attack Obama. I'm all for viewing candidates with a critical eye, but Krugman's slant has gone beyond the ridiculous, particularly when the policy issues offered are rather similar.
March 28, 2008 10:22 PM | Reply | Permalink
Yesterday on DKos I wrote this:
...Krugman will say Obama is an empty suit, cite some things he thinks show Obama doesn't mean what he says, and conveniently forgetting that he praised the legislation [Dodd's], say it's not enough and criticize him for not going far enough.
That's about 75% right.
Krugman is not a HRC hack, but he hates Barack Obama with a passion that should be served for Karl Rove.
March 28, 2008 10:40 PM | Reply | Permalink
I don't trust any economist who gets emotionally attached to candidates. His vitriolic Obama-bashing was worrisome, not because it effected Obama, but because it discredits the idea that Krugman basis his discussion on the dispassionate analysis of facts.
Krugman lost my respect with his meltdown a few months back.
March 28, 2008 10:59 PM | Reply | Permalink
I am not going to get into this debate over Clinton vs Obama vs Krugman's biases. Instead I would like to make some suggestions for "how to pay for the current mess". Of course, these will be loudly protested by the usual suspects, which suggests, perhaps, that they are a step in the right direction.
1. Treat speculative trades, e.g. short selling, put and call options, etc. as gambling: i.e. tax the winnings and disallow the losses. That should cut down the speculative excesses. Note that currently one must pay capital gains taxes on a home, but cannot take a loss. Winnings in Las Vegas are taxable; losses are not. Yet Las Vegas seems to be thriving. Probably these would have to be phased in over a number of years to prevent shocking the economy too much.
2. Add a Federal Tax to margin interest, say 3%.
3. Index long term capital gains to inflation; why should someone have to pay capital gains taxes on a long term holding if inflation ate up the profits? (this is a tax reduction, not a way to increase revenue, but it is a fair one.)
4. Add a small Federal tax on each stock transaction, say 1/4%.
5. Restrict tax deductions on mortgages to the principal residence; reinstate the previous law which waived capital gains on the sale of a home only if the proceeds were reinvested in another home within 18 months. This would have to be phased in gently.
6. Put a lifetime cap on the total amount of deductions on mortgage interest. The incentives to buy a home have gone way too far and have been self defeating. They have resulted in speculation in housing and the resultant run-up in home prices which has driven prices out of range of the average person.
7. Remove the tax breaks to hedge fund operators. Require hedge funds to register with the Federal Reserve and pay a licensing fee, say 5% of capital annually. I am of the opinion that hedge funds are pornographic, i.e. they serve no useful social purpose.
8. Let the Bush Tax cuts expire and reinstate the "death tax".
March 28, 2008 11:16 PM | Reply | Permalink
dhs, you make some very interesting suggestions. Thanks for injecting this into the discussion.
Regarding the mortgage interest deduction (your points 5 and 6), I would like to see this eliminated entirely. It is considered a "sacred cow", politically, as it is allegedly a big benefit for the middle class, giving them the opportunity for home ownership. But the reality is that it benefits the very wealthy disproportionately.
A person of modest means, who buys a modest home, will barely reach the threshold of itemizing deductions, based on the amount of mortgage interest he's paying. (In other words, the standard deduction on the 1040EZ will be the same amount or larger.)
But the very wealthy, who buy homes costing half a million dollars and more, are subsidized in their McMansions by the hard working taxpayers of this country. That makes no sense at all. If they can't afford those huge houses, then they shouldn't buy them! Why should you and I help pay for them to live there?
So I say NO MORTGAGE INTEREST DEDUCTIONS, period. And yes, you'd have to phase this out over time.
I like many of your other suggestions, especially those designed to make speculation in the markets a little less attractive. People who make their money as traders don't really add much value to the society, overall. So they should definitely pay their fair share of taxes.
-- ARG
March 29, 2008 8:05 AM | Reply | Permalink
Krugman has been trying to position himself for a senior job with a Clinton Administration since, oh, 1994. In Bill's Admin, Krugman reversed himself and threw out most of his strategic-trade theory (which says free trade isn't always smart for some some countries) in order to kow-tow to Bill's NAFTA agenda. (Krugman rationalized the about-face in a series of arguments that still rank among his worst.)
