I enjoy Chris Whalen of the Institutional Risk Analyst. His outlook and perspective are generally well-informed and well to the point, fresh and practical.
In his most recent essay titled Building a New American Political Economy, excerpted below, he spends quite a few words in taking Paul Krugman and the stimulus crowd to task, or more accurately, out to the woodshed for what we used to call a 'proper thrashing.'
I like his conclusion, which strikes a similar chord to the tag line which I have been promoting since 2002.
"The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery."
There must be a fundamental restructuring of the US economy, a reconsideration of globalization and its scope and impact on domestic policy, and a significant reform of the role of the financial system before there can be any sustained recovery.
The housing bubble was not only noticeable well in advance of its collapse, but it was predictable in my view, because of what Greenspan's policies had been coupled with the fiscal irresponsibility of the government.
What I do not like, at all, is the revisionism that imputes the problems facing the US today to 'the Keynesians,' seemingly alone.
Deficits Don't Matter, Until They Do
Who was it who proved, according to Dick Cheney, that 'deficits don't matter?' Not some wild eyed liberal, but Ronald Reagan. And if Reagan was a Keynesian, then Tim Geithner is Leonardo da Vinci.
The greatest deficit growth in the US came from a belief that cutting taxes for the wealthy, without cutting spending, and even increasing spending by enormous amounts on military projects, even in peacetime, in the pursuit of empire and the New American Century, was viable because this would stimulate growth from the top down, trickle down as it were, and negate the deficits.
It was from the anti-government Republicans and faux Democrat elites like Bill Clinton and his economic advisor Robert Rubin, and the billionaire boys club's think tanks, that the 'efficient markets hypothesis' was spawned, and the crony capitalism, globalization, and deregulation was unleashed. Wall Street led a decade long hundreds of millions of dollars lobbying effort under Sandy Weill to overturn Glass-Steagall, and unleash the bubble economy.
The F Word (Fraud)
Were these men who brought the US economy to financial collapse after a series of increasingly devastating asset bubbles primarily socially minded Keynesians? No, not at all, not in the least. They were white collar criminals at worst, and greedy men who had lost their perspective at best, who engaged in a steady campaign to co-opt the regulators and politicians, and swindle the public, reaping personal fortunes for themselves.
And in our planning for the future we need to understand and remember that the depravity that would turn even the best system to its own eventual destruction is hard wired into some of the participants, and so the system can never be self-regulating.
So let's get on with the reform, but not conveniently rewrite history along the way, and ignore the essential that was played by crony capitalism, ideology, and a steady drumbeat in selling the mass of people on the most ridiculous of economic canards.
"In yesterday's edition, Krugman takes Fed Chairman Ben Bernanke to task for not doing more to combat deflation. Krugman, who is a leading apologist for deficit spending under the tattered rubric of neo-Keynesian economics, thinks that the Fed should do more. And what should the Fed do according to Paul Krugman? Print more money. More quantitative easing via purchases of private debt is the urgent recommendation of this leading American economist...
A political position, like one's view of the economy or the orbiting planets, is very much a matter of perspective. One of the things that troubles us about where the U.S. economy is headed is that opinion leaders such as Krugman cannot seem to accept, much less articulate, the fact that the global economic equation has changed and that U.S. economic assumptions must also be adjusted in response.
