Barack Obama Domestic issues Economics Financial Crisis Health care The Opinionsphere

The Master Plan Always Has Flaws

Daniel Drezner at Foreign Policy summarizes my feelings about Krugman in almost as complete a way as Evan Thomas did:

The fundamental question is whether Krugman is a brilliant hedgehog, an insecure pain in the ass, or – as frequently is the case – both at the same time. 

One suspects that Krugman is at least part right – and that Obama and his team realize this. Obama’s response to the financial crisis has been significant – and more than any government response in history – but it is dwarfed by the scale of the crisis, as Krugman is fond of pointing out. Nicholas Lemann in the New Yorker tries to explain why Obama seems to be ignoring Krugman’s advice so far:

[Obama] has to address the crisis, and he is trying to add enough new controls to the system to prevent a repeat of it, but it looks as if his heart is with the big new programs in his budget and with his foreign-policy initiatives. Bank nationalization would drive the stock market down and increase theagita of people with 401(k) plans. Moderate Democrats in Congress would further soften in their support for the Administration’s legislation. The price of bank nationalization might be Obama’s super-ambitious plans in other realms, which, if history is a guide, are likely to pass only in this first year of his Presidency. If they do pass, he will have generated tax revenues from affluent people for social purposes far beyond those of the House’s tax on A.I.G. bonuses, and he will have significantly eased the distress of people who can’t get good health care or education. That is a lot to put at risk.

At the same time, Obama’s team seems to think that, to quote my post of yesterday:

[I]n the short term, the Geithner plans will work to restart the “old” economy. In this moment before that happens though, pressure from Europe and internal critics as well as a desire to avoid a repeat of this fiasco will enable enough forward-looking, gradualist regulation and legislation to correct the long-term problems with high finance.

E. J. Dionne Jr. in the Washington Post explains where the administration’s focus is:

Obama’s top budget officials seem confident that they can deal with this immediate difficulty. His larger challenge is to take on the politics of evasion promoted by those who would indefinitely delay health-care reform, energy conservation and the expansion of educational opportunities. Already, his lieutenants are signaling how he will cast the choice: between “taking on the country’s long-term challenges” or just “lowering our sights and muddling through,” as one senior aide put it.

If Geithner is responsible for fixing the current crisis, Peter Orszag is responsible for the long-term outlook – of balancing Obama’s plans to expand government’s role and stabilizing our deficit spending. As Jodi Kantor in the New York Times explained:

Mr. Orszag embodies the administration’s awkward fiscal policy positioning: big spending now, with a promise to scrub the budget of waste and a bet that economic recovery and changes to health care will gradually reduce the deficit.

A lot of pieces need to fall together for this to work. I have confidence in each piece of this plan – but together, the venture seems a bit bolder than is wise.

Perhaps this is a perfect moment in history for Obama’s plan – and Obama has the insight to see this; perhaps Obama is a master of politics who is able to get all of these items through; but it’s hard for me not to be discomfited by the manner in which everything is coming together.


The Dollar As a Negotiated Currency

Daniel Drezner:

If [an international reserve currency] does happen, however, the United States will suffer a serious loss of standing and, oh yes, a much harder budget constraint.  And whatever happens, it would be difficult to call the dollar a top currency anymore.  I think we have clearly crossed some threshhold where the dollar is now a negotiated currency – and some of the negotiating partners are pretty hostile to U.S. hegemony. 

I don’t know enough about the relationship between reserve currencies, account deficits, government, and power – but I know enough to know that this would likely be a huge blow to America’s hegemony. The dollar’s privileged status is a major part of what allows us to finance our military and our debt. Drezner points out how unlikely it is that the dollar will be replaced – but with these high-level comments by the Russians and the Chinese, coupled with the fundamental uncertainty about the dollar going forward, and the increasing nonpolarity of world power, it suggests that the dollar may be losing it’s privileged status. It will not necessarily be overtaken by an international reserve currency for the reasons Drezner states, but it has become – at least in this moment of our weakness – a negotiated currency.

Humor The Media The Opinionsphere

Gallows Humor from an FT Employee

Daniel Drezner shares some gallows humor from a Financial Times employee:

[H]e described his niche as, “being in one industry that’s fucked writing about another industry that’s fucked.” 

Drezner had asterisks in place of the “uck” though.

Economics Financial Crisis Politics

Commenting on Paul Krugman

Daniel Drezner over at Foreign Policy on Paul Krugman:


I’m 50% convinced that Paul Krugman’s op-ed today is correct, and the moderates wound up damaging the stimulus more than they improved it. 

The thing is, I’m also 50% convinced that Krugman is to Keynesians as Richard Perle is to neoconservatives.  When an embittered ideologue derides his political leader for demonstrating a willingness to compromise and “negotiating with yourself,” well, one does get the sense of deja vu.


Will Wilkinson on Krugman:

Perhaps more than any economist of his caliber, Krugman understands that policy is largely determined by the outcome of the public opinion shoutfest. Yet this recognition seems to have no effect on Krugman’s ideas. Rather than bring inside his models disagreement over economic theory and the lack of political incentive to faithfully apply them, which would lead him to radically revise his prescriptions, Krugman leaves his textbook theory untouched and simply tries to win the shoutfestKrugman’s often unbearable stridency seems to reflect an attempt to overcome the problems of democratic disagreement and incentive compatibility through sheer force of will–as if the deep reality of politics is no match for the rhetorical gifts and gold-plated reputation of Paul Freaking Krugman.

This is certainly my sense of Krugman as well. He lets his partisanship overcome his scholarship – but fails to account for partisanship in his scholarship.

Like Glenn Greenwald, he is a voice I hope those in power listen to – so long as they do not follow his advice too closely.

As I wrote during the earlier days of the 2008 campaign as Krugman railed biweekly against Obama