Now, he's trying to curry favor with Hillary's crowd. Who knows what job he thinks he can get -- certainly CEA, maybe something better (a new NEC?).
Whatever his personal goals, he's out to lunch in his critiques of Obama. (Just curious, who does Robin Wells support?)
March 28, 2008 11:17 PM | Reply | Permalink
Rates freeze is a very bad idea now - the bubble started in the first place because of the insane amount of credit pumped into the markets like steroids, and now we have the collapse of the bubbles. The trouble is not just the sky-rocketing debt (caused by, you guess it cheap rates) but also the increasingly worthless $, also caused by cheap rates. The US$dollar will go "Weimar" (Google for more details), i.e. hyperinflation, if rates are not reined in and the debts continue to build. Already, foreigners are refusing to pick up the tab for these debts.
You have to make a choice of letting a lot of people go bankrupt or bail them out but the average Joe paying for $50 gas at the pump.
This is the worst situation to have, damned if you do and damned if you don't.
March 28, 2008 11:23 PM | Reply | Permalink
I want to add that fiscal policies constitute one side of the coin, there's also the possibility of domestic stimulus that Obama can propose, particularly in a recession. Economic stimulus is different from creating bubbles as it targets constructive investment in the domestic economy, eg. shoring up the hi-tech industry base, investment in goods and services that are in demand domestically and in the rest of the world. Eg., energy efficiency and green technology are good areas for investment. The problem is Big Oil will object as it erodes their business, and they're a powerful political force to contend with.
March 29, 2008 12:58 AM | Reply | Permalink
I also don't think that Krugman's article was so bad and too critical of Obama. It is actually better for Obama to adopt a cautious tone because the markets are rattled and will react unnecessarily to any overt proposals. What's needed now is calibrating, i.e. you need to keep a very delicate balance of currency devaluation, inflation, easing the credit crunch, deflating the bubble without letting any of it veer out of control. Accept the pain, but ease it and plan for recovery and prevent future financial atrocities.
March 29, 2008 1:06 AM | Reply | Permalink
Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.
"Finally, Barack Obama’s speech on the economy on Thursday followed the cautious pattern of his earlier statements on economic issues.
I was pleased that Mr. Obama came out strongly for broader financial regulation, which might help avert future crises. But his proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: he wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done."
There are 2 differnces here I don't think you addressed directly....Krugman doesn't cite Dodd's or Frank's plan...he speaks positively of 2 things.
1. Hillary wants an agency like the Home Owner's Loan Corp of the New Deal in which the governmentas he says "steps in to get the job done" while Obama Wants to nudge lenders into restructuring mortgages" . The Obama solution is the reminsicent of all those voluntary Republican to DLC type solutions, that frankly I think progressive economic solutions should not endorse.
I saw Laura Tyson on Lou Dobbs a week or so ago discussing something very much like this (makes sense as she's a Clinton advisor) and everyone on the panel of all political persuasions thought it seemed like the best solution. That was intersting in how well it seems to be accepted.
March 29, 2008 12:44 AM | Reply | Permalink
Krugman has been in the Clinton camp for some time. Sadly, he trys to obscure this which tarnishes someone I used to admire. Working in the shadows is not becoming to honest journalism.
March 29, 2008 12:48 AM | Reply | Permalink
I am amazed at how people are very quick to push Krugman under the bus for his views even if they are a bit biased. Economics covers both the positive and the normative and it is quickly dismissed that valuable insight can be gained from both sides of the spectrum.
March 29, 2008 12:54 AM | Reply | Permalink
Obama supporters have to resign themselves to the fact that Obama is not going to get a fair hearing from Krugman. Someone upstairs said Krugman "had a bug up his ass" about Obama. I don't know if I would go that far, but my sense (and this is strictly me talking) is that he is afraid of Obama's inspirational style. Maybe as an economist (the proverbial "dismal science") he thinks politicians have to be as dry as dust or whatever. But the fact that Obama can stir young people to respond almost like to a rock star seems to disturb Krugman very much. He has made some very pointed remarks about what he sees as Obama's "messianic" style. Krugman seems not to be able to conceive that Obama is much more than just a pied piper of Hamlein, but also a gifted leader.
