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The Krugman Test

Newsweek's cover story this week is about Paul Krugman, the New York Times opinion columnist and Nobel Prize-winning economist who has also become a leading critic of the Obama administration's bank bailout plans. But the story arguably says more about Washington's establishment than it does about Krugman.

Consider this astonishingly frank admission from author Evan Thomas: "If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about [Treasurey Secretary Tim] Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking."

That, to me, says a lot not just about the establishment's uneasiness with Krugman -- but about its increasing discomfort with President Obama's ambitious and transformative agenda. I've collected my many posts on that topic into one place, for your browsing pleasure.

And Eric Boehlert blogs for Media Matters with another thought about the cover: "During the Bush years, Krugman, from his same perch on the pages of Times' opinion pages, waged about as vocal a campaign as humanly possible to warn readers and the country about what he considered to be the perilous policy decisions the Bush administration was embracing, and what the disastrous results for America would be.

"Looking back on the Bush years, Krugman's track record was rather impeccable. But you'll note he didn't appear on the cover of Newsweek back then. (No 'Bush is Wrong' cover lines.)..

"But now a Democrat is in the Oval Office, Krugman is still hitting the president from the left, and suddenly the Beltway press thinks Krugman's work is fascinating and newsworthy....We just think everyone would have been better off if the press had paid this much attention to Krugman's work between, say, 2002 and 2006."

By Dan Froomkin  |  March 31, 2009; 11:40 AM ET
Categories:  Obama v. D.C. , Press Watch  
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Next: What's Good for General Motors?


Krugman is one of my favorites, but he has been a little frustrating lately. I think he has been saying quite loudly that letting the market be involved with cleaning up the toxic asset mess is wrong and that a quick government takeover/restructure is right. The problem is I have not seen his explanation of why. He normally does a great job of explaining this sort of detail. Maybe I missed that column, but I can't see why giving the markets an opportunity to sort out the valuation issue is so bad. I understand that Wall St gets most of the benefit and little or no risk. Unfair, sure, but this is about getting the economy working, not being fair. (or is it?) Paul says it won't work. Why? I would really like to hear him explain how Treasury's plan COULD work.

Otherwise, it is interesting to watch Krugman get all the attention. Fascinating watching a Dem administration get it from the left.

Posted by: tfspa | March 31, 2009 1:49 PM | Report abuse

The fact that we are facing these tough times really ought not to be a complete surprise. When Bush and his Republican Congress pushed thorugh the huge tax cuts in 2001, the result was a total dismantaling of the budget surplus handed to the the Republicans by Clinton.

At that time, there was very little out cry about how this could have a long term negative economic impact. There were some, like Krugman, who recognized that one of the key goals was to set up a plan to "starve the pig". By cutting back on revenues, there would be less money to fund the social political programs that had grown over teh past decades.

Further, the rich elites saw an opportunity to enrich themselves with the support of Bush and the republican Congress. To think otherwise is to be either stupid or being in total denial. I am not sure whid of these applies to the the media and press, but there was very little to suggest that anyone was paying attention.

There are two key economic drivers: investing and spending. In order to have a thriving economy you need both. The wealthy who got the huge lion's share of the tax breaks di precious little on the long term investment side. They certainly di a lot on the conspicuous spending side. But given thier relatively small numbers, this lavish person spending really had negligable impact on the economy.

Meanwhile, average Americans were encouraged, duped, and manipulated by the rich elites and political leaders, including many Democrats, to buy homes they could not afford, borrow and leverage their homes to the hilt to finance a life stly they could not afford. People maxed every credit card or line of credt they could muster.

The end result, the liquidity available support the economic system was drying up. Yet the rich elites kept up the pressure for furthering the tax cuts while promoting the leveraging of credit for everyone else.

All of this was predictable. The claims by the republicans that the tax cuts fueled a great economy from 2001 to 2007 are completely outlandish. Easy credit and low interest rates cusing massive leveraging. The availability of leveraged credit and the huge debt flooded the system. But there was relatively small job creation and incomes for most people stayed flat over the past 8 years. Serviceing debt meant people borrowed more.

