Thursday, December 23, 2010

Have to admit it: Paul Krugman has a point

When Zombies Win

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed

He’s right about nearly every thing he said about “free-market fundamentalists”. (In fact, I think he could go farther in his indictment.) On the other hand, Krugman lets the Obama administration off too easy. Nor does he address those zombie ideas that enjoy bi-partisan support.

Krugman argues that President Obama was too cautious on policy, too quick to compromise with his political opponents, and too passive in defense of his principles.

There is some truth in this assessment. I would also argue that the administration stumbled because it was too cynical, too insular, too high-handed, and too partisan.

If ever there was a president with the opportunity to become a second FDR, it was Barack Obama in January, 2009.

Yet the administration rejected Roosevelt’s focus of his first 100 days: relief, recovery, reform. Nor did it follow his example and rally broad national support for his programs. Instead, the tone and direction were set by the hyper-partisan Rahm Emmanuel: “never let a crisis go to waste.”

The administration was almost eager to move the economic crisis to the back burner while they and the liberal Congress pushed forward with long-standing items on their wish list (cap and trade, health care reform, immigration reform, etc.). Inside Washington, it might seem smart to see a crisis as an opportunity to pass progressive legislation. To the people who are bearing the brunt of the recession, it seems like an abdication of leadership or a heartless betrayal of trust.

No surprise, then, that the stubborn economic weakness has been a drag on Obama’s approval numbers. It is not just that the public is impatient; many voters rightly sense that the White House felt little urgency to fix what was obviously broken.

If I am right about this, then what Krugman sees as inexplicable passivity, is really the result of a cynical calculation to play down the economic debate. In effect, the White House surrendered the field to the “zombie ideas” of the GOP so that it could concentrate its efforts on pushing through its other agenda items.

Even when the White House tackled critical economic problems, we see the same interplay of passivity, cynicism, and partisanship.

As Krugman notes, the US is still paying a grievous price for the excesses and mistakes of Wall Street and the big banks. Yet, the Obama administration was happy to outsource the crafting of the financial services reform bill to the Democrats in Congress. Instead of a vigorous public debate and quick passage of a law that brings about positive reform, we got Dodd-Frank: a bill that passed quietly two years after the financial meltdown. (See here for the maneuvering behind this “reform”.)

Dodd-Frank is a perverse caricature of reform. How could it be otherwise when its two authors are hopelessly entangled in the policy missteps and legal corruption that produced the economic catastrophe?

It is almost shameful that the Obama administration acquiesced to this betrayal of real and necessary reform. “Hope and change” proved to be less important than partisan solidarity and Congressional politics.

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