I have a feeling Krugman doesn't even think Obama has the intellectual heft of Clinton, because how can a guy be so popular among young people and still have a brain? I mean you wouldn't expect Elvis to be able come up with a speech on regulating financial markets, would you?
I think if Obama ends up in the Oval Office Krugman is still going to be bothered by him, maybe not as much as he was bothered by Bush and Greenspan, but that edge will be there. After all, with Clinton in the White House, Krugman can hope to be more than just a columnist for the Times or a professor at Princeton. I don't think Obama will feel he owes Krugman anything.
Robert Kuttner has an article where he wonders why Krugman could not see much in Obama's economics speech, where Kuttner himself saw it as groundbreaking, and worthy of comparison to FDR.
http://www.prospect.org/cs/articles?article=obama_v_krugman
March 29, 2008 12:55 AM | Reply | Permalink
I'm no financial expert, but I think Qwerty 10:58 pm and Michigander are on to something: it's significant that Obama mentioned Glass-Steagall 1933 in his speech.
And if you connect the dots from Glass-Steagall's repeal in 1999 with the Gramm-Leach-Bliley Act, which then-president Bill Clinton signed, you'll see that there's no way Senator "Middle Name Wonk" Clinton could NOT know that GLBA is in large measure why we have the mess we have now.
Question is, given that she bases so much of her vaunted Ready on Day Oneness in his presidency, how can she objectively and with integrity call for a legislative solution to the problem that Bill Clinton authorized?
Hence her obsessive focus on helping homeowners out. It gets votes, and avoids tricky issues like GLBA.
She's pulling her punches if it means pointing the finger at Bill. Does this mean all other bets are off with regard to legislation passed 1992-2000?
To my mind, this is the real story of these speeches. And the real difference between Obama and Clinton.
Gromyt
P.S. According to this post, where I got most of these ideas, (http://momocrats.typepad.com/momocrats/2008/03/round-up-of-cli.html), Gramm of Gramm-Leach-Bliley is now McCain's economic advisor. Ew.
March 29, 2008 1:22 AM | Reply | Permalink
Why is it when someone doesn't agree with Obama its a "Clinton bias" and even after they say, "Why can't we talk about the issues", they whine endlessly about someone like Krugman who does just that.
Well....Because Obamanites are as insincere and intellectually shallow as their candidate.
Ahhh, that felt good.
March 29, 2008 1:31 AM | Reply | Permalink
Because Krugman isn't an impartial academic. He has long ties to the Clintons and was expected to join the administration. He cheer led their blunders in the 90s, from NAFTA to deregulation and even ENRON. He consulted at ENRON for $50K and wrote high praise of them in several articles.
(ENRON was the product of 90's deregulation of energy markets, that he also supported.)
I don't think he's corrupt. He has a long connection with the Clintons and is loyal. He's a great Bush critic.
But the problem remains: his judgment and record on matters of regulation, trade, and federal programs is about as good as the Clintons: not at all.
PK's specialty is monetary policy. He thinks in macro-economic terms from high altitude. He has grand notions of market efficiencies. I don't think he understands the real world system failures and the need for regulatory safeguards. He's always surprised when the roof falls in after he helps knock out a structural pillar he calculated as unnecessary.
The Clintons have the same problem. NAFTA was supposed to magically work without protections.
HillaryCare was supposed to be wonderful. ENRON wasn't supposed to happen. The dot-bomb and housing bubbles weren't supposed to have happened.
Now he's endorsing Hillary's HCI mandate which is supposed to go smoothly and bring universal care and be wonderful. It's not supposed to stumble, not supposed to cause a political backlash, and certainly not supposed to fall flat and kill reform, again. But that's exactly what's already happening in Mass where they have the mandate but very little implementation to make it feasible, and tens of thousands of PO'ed constituents have sought waivers from the mandate.
March 29, 2008 10:27 AM | Reply | Permalink
Jared,
This is not an argument but a question - who am I to argue economics with you or PK?
If I understand correctly, PK's preference for Clinton's plan to deal with mortgage crisis over Obama's is:
"Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.
[...] [Obama's] proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: he wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done."
