Posted by Damozel | Yes, why aren't the 2008 candidates talking about the economy? Despite the fact that the situation is critical, they seem to have very little to say about what they intend to do to address those problems.
In truth, 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. (NYT)
But Krugman is disappointed, as am I, that the Democratic campaign has turned into a debate over who should be head of the Prom Court. He points out that Barack Obama (and 71% of Americans and I; whoops) are wrong that the cause of our current crisis in the Iraq War. Apparently, it is not.
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 (NYT).
Krugman blames our current crisis on the failure to learn the lessons of history: we have allowed a financial system to evolve which lacks the controls that have applied to banks since America emerged from the Great Depression.
America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.
Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.
Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. (NYT).
Krugman points out that Bill Clinton went along much too easily with the movement went along too easily back in the day in helping to deregulate the financial industry. (NYT). Sigh. I am afraid it is too true.
Now the government is pouring money into the economy trying to rescue the 'shadow banking system.' (NYT). Barney Frank, Chair of the House Financial Services Committee, has argued that the only solution is regulation; and former Treasury Secretary Robert Rubin agrees. "Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks."
.McCain is not likely, says Krugman, to take the necessary steps. "His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible." (NYT).
But he also doesn't seem to have a lot of faith in Hillary or Obama.
Last year, there was no question at all about the way Wall Street’s financial contributions to the new Democratic majority in Congress helped preserve, at least for now, the tax loophole that lets hedge fund managers pay a lower tax rate than their secretaries.
Now, the securities and investment industry is pouring money into both Mr. Obama’s and Mrs. Clinton’s coffers. And these donors surely believe that they’re buying something in return.
Let’s hope they’re wrong. (NYT).
Let us pray.