Even 9/10s Full is "Empty" to Paul Krugman

Interesting article in the New York Review of Books. (I first noticed it in a Huffington Post link). In overview, let's say that economists still disagree on some things. Though there seems to also be some agreement.

I found most interesting the comments near the end.

Paul Krugman "we need a boring banking sector again. All of this high finance has turned out to be just destructive". I agree. His point that finance is generally non-productive, but just shuffles numbers, is well taken.

The other thing not to miss is the importance of a strong social safety net. By most accounts, most projections say that the European Union is going to have a somewhat deeper recession this year than the United States. So in terms of macromanagement, they're actually doing a poor job, and there are various reasons for that: the European Central Bank is too conservative, Europeans have been too slow to do fiscal stimulus. But the human suffering is going to be much greater on this side of the Atlantic because Europeans don't lose their health care when they lose their jobs.

Here we might agree to disagree. The disadvantage of the strong safety net is that in times of growth, the USA economy does better. To use Krugman's phrase, "In terms of macromanagement", the USA does better in both growth and decline. Does this benefit outweigh the human suffering that occurs in a steep recession? I'm not sure. Might depend on how hard hit you are by the current recession. :-)

One could argue that recessions "only" happen every 10 years or so, and last about a year. Overall, long term growth is significantly higher in the USA. So 9 out of 10 years the USA is "better". I think it all goes back to my earlier posts where conservatives see the glass as half full, and liberals as half empty. To Paul Krugman, even a glass that's 9/10 full is "not full".


Niall Ferguson, more free-market centric, is not happy with the general plan of increased state spending and regulation.

Where were you in the 1970s when all these wonderful regulations were in place? I don't remember that going too smoothly. But what else are we going to do? We're going to print money. Almost limitlessly we'll print money. That's going to be fine, too. And when we're done with that, we're going to raise taxes. What a fabulous package we have in store for us. You know, back in late 2007, I was asked what my big concern was, and I said, "My concern is that we're going to get the 1970s for fear of the 1930s." It's very easy to forget, in your iron indignation at the failure of the market, where the true mainsprings of economic growth lie. The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.

Bill Bradley looks back at the mistakes we made, so as to avoid them. He cites two events from 1999: the elimination of the Glass-Steagall Act, and "the explicit decision by the Clinton administration and Congress not to regulate derivatives". And the SEC's decision in 2004 to allow banks increased leverage. If Bradley is correct, these are regulations that should be put back into place.

One keeps hearing "evil Republican deregulation caused this mess". Maybe it did. But I've always wanted to know exactly which regulations do we need to restore, and what evidence we have. Bradley makes an attempt.

For the record, Republicans passed the initial "de-Glass-Steagall" bill in 1999, but, in the final reconciliation vote, it passed with broad bi-partisan support, in the Senate 90-8 and the House 362-57 and was signed into law by President Clinton. SO this particular deregulation is hardly a Republican mistake.