Tuesday, March 22, 2011

Krugman on Greenspan's Latest

Apparently, the guy who was minding the ship while our economy had a meltdown (and who actually encouraged ordinary consumers to buy exotic mortgage instruments) has advice for President Obama on how to lead the economy into recovery. And, as you might expect of Alan Greenspan, it's little more than a rehash of current right-wing doggerel (short summary: stop spooking the markets by being such a socialist). Paul Krugman is not impressed:

Greenspan writes in characteristic form: other people may have their models, but he’s the wise oracle who knows the deep mysteries of human behavior, who can discern patterns based on his ineffable knowledge of economic psychology and history.

Sorry, but he doesn’t get to do that any more. 2011 is not 2006.

Greenspan is an ex-Maestro... He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, denied not only that there was a national housing bubble but that such a bubble was even possible.

If he wants to redeem himself through hard and serious reflection about how he got it so wrong, fine — and I’d be interested in listening. If he thinks he can still lecture us from his pedestal of wisdom, he’s wasting our time.

Brad DeLong adds his two cents:

Greenspan writes:

What is most notable [about today]... is the unusually low level of corporate illiquid ong-term fixed asset investment.... This contrasts starkly with the robust recovery n the markets for liquid corporate securities.... What, then, accounts for this xceptionally elevated level of illiquidity aversion?... I infer that... the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory, and financial environments faced by businesses... deriving from the surge in government activism...

I don't see how this hangs together in any coherent fashion at all.
Private investment is low because aggregate demand is low and so capacity utilization is low--and is not expected to get better anytime soon. Full stop. That is an explanation that is coherent and fits the facts in the way that Greenspan's Randite claim that it must somehow be the fault of the gummint does not.

What's perhaps most irritating about right-wing critiques of Democratic economic policies is that they so often rely upon the "analyst" reading the minds of business owners, with no actual survey data to back up the claims presented. How many times have you heard Right-wing mouthpieces blather on about "regulatory uncertainty" unsettling businesses and the markets? And yet, as DeLong here again shows, when you actually ask business owners why they are acting the way they are, "uncertainty" almost never comes up as an answer.

A decent press corps, of course, might make it more diffcult for disingenuous pundits to get away with this sort of thing, but you'll die of old age waiting for the American media to do anything other than parrot official press releases and the talking points developed by the sophists turning the bog wheel at you typical right-wing "thinktank/propaganda mill"

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