No solutions to the economic crisis in the presidential race.
March 24, 2008 - 4:00pm ET
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In a recent EENR entry I posted about Paul Krugman's blog entry regarding the real reason regulators have failed to reign in the excesses of Wall Street. Essentially, the failure was deliberate -- an effort to systematically remove any and all regulation. I guess causing one Great Depression wasn't enough to wake up the laissez-faire jerks into realizing that the days of unrestricted greed should have remained dead and buried; they've been working like hell to create another while making their money, and they appear to have succeeded.
But I digress. In today's New York Times column, Professor Krugman expands upon this failure to reign in Wall Street by bringing the discussion to the presidential election.
I don’t expect much from John McCain, who has both admitted not knowing much about economics and denied having ever said that. Anyway, lately he’s been busy demonstrating that he doesn’t know much about the Middle East, either.
Yet the McCain campaign’s silence on the financial crisis has disappointed even my low expectations.
And when Mr. McCain’s economic advisers do speak up about the economy’s problems, they don’t inspire confidence. For example, last week one McCain economic adviser — Kevin Hassett, the co-author of “Dow 36,000” — insisted that everything would have been fine if state and local governments hadn’t tried to limit urban sprawl. Honest.
If only Professor Krugman knew just how much lower a McCain dictatorship would sink things. But the Democratic prima donnas vying for their political party's nomination don't fare any better under Krugman's scalpel.
On the Democratic side, it’s somewhat disappointing that Barack Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton’s initial support, has tried to score a twofer by suggesting that the war, in addition to all its other costs, is responsible for our economic troubles.
The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public. But it’s just wrong to blame the war for our current economic mess: in the short run, wartime spending actually stimulates the economy. Remember, the lowest unemployment rate America has experienced over the last half-century came at the height of the Vietnam War.
Hillary Clinton has not, as far as I can tell, made any comparably problematic economic claims. But she, like Mr. Obama, has been disappointingly quiet about the key issue: the need to reform our out-of-control financial system.
Professor Krugman points out how the country came out of the Great Depression with a strong social safety net, which, given the monumental backlash against laissez faire economics in the wake of the economic crisis, is no surprise. The government bailed out the banks, but only so long as those banks accepted regulation. This meant that the party was over for unrestricted greed.
But, as Krugman goes on to explain, all that reform slowly deteriorated over time, and now we're right back where we were in 1929 -- and we're rapidly approaching 1930-level proportions as the current financial meltdown steadily approaches its peak. In short, no thanks to the Bush regime's continuation of deregulation of the financial markets (which began in earnest under Reagan and has continued unbroken), we're monumentally screwed. Krugman writes:
Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.
Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.
As the professor points out, Clinton and Obama have topped the other candidates from both major political parties for corporate campaign contributions (one example, in terms of corporate money from the health insurance and pharmaceutical industries, may be found here).
In short, Wall Street has not only destroyed the economy with happy assistance from the Bush-Cheney regime, it has ensured that no matter who becomes president (or dictator, if McCain manages to steal this one), nothing will be done to clean up Wall Street's mess.
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