RAGGED THOTS

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Can this be happening before our very eyes?

Can it truly be possible that despite the most popular Democrat in the White House in 45 years and commanding Democratic majorities in both the House and Senate (the latter nearly filibuster-proof), that the quest for the Holy Grail of politics -- a national health-care insurance program -- is likely to fail yet again?

For the Nth time since Harry Truman first suggested the idea in 1948?

That seems to be the building consensus -- even from Democrats, with phrases like "on the rocks" being uttered.

Barely five months into the Obama administration, how could this be the case? And how could the attempt fall apart in accelerated fashion -- much faster than the much-maligned, abortive Clinton effort of 1993 and '94?

Well, cost is certainly one problem: The Congressional Budget Office estimate of the preferred Ted Kennedy-authored bill -- $1.3 trillion -- over ten years terrified a lot of folks, especially given that it would reportedly only reach one-third of the uninsured population that were the main targets of the legislation. When that figure was added to the multitude of polls reflecting growing anxiety over the deficit and debt, it's not surprising that Congress is balking.

However, my friend Jim Pinkerton also identifies another culprit: Health-care reform -- because of Obama decisions on the economy -- has crashed into the political reality following Wall Street meltdown.

When confronted with a choice between healthcare for the poor and the near-poor on the one hand, and the continued overstuffing of the overclass on the other hand, Obama made a decisive choice: He chose the overclass. He put rich people first.

Such skewed preferences in him were evident last October, when Senator Obama voted for the Wall Street bailout. That was a signal, the first of many, that Obama was supportive of bank bailouts, and a generally Wall Street-centric policy. Since then, the bailouts have grown more and more costly, as the Treasury, Federal Reserve Board, and the Federal Deposit Insurance Corporation—to name just three spigots of off-budget cash to banks and rentiers—all joined in the bailout binge.

By late November 2008, the cost of the bailout was estimated to be $3.5 trillion. But Obama, by then the president-elect, had no objection; indeed, his financial team worked closely with the outgoing Bush team to keep the money coming. Those great minds all thought alike, and so by January, when Obama was inaugurated, the total cost of those bailouts had risen to $8 trillion. The next month, February, the new president added nearly another trillion in spending, signing into law a $787 billion stimulus package. And thus by May, the cost of the various bailouts had swelled to as much as $12 trillion.

That's a lot of money, and not surprisingly, it's driving up interest rates, causing the dollar to fall, and even causing other countries to make plans to convert their assets to currencies other than the greenback—or even to create a new world currency altogether. Such talk has spooked not only the markets, but also the country. And Democrats are getting the message on spending: enough is enough.

Pinkerton places the blame squarely on Obama's shoulders -- though the prototype for the bailouts, of course, was the first TARP in September, under President Bush.

But even so, if Pinkerton is correct, it would mean that -- in an amazing irony -- the rather liberal Democrat Barack Obama has actually helped fulfill a long-term conservative Republican strategy, recently discussed in these parts -- "starve the beast." The rather diabolical, Machiavellian plan reasons that the continued combination of ongoing tax cuts (the preferred Republican policy option) and expanded government spending (the preferred Democratic policy option) is unsustainable. Eventually, the will of the public for never-ending debt cannot last. At that point, it will be impossible for Democrats to build ever-larger public policy programs.

It would seem that we have reached that point -- notwithstanding the attempts of House Democrats to put forward a full plan with a so-called "public option." The fact that the voices of doom are already coming out of the Senate foretells that there are enough moderates to sustain a filibuster, if it came to that.

Who killed Obama's health-care plan? Might it be an assisted suicide?

Labels: Barack Obama, Democrats, health-care reform

As detailed in my post from Tuesday, Nobel Prize winning economist Paul Krugman was caught calling for the housing bubble which contributed heavily to our current economic mess. Then he tried to back off what he said by calling it "just economic analysis".

Now PhD economist Mark Thornton calls Krugman out for recommending the interest rate cuts which also contributed to this mess. The following Krugman quote from May 2, 2001, shoots a huge hole in Krugman's excuse (bold formatting added by me):

I've always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly -- that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect.

If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come.

Read the rest of Thornton's post for more "tastes like crow" Krugman quotes.

What I find interesting is the last paragraph from Krugman's quote:

For the big lesson of the late 1990's was that speculative bubbles spring eternal. The signs of irrational exuberance, not to mention sheer silliness, were there for all to see; yet the bubble expanded — and then burst — all the same. Surely there will be other bubbles, and other burstings, in the decades ahead. The best we can hope for is that when the bubbles burst the consequences can be limited. And the faint signs of good news in the U.S. economy are reason to hope that they can.

Contrast that with Krugman's view from his May 27, 2005 column:

The important point to remember is that the bursting of the stock market bubble hurt lots of people - not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn't been quickly replaced with a housing bubble.

So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it's hard to imagine what that might be. After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what's left?

Mr. Roach believes that the Fed's apparent success after 2001 was an illusion, that it simply piled up trouble for the future. I hope he's wrong. But the Fed does seem to be running out of bubbles.

So after 4 years of pulling for interest rate cuts and housing bubbles, Krugman FINALLY started to see the problem with bubbles?

But the question remains: Was Krugman's "hope" that the bubble was not just an illusion based on his desire for the economy to work, or was it based on the fact that Krugman had spent years advocating the failed policies which were about to lead to disaster?

Labels: Paul Krugman

Nevada Republican Sen. John Ensign announced Tuesday that, while separated from his wife last year, he had an affair with a staffer. Ensign's been mentioned as a possible 2012 GOP candidate -- already having made some early visits to Iowa.

Labels: adultery, Gavin Newsom, John Ensign, sleaze

I have picked on Nobel Prize winner Paul Krugman before, but when I read his idea for solving our recession back in 2002, I was floored by the complete idiocy of it.

What could be the worst possible advice anyone could suggest in 2002 to fight the recession? Maybe create a housing bubble? But that is exactly what our Nobel Prize winning economic baboon suggested:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that... Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

(from Krugman's August 2, 2002 New York Times column)

So how is that housing bubble working for you?

If Krugman had an ounce of honor, he would give back his Nobel Prize, then go pull a David Carradine somewhere.

(Hat tip to lewrockwell.com)

UPDATE: Krugman's response:

One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.

Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.

My only problem with Krugman's explanation is that nowhere in the original piece does he suggest that a housing bubble would be a bad idea.

And the little joke about the housing bubble being his fault? Nice touch, but nobody is saying that. We are just calling you on the carpet for being on the wrong side of history yet again.

"Econoblogger" Megan McArdle says it best: "...there's a paragraph I'm sure glad I didn't write."

Labels: Paul Krugman

Labels: Barack Obama, Iran, Mahmoud Ahmadinejad