We talk about a double dip in the economy, for instance, as though we all are going to miraculously return to "normal" after the latest economic slowdown is past. But these promises of a return to normalcy seem out of line with the economic reality that every American can see before them. As the COO of one of the largest hedge funds in the world asked recently: "Are we in a typical business cycle or does the crisis of 2008 represent a reset for the global economy?" We believe it is the latter. [And obviously so do I, since I have been saying this for at least five years now, that reform and restructuring are the sine qua non for setting the US economy on a sustainable course - Jesse]
To us, the first step on the road to recovery is for Americans to admit that we have serious, long-term problems, issues that are going to prevent the U.S. from regaining economic vitality -- at least so long as we pretend that they do not exist. The U.S. cannot make any real progress toward a stable environment for creating jobs and growing private business so long as leading members of the economics profession such as Paul Krugman continue to pretend that the old model of borrow and spend is sustainable. [Chris singles out Krugman here, but for my money the neo-liberals, who dug the hole we are now in with their fraudulent views on free markets, and who are now preaching austerity for the middle and lower classes and more tax cuts for the wealthy, meaning stealing what they have left in the hands of the many, are repulsive beyond all reason. - Jesse]
Instead of talking about ways to boost national income and create real employment, Krugman and his ilk simply call upon the Fed to print more money to boost short-term demand for goods, many of which are imported. By encouraging consumption without regard to the source of the goods, Krugman and his peers in the world's second oldest profession remain locked into the same mental framework and vocabulary that has governed the mainstream of American fiscal and monetary policy since WWII. This is unacceptable. [I think Chris misses a very key point, the sea change in supply side economics and the rise of the efficient markets hypothesis in the 1980's. One might remind him that as late as 1995 the American economy looked to be getting back on the right track, until the presidency of W. Bush put it back into a nose dive. - Jesse]
Economists such as Krugman do not seem to appreciate that all of the Fed's extraordinary efforts over the past two years to inject liquidity into the U.S. economy have had little impact outside of the financial sector. [Since this is where the Fed and Treasury targeted the relief, to the creditors, it ought not to surprise anyone, and I am not sure I would blame Krugman for this. Bernanke is surely no Keynesian. - Jesse]
The suggestion by Krugman that the Fed do more of the same really is quite irrelevant to our current national predicament. Until we discard the bankrupt thinking about fiscal and trade deficits that have characterized the careers of people like Larry Summers and Paul Krugman (and a whole lot more of the think tank crawling economists who promoted the efficient markets hoax and deregulation and privatization without planning and oversight - Jesse) for the past four decades, Americans will make no progress toward achieving real economic prosperity.
The lack of alignment between the current economic narrative within the U.S. and the underlying reality facing millions of Americans is not only blocking progress toward a true economic recovery, but is making it impossible for the U.S. to communicate much less cooperate with our allies and trading partners. When President Barrack Obama and Secretary of the Treasury Timothy Geithner wander around the globe preaching a gospel that consists of more debt and inflation, you can understand why they get a chilly reception.
Unlike Paul Krugman and Treasury Secretary Geithner, our trading partners around the world understand that competitiveness and fiscal balance are the real basis for national security. Since they cannot print money at will, the leaders of Germany and the UK are compelled to take the pain of addressing fiscal deficits immediately. But as the nations of Europe work through their problems, they will emerge stronger and more unified, and able to better compete in the global economy. [This sounds like the kind of praise that Mussolini and Herr Hitler obtained from Wall Street and the business media in the 1930's - Jesse]
Americans need to build a new economic narrative, one that is based upon creating real jobs in the real economy and not upon subsidies for foreign exporters and mismanaged Wall Street banks. [Amen - J] We need new economic thinkers who are not hobbled by devotion to the failed economic structures of the post-WWII world [Like the 'trickle down' theory and efficient markets fairy tale of predatory crony capitalism - Jesse].
Regaining control of the U.S. economy must start with a frank discussion with our trading partners and foreign creditors about jobs, the value of the dollar and what it will take to bring America's economy back into balance. [And the real 800 pound gorilla, a serious reappraisal of US military spending, and the 700+ bases it maintains around the globe - Jesse]
The first step in this process is to make it clear that the US must reduce its dependence upon imports and refocus investment on domestic industries that supply domestic jobs. We must allow the value of the dollar to fall and/or impose duties on all imports to generate badly needed exports, jobs and federal revenue.
Once leading trading nations such as China understand that America will no longer import their unemployment, we can then have a fair and reasonable discussion about the global economy in the 21st Century. But do we have any economists with the courage to lead such a discussion? Send us your suggestions.