Being an economics ignoramus, I don't understand if you chose not to address this PK's point (which seems to be central in PK's critique of Obama), or believe that PK is wrong, and that Obama's plan is identical to Clinton's in this respect.
My question to you: which is it? Do you believe the difference PK points out to be insignificant, or non-existent? If its the former, can you please explain to laymen why?
Thanks a lot for the post - nice to see someone emitting light rather than heat.
March 29, 2008 1:46 AM | Reply | Permalink
It seems to me that Obama was addressing the long term structural issues in the economy due to deregulation, and how to correct them; while Clinton was addressing the immediate concerns of the plight of the victims in the current situation.
Clinton is more populist, and clearly looking to pick up some votes. Obama was more principled and is looking to the longer term, deeper aspects of the problem.
In my opinion, Clinton's suggestion to freeze interest rates and bar foreclosures is an example of "bad" regulation. Her suggestion to convene a committee with Alan Greenspan and Robert Rubin sounds like a joke, these two having been partly responsible for the problem. McCain's economics advisors are Phil Gramm and the twit that wrote "Dow 36,000" at the top of the 1990's bull market. It seems to me that neither Clinton nor McCain have a clue about what is going on. Obama has a very clear understanding.
I have always liked Paul Krugman's columns and I think he has made excellent points over the years. Apparently his ties with the Clinton's have sometimes clouded his judgement. Too bad.
P.S. We may very well see Dow 36,000 in a few years, but what will that be in Japanese yen, or the Euro?
March 29, 2008 11:54 AM | Reply | Permalink
...or ounces of gold??
-- ARG
March 29, 2008 7:10 PM | Reply | Permalink
Good question. Both HRC and BHO support the Frank/Dodd plan I mention in the post. Under that plan, the gov't, through the FHA, underwrites mortgages in exchange for significant write-downs of the principal--20-50% probably.
What HRC seems to be saying is that if this doesn't work, the gov't should buy the failing mortgages, not just underwrite them. It's more interventionary, but not that different, really. Also, we'd want to see first if Frank/Dodd works before we go to this next step.
March 30, 2008 8:16 AM | Reply | Permalink
The non-regulatory environment is largely what got us where we are and that is the thorniest issue that has to be dealt with. Free enterprise works fine but outside of a framework that establishes limits, regulates explicit practices and enforces penalties for overstepping the boundaries, it is sure to go wrong. This has been proven time and again.
Congress has to get some balls and simply tell Wall Street to suck it up because here come the rules you will play by and here is what they are. We can't go on year after year or decade after decade and permit regulatory changes that relax how Wall Street does business when we know for certain the outcome such changes will produce. We go through this cycle repeatedly and the result is always the same. Relearning the same thing over and over gets old and costs each generation a bundle. This is just too stupid for words.
This obviously is a function of the relationship between congress and Wall Street and that relationship has got be be a change element of whatever scheme is derived. There exists the obvious conflicts of interest that persons routinely deny but it is common sense they are there and to deny them is a pile of crap. I don't know how to overcome this hurdle but our elected officials have got to be weened off the bucks provided by financial interests. The conflicts and the results those conflicts produce are truly impossible to deny. Every politician who refuses to acknowledge this must be booted by voters.
March 29, 2008 5:40 AM | Reply | Permalink
I wrote about the PK commentary yesterday here
http://libertystreet.wordpress.com/2008/03/28/more-of-the-best/
I did not detect any bias for or against either Dem candidate. Just a plea to listen.
March 29, 2008 7:42 AM | Reply | Permalink
The reason why a lender being forced to agree to freeze an interest rate is a loser is that lender capital is not free, they have to offset a loan oat with a loan or deposit in, which involves the payment of interest. In a rising interest rate environment (and that's not where we are today, but could be at any point), that means the lender is losing money because what it has to pay out is more than what it is being paid in, because of a court overriding the private agreement of the parties. And the lender does not get any more security out of it. These mortgages are too high, they represent too high a percentage of assets which were overpriced because of a mortgage fed housing bubble.
