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By Joe Campbell
June 1st, 2009

[digg-reddit-me]Well – not quite.

I actually cited a Krugman post in my initial post on how the Reagan Revolution caused the financial crisis (followed up with this and this.) So, it’s more like I was influenced by Krugman who then went on to echo a point I made (which I presume he arrived at independently.) As regular readers of this blog know, I tend to agree with Krugman on the broader trends at work in society (citing him here, here, and here for example) – and find him to be a generally insightful and thoughtful analyst of them – but often angrily disagree with his short-term takes on issues (see here, here, here, and here).

But here Krugman is in his most recent column:

For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.

As I wrote back in March, somewhat more eloquently:

Take away the regulations; encourage short-term profits; reduce taxes; trim the social safety net; “starve the beast” by spending without taxing; and then supercharge the economy with constant stimulus spending (which is what “starve the beast” is) and easy debt from China and Japan. What you get from this is not only a revolution that undermines the American way of life in the mid-term – as wealth is concentrated and middle class and manufacturing jobs dry up – but an unsustainable economy that is going to collapse, and collapse hard.

In other words, you get what we have now.

Today, we are reaping the effects of the generational bargain at the heart of the Reagan presidency.

I also think my analysis captures a subtlty Krugman’s piece lacks – and that Krugman himself often lacks. His conclusion is tougher in scapegoating specific individuals than mine:

There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

I’m not sure that that’s correct. It’s hard to call men villains if they are not aware of the wrong they do – and if the effects of their actions are essentially not predictable. Instead, what I believe is that Ronald Reagan created a generational bargain by accident – a bargain in which the successes of his presidency – of financial deregulation and rapid growth and huge deficits – would be paid for by my generation. I don’t think this was intentional – or predictable. But what should have been clear was that the financial dynamics the Reagan administration shaped were unsustainable.