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Economics - March 30

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Obama’s Nobel Headache: Paul Krugman

Evan Thomas, Newsweek
Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right.
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... In his twice-a-week column and his blog, Conscience of a Liberal, [Paul Krugman] criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that Obama "has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing. It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street."

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?

... "He was so shy as a child that I'm shocked at the way he turned out," says his mother, Anita. Krugman says he found himself in the science fiction of Isaac Asimov, especially the "Foundation" series—"It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, 'See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism'."
(28 March 2009)
One of several stories in the current issue of Newsweek with a special report on the economy.

Dday at Washington Monthly recommends the article, pointing out that Krugman is on the cover for this issue of Newsweek.
-BA



Peak Oil and Peak Capitalism

Professor Richard Wolff, The Oil Drum

Previously, we posted one heterodox economics view of the current global crisis (ecological economics - from Herman Daly, and from Robert Costanza). Below the fold is a guest essay from Professor Richard Wolff, a Marxian economist at the University of Mass-Amherst. He recently gave a very interesting video lecture Capitalism Hits the Fan. (I wish I were as good of speaker as he - I make it through my talks only because I think of the beer at the end)

I have thought for some time that resource constraints, especially energy, would be the end of free markets as we know them. It is now clear to most that government reactions to the popping of the credit bubble have shown no master plan other than one bailout being larger and grander in scale than the unsuccessful measure/attempt that preceded it. I do not know what 'ism' will replace capitalism- but I suspect it will be some socio-political 'ism' that is as yet undefined, something broader than all the heterodox schools which if successful, will need to integrate both our biophysical and biological realities. No discipline has the 'one' answer to our energy, environmental and social problems, which is why we continue to ask and integrate key questions with new data in this forum. (My own thoughts on the importance of Prof. Wolff's graph in relation to energy, debt and society follow his essay.)

-TOD editor Nate Hagens

Peak Oil and Peak Capitalism

The concept of peak oil may apply more generally than its friends and foes realize. As we descend into US capitalism’s second major crash in 75 years (with another dozen or so “business cycle downturns” in the interval between crashes), some signs suggest we are at peak capitalism too. Private capitalism (when productive assets are owned by private individuals and groups and when markets rather than state planning dominate the distribution of resources and products) has repeatedly demonstrated a tendency to flare out into overproduction and/or asset inflation bubbles that burst with horrific social consequences. Endless reforms, restructurings, and regulations were all justified in the name not only of extricating us from a crisis but also finally preventing future crises (as Obama repeated this week). They all failed to do that.

The tendency to crisis seems unstoppable, an inherent quality of capitalism. At best, flare outs were caught before they wreaked major havoc, although usually that only postponed and aggravated that havoc.

... Might we consider a mutually beneficial alliance between critics of abusing our energy resources and critics of abusing our productive capabilities? How about an alliance focused on a radical, democratic, and therefore anti-capitalist reorganization of production? The point would be to make citizens and workers – those who must live with the results of what enterprises do – conjoint decision-makers focused on meeting collective needs, both productive and environmental.
(28 March 2009)



It would be so much easier for Americans to get a handle on the financial crisis if they knew what it was about.

Anna Quindlen, Newsweek
The great unspoken issue behind the tanking of the market, the mess in subprime mortgages and the bailout bill is that Americans don't understand the basics of the economy. Faced with financial instruments increasingly arcane and complex and financial institutions increasingly faceless and vast, most outsourced knowledge and responsibility to those they assumed were ethical and responsible. The banker, the broker, the rating agencies: they would look out for us.

Part of the current distress is discovering that this was not necessarily true, but part is knowing that we left ourselves no other choice. Most of us didn't know enough to suspect the emperor had no clothes, much less say it aloud.

... It's easy to rail against the gatekeepers, against the ineptitude of the Securities and Exchange Commission and the uselessness of the ratings agencies that lauded corporations now on the skids. (It's also easy to give this common-sense advice to captains of industry: no office redecoration has to cost more than a starter home.) The operative mode at the moment for describing those who lost all their money in Madoff's Ponzi scheme is "victim." But it's axiomatic that one easy way to be victimized is not to ask the right questions.

Americans have given up understanding much of what passes for daily life. It was no accident that, 20 years ago, a book called "The Way Things Work" stayed on the bestseller list for a year. No one knows the way things work anymore; their houses flood because they don't know where the cutoff valve for the water is.

But there's also a precedent for assuming control, even of complex issues. Look at the way many Americans deal with health care today compared with a generation ago. Once doctors, like financial managers, were seen as keepers of a mysterious flame and patients as people who should simply do what they were told. Today many more patients think of themselves as partners and work hard to educate themselves about their health and their ailments before having surgery or taking medications.
(21 March 2009)
A good part of the problem - not mentioned by Quindlen - is widespread disinformation about the economy.

One of several stories in the current issue of Newsweek with a special report on the economy. -BA



In Levi factory town in Hungary, promise of globalization fades

Jeffrey Fleishman , Los Angeles Times
Reporting from Kiskunhalas, Hungary -- Nearly everyone old enough remembers that day when Levi Strauss & Co., whose jeans evoked the rebellious allure of the West for millions of youths trapped in the Soviet bloc, opened its doors at the edge of town and began hiring box men and seamstresses.

... Kiskunhalas, named for a clan that centuries ago sharpened swords on this furrowed land, is bitter that its fate is woven into market whims. Nearly 550 townspeople, many of whom ride bikes to work, are expected to lose their jobs in June.

... The global financial crisis has battered Hungary's economy, raising worries across the continent that 20 years after the Berlin Wall fell, former Soviet bloc nations are becoming costly burdens to the European Union.

The EU's goal of cohesion is straining relations between Western and Eastern Europe, and between formerly communist nations, the more prosperous of which, such as Poland and the Czech Republic, don't want to be lumped with laggards such as Hungary and Latvia, which this year have seen riots and protesting farmers.

Hungarian Prime Minister Ferenc Gyurcsany, who unexpectedly announced his resignation this month over the slow pace of fiscal reforms, has warned that a new economic "Iron Curtain" is stretching across Europe. That may be overly dramatic, but it's telling on a continent where the ideal of Europe crystallized in a West that has reluctantly embraced eastern nations. Grand plans, ideals and visions are colliding with widening debt and plummeting currencies.
(29 March 2009)



Monbiot: Green oil may buy us new deal for environment — but at what price?

George Monbiot, Guardian
Any mass investment in a global programme must not be squandered on saving capitalism from itself
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The question that plagues those of us who support the idea of a green new deal is this: where will the money come from? The proposal seems sound enough: as the world economy contracts, governments create millions of new jobs by investing in environmental measures. We'll need a massive carbon army to insulate and improve houses, build renewable power plants and manufacture energy-efficient devices. In principle it appears to solve two problems at once.

But the money that might have funded it has gone: squandered on the banks. I doubt I'm the only one seething about the contrast between the government's open-handedness towards the financial sector and its refusal to pay even a few million to bail out collapsing renewable energy projects. But now we are lumbered with monumental inter-generational debt, it would surely be madness to load on even more.
(25 March 2009)

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