Now the lenders bear a lot of the responsibility for it, but it is also a function of a secondary market structure, where loan placement and ultimate loan ownership and servicing are independent of one another. So the person placing the loan has different incentives than the person owning the loan. Everyone in the loan placement system had an inventive to make sure there were more loans -- but the ultimate owner of the loan only wants the loan to meet conventional underwriting criteria. So who is the "they"that are to blame? The banks which helped facilitate this? The brokerage community (real estate and mortgage) which benefitted from huge commissions from all the sales and loans -- paid in full up front regardless of whether the loan gets repaid? The Fed? The people who got caught up in a speculative bubble and made really stupid decisions and are now asking all of us who didn;t to subsidize their stupidity? Truthfully, the answer is ""all of the above" - everybody shares culpability, and there are people who should not be "bailed out" and still others within the commerical process who should be held to account beyond the öwners of these loans -- which are mostly pooled and owned by mutual funds and retirement systems, and moms and pops, and foreignors, and all a diverse array of people, not only billionaire bankers.
In other words, the issues are much more complex than solutions like a 5-year government imposed freeze would address. Relief? Absolutely. But to who, and under what terms, and who decides, and who gets to share the pain? Not as simple as stringing up the banks, as much as I wish it weren't.
March 29, 2008 9:02 AM | Reply | Permalink
So the person placing the loan has different incentives than the person owning the loan.
Exactly so. This is more complicated by the fact that the loans were then sliced into tranches, and the tranches assembled into "CDOs", which were then re-sliced and re-assembled into "CDO squared"s and so on. One result is, nobody seem to know, at least not for certain, who actually owns "the loan".
See, e.g., http://blogs.wsj.com/law/2007/12/28/determined-homeowner-staves-off-foreclosure-for-11-years/ or http://www.privateequitylawreview.com/2007/11/articles/structuring-deals/the-cdo-mess-judgment-in-ohio/ (where Judge Boyko has challenged the rights of the CDO holder to foreclose).
March 29, 2008 11:21 PM | Reply | Permalink
"Krugman praised Hillary’s endorsement of the type of plans being put forward by Congressman Barney Frank and Senator Chris Dodd. ... But Obama endorses the same plan!"
Of course, Chris Dodd endorsed Obama, and PK knows this! Just another example of PK is shilling for the Clintons.
March 29, 2008 9:52 AM | Reply | Permalink
Krugman occasinally writes a few words critical of Obama. If that merits describing him as a biased shill for Clinton, then are there words strong enough to describe Dowd, Rich, Herbert, Kristof and Collins?
March 29, 2008 10:31 AM | Reply | Permalink
Point taken, but nobody would mistake any of these others for objective scientists. The difference with Krugman is that he presents himself as a disinterested economist while making (arguably at least)partisan points.
Most readers take Krugman much more seriously than, say, Dowd.
March 29, 2008 12:26 PM | Reply | Permalink
For a long time, it appeared that Krugman didn't believe Obama could withstand the Republican attack machine. He wrote not too long ago that he worried Obama would be "Dukakised," or Swift boated.
Can I just say that the last thing I thought I'd hear in '08 was "electability"? Didn't that kill us last time? It's a ridiculous idea. It's no way to run a presidential campaign. It's exactly like saying:
"This lot is worth 160K - I had it appraised." Well, maybe to the appraiser it's worth that much in the abstract. But in fact it is worth exactly what a buyer is willing to pay. You try to base a presidential campaign on the idea of who is "electable" and you end up with another repug in the White House. Kerry was supposedly more "electable" than Dean. O really?
March 29, 2008 10:33 AM | Reply | Permalink
Jared, I'd like to hear your opinion of the new plan proposed Friday by the Bush administration.
"Bush proposes financial regulation overhaul"
"Plan would expand powers of Federal Reserve"
http://www.msnbc.msn.com/id/23853415
Perhaps this is a topic for a new thread.
-- ARG
March 29, 2008 10:42 AM | Reply | Permalink
For a start, check out this article on MarketWatch.com
http://www.marketwatch.com/news/story/treasury-regulatory-blueprint-hobbled-start/story.aspx?guid=%7B7E336DEC%2D4902%2D446E%2D9C03%2D802AAB332528%7D
March 29, 2008 10:46 PM | Reply | Permalink
Good idea...maybe I'll try if I can find a minute.
First blush: good start--necessary consolidation, and some new oversight of investment banks by the Fed. I'm just not sure the Fed are the right folks to take this on. They're congenitally laissez-faire on such matters, I think.
March 30, 2008 8:19 AM | Reply | Permalink
Actually, just stumbled on some more details. I fear there's less here than meets the eye. Predicitably...
More to come.
March 31, 2008 12:12 AM | Reply | Permalink
Thanks for the replies.
Part of the reason I asked is that my automatic response was to be nervous and suspicious.
These guys (Bushco) have been known to take advantage of a "crisis" situation before, and use it to force through legislation of dubious merit. I'm thinking about the so-called "Patriot Act", for example.
So naturally I think this proposal must be some kind of sneaky way to enact some "reforms" that they've always wanted to have an excuse to do anyway.
Maybe this time it's just a desparate attempt to be seen as "doing something"... while Rome burns anyway.
-- ARG
March 31, 2008 2:27 PM | Reply | Permalink
Has anybody here actually read Paul Krugman's book "The Conscience of a Liberal?" What he said in his column is completely consistent with the principles he sets forth in that book.
So, I think the guy is just calling things like he sees them.
For example, in that book Krugman advocates universal health care. Clinton's plan gets much closer to that than Obama's, so Krugman said he liked Clinton's plan better. Is that anti-Obama bias? No, that's pro-universal health care bias.
Another example from his book is his lauding of the success of Social Security. So, when Obama came out arguing that Social Security is broken and suggesting privatizing Social Security (much as Dubya did a few years back), Krugman called BS, saying that Social Security is working just fine and that the last thing we should do is privatize it. Is that anti-Obama bias? No, that's pro-Social Security bias.
Anybody who wants a strong middle class and recognizes the legacy of the New Deal in creating the middle class that we enjoy today should have some serious concerns when the allegedly more progressive Democratic candidate argues that Social Security should be privatized. Anybody who believes that health care needs to be overhauled in a significant way should wonder when the allegedly more progressive Democratic candidate offers an alternative to universal health care coverage that would cover only half the people at 80% of the cost. That makes no fiscal sense, and it is doomed to failure.
In any event, the major point of Krugman's column was that the labels that the media have slapped on the various candidates don't hold up under scrutiny, at least with respect to economic policy. There can be no doubt that Clinton has expressed the most progressive economic policies thus far. Likewise, there can be no doubt that the economic policies espoused by Obama are right of center when taken as a whole.
For me personally, anybody who wants to privatize Social Security, who actually argues that Social Security is "broken," simply is not a liberal or a progressive in my book.
March 29, 2008 1:16 PM | Reply | Permalink
Except that Obama doesn't want to privatize Social Security.
http://www.barackobama.com/issues/socialsecurity/
March 29, 2008 4:47 PM | Reply | Permalink
Thank you, OhioGuy, for calling BS.
Griff, you sound very well informed. If so, then your mischaractrization of Obama's positions must be intentional.
That'd be like Mrs. Clinton saying she ran from the plane with her head down when she landed in Bosnia.
Yes, I copied and pasted this from Obama's web site. It says exactly the opposite of what you said, Griff.
+++++++++++++++
Obama's Plan:
Obama is committed to ensuring Social Security is solvent and viable for the American people, now and in the future. Obama will be honest with the American people about the long-term solvency of Social Security and the ways we can address the shortfall. Obama will protect Social Security benefits for current and future beneficiaries alike. And he does not believe it is necessary or fair to hardworking seniors to raise the retirement age. Obama is strongly opposed to privatizing Social Security.
Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $97,500 a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.
Obama's Record:
In the midst of the 2005 debate over Social Security privatization, Obama gave a major speech at the National Press Club forcefully arguing against privatization. He also repeatedly voted against Republican amendments that aimed to privatize Social Security or cut benefits. Obama has also voted to force companies to properly fund their pension plans so taxpayers don't end up footing the bill.
+++++++++++++++
-- ARG
March 29, 2008 7:28 PM | Reply | Permalink
Obama's speech on the economy has already developed some legs. Politico has an article based on comments by Obama on how the current liquidity crisis got started with the killing of DLBA. Looks like the fall guy here is Phil Gramm, McCain's economic adisor, of all things.
So already, Obama is taking on McCain on economics, McCains weakest point. This is going to be velly velly inaressing. The other guy Obama is taking on is of course Bill Clinton, under whose watch a lot of regulatory features were scrapped. This is something Hillary cannot do (obviously) so I think Obama will be ratcheting up the argument. All this is good and well. Better to debate about economics than race, religion, and personalities.
http://www.politico.com/news/stories/0308/9246.html
March 29, 2008 1:22 PM | Reply | Permalink
. Looks like the fall guy here is Phil Gramm, McCain's economic adisor, of all things.
Excellent!
March 29, 2008 2:06 PM | Reply | Permalink
Mr. Bernstein,
"Are these ideas too “orthodox and cautious?” Dunno. And if they are, is that necessarily bad, given the likelihood of implementing uncautious, unorthodox ideas?"
You know full well that saying something is "too orthodox and cautious" is not the same as saying you prefer "uncautious, unorthodox."
Saying that someone who is driving 40 in a 55 MPH zone is driving too cautiously does not necessarily mean you prefer driving recklessly (uncautiously).
If you think Mr. Krugman's preferences are reckless, say so and why. But don't suggest he said something he didn't.
March 29, 2008 4:14 PM | Reply | Permalink
Good point...pardon the snark. And I think Paul meant more what you said than what I implied.
The point was that caution and orthodoxy are not the right evaluative criteria. The right questions are the ones I ask at the end of my post: are these the right ideas?
March 29, 2008 5:52 PM | Reply | Permalink
What did Krugman have to say when Bill Clinton signed the Gramm-Leach-Bliley Act which repealed the Glass-Steagal Act?
March 29, 2008 7:06 PM | Reply | Permalink
What's wrong with "cautious and orthodox"?
Hank Paulson is now trying to rush through a massive overhaul of the financial system, ASAP, i.e. before the present administration leaves office. I gather he wants to consolidate all the regulatory bureaucracies, as was done with the espionage agencies, and the creation of a new Department of Homeland Security. THAT scares the bejeebers out of me. I would hope Mssrs Frank and Dodd take their time and look over the proposed changes carefully.
We are looking at historic changes to our financial regulatory system, and the worst mistake would be to rush into things.
We are on the cusp of a catastrophic failure: bail out the banks, and we will have serious inflation for years to come, perhaps even hyperinflaton, such as Germany experienced in the 1920's. Let housing prices crash, and we will see deflation for years to come, as Japan has experienced since their stock market burst in 1989, followed by the bursting of a real estate bubble a few years later.
There is no easy way out of this mess. It will take several years (8-10?) to straighten it out, and we need to proceed carefully.
Under the circumstances, "cautious and orthodox" doesn't sound bad, especially if one interprets "orthodox" as going back to sound economic policies of the past, which worked very well.
March 29, 2008 8:56 PM | Reply | Permalink
For a post purporting to criticize a column of Krugman's, you sure don't spend much time quoting him.
Kinda hard to take it seriously.
March 29, 2008 8:58 PM | Reply | Permalink
Thanks for this. I generally like reading Krugman, but his inability to impartially criticize Obama is getting ridiculous.
March 29, 2008 9:42 PM | Reply | Permalink
You're starting from the presumption that Krugman isn't a partisan, and that his criticism of Obama is based on substantive matters of policy. Not surprising that doesn't work out very well.
March 31, 2008 10:20 AM | Reply | Permalink
I WANT TO FIX HILLARY CLINTON FOR STAYING WITH BILL WHEN SHE SHOULD HAVE DIVORCED HIM OVER:
1. HIS ANTIMASTURBATION
2. HIS CHEATING ADULTERY
ALSO IM AGAINST HER NOT LISTENING TO ME ABOUT VOTING AGAINST THE ANTI POKER BILL (PHONE CALLS, LETTERS) AND RECEIVING FUNDING FROM HEALTH INSURANCE COMPANIES WHEN THEY ARE ALREADY OVERCHARGING AND AGE DISCRIMINATING. I ALSO BELIEVE LIKE JOE LIEBERMAN THAT BILL CLINTON SHOULD HAVE BEEN IMPEACHED AFTER ILLEGALLY CHEATING ON HIS WIFE.
March 31, 2008 5:41 PM | Reply | Permalink