The bankers used this income and not profits to invest in pertetuating this cycle of the economy. They took the profits for distribution and paid the lower taxes and fattened their personal wallets.

What a country!!!

No one was miding the store. Deregulation ran amuck. Now we are paying for the all of this stupidity.

But, please spare me the analysis that this is a surprise. There is so much more that could be written about this issue that clearly establishes the press was asleep and so intimidated by the republicans that they let this issue go.

What a mess.

Steven Richards

Posted by: scr02882 | March 31, 2009 1:51 PM | Report abuse

Here's a suggestion: Replace Kristol, Kinsley, Krauthammer, Wills and Parker with -- Steven Richards!

(And you can toss Gershon, Shlaies and the WP editorial board in there too.)

Great analysis, Steven.

Posted by: dwiltzee | March 31, 2009 2:47 PM | Report abuse

See, if I were Obama, all factors being equal, I would place Krugman, or a person like Krugman, in charge of restructuring and redefining the economy.

For starters, that is -- he, and Eliot Spitzer are impressively the most intelligent and aware in regard to this finanacial mess, at the very least a starting point for REAL change, understanding it is the middle classes which comprise the American economic engine, and NOT the vapidly wealthy.

I still want to know why Wall Street hasn't been ivestigated via the Justice Department.

Posted by: thegreatpotatospamof2003 | March 31, 2009 3:01 PM | Report abuse

I agree with greatpotatospamof2003. Exactly why hasn't Wall Street and the Investment Banks been investigated? I lost a lot of money(my retirement) that was invested in the stock market in 2001. That was a small recession, but clearly demonstrated the criminal manuverings of the Bush Admission. All I have heard from the main stream media is "This won't work! This won't work!" But ask for suggestions and the conservative members of the Repugnican't Party only say "More Tax Cuts, More Tax Cuts!" It didn't work for George W. Bush, why would it work now?

Posted by: sailorflat | March 31, 2009 4:47 PM | Report abuse

Steven Richards hit the nail on the head. Give him a weekly column; he's better than most of your standing columnists

Posted by: truthman3 | March 31, 2009 6:58 PM | Report abuse

Krugman has been pretty specific about what his solution to the problem would be, and surprisingly it did not involve simply purchasing what Atrios calls the "big sh!tpile" at inflated prices. What is galling is that we taxpayers are paying huge amounts of money for assets that the banks refuse to try to sell; the reason they won't sell them is that they are so worthless that the banks would collapse immediately were they forced to sell them. Krugman and Stiglitz would have taken over the banks because they are insolvent, using the methods developed in the Roosevelt administration and honed under Reagan-Bush when McCain was robbing the S&Ls with his buddies, shaved off the fixable parts for sale and liquidating the assets of questionable value. Creating several regional banks and resegregating financial institutions into bite sized pieces would preclude this disaster from reoccurring until enough people forget or suffer brain damage and vote Republican again.

Posted by: sparkplug1 | March 31, 2009 8:31 PM | Report abuse

@tfspa -- Krugman has explained quite clearly that what Geithner's plan does is not to involve the market in valuing the toxic junk, rather the Treasury is making up the difference between what the market says the crap is worth and what the financial giants holding the stuff want for it. That plan puts all the profits in the pockets of the hedge funds and investment banks, and the taxpayers take all the losses. Geithner believes the market is undervaluing the CDO's, so he's the one trying to get around the market's influence.

Incidentally, perhaps I should call it Obama's plan, rather than Geithner's, but I'm still in denial over Obama's betrayal of the left.

Posted by: Acharn | April 1, 2009 7:37 AM | Report abuse

To bad we now have Geitner and Summers instead of Krugman and Stiglitz. Oh well.

Posted by: spinwing | April 1, 2009 3:16 PM | Report abuse

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