Saturday, June 20, 2009
Health Care Reform's Latest Death
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?
Thursday, June 18, 2009
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.Read the rest of Thornton's post for more "tastes like crow" Krugman quotes.
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.
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 after 4 years of pulling for interest rate cuts and housing bubbles, Krugman FINALLY started to see the problem with bubbles?
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.
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
Wednesday, June 17, 2009
Promise Keeper, Commandment Breaker
Tuesday, June 16, 2009
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.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.
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.
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
Monday, June 15, 2009
The Unexpected Iran Problem
This weekend, the closest the Obama administration got to calling a spade a spade -- the obvious stealing of the Iranian election by Mahmoud Ahmadinejad -- was Vice President Joe Biden expressing "doubts" as to the legitimate outcome.
Perhaps that's fitting: It was Biden who said famously -- during the general election campaign -- that the world would "test" a new President Obama. Of course, most people anticipated that this would take the shape of some international crisis that would potentially put American lives at risk -- such as Iran's getting closer to a nuclear bomb.
Well, the reality might not be quite what some people were thinking, but Iran is the test. But who could guess that "democracy" might a more difficult proposition now. Third-party observers who know both Iran and the region well have concluded that the declared election result is a fraud. If the protests continue being brutally put down, what does Barack Obama do? The question is all the more poignant in that this election comes just a couple weeks shy of China's Tiannamen Square crackdown.
Does the president have the luxury of doing as George H.W. Bush and James Bakerdid ten years ago? Basically verbally condemn what was occurring but then collectively shrug the nation's shoulders in a "move along, folks, nothing to see here" manner?
But, since that time, there have been more freedom movements across the former Soviet Union and Eastern Europe, as well as the introduction of a democracy (fragile as it might be) in neighboring Iraq.
To its embarrassment, the European Union has apparently decided to adopt that tactic -- announcing that it had recognized Ahmadinejad's victory, even as reports started coming in of Iranian police bashing protesters and invading college dorm rooms.
A little more than a week ago, when Lebanon went to the polls just hours after Obama's Cairo speech -- the pro-West/pro-US ticket won -- the administration was happy to tout (off the record, though it may be) a clear case of an "Obama Effect" inspiring Lebanese to reject the idea of an Hezbollah de facto government. In fact, some reports assert that the mullahs fixed the vote was because of fear an Obama effect would be enough to sweep Mir Hossein Mousavi into power.
Now, rather than deal with just Iran's pursuit of nuclear weapons, President Obama has to deal with a regime that isn't just crushing an election, but also clamping down on all media -- both Iran's own organizations as well as that of Western outlets. So, the regime is now not merely belligerent, but also arguably, illegitimate and willing to strangle what little civil liberties the country had.
How does a United States president -- who gave a speech little more than a week ago urging more openness from the Muslim World -- not reject this officially tally and offer global condemnation of Ahmadinejad's "victory?" But what can Obama say? What will he say -- eventually? Is there fear that criticizing the results could put Mousavi in even more danger?
Regardless, Barack Obama is being tested right now. Just as the whole world has been made aware of Iran's situation, so to is that world watching -- and tweeting -- the reaction of the United States when the principle of democracy itself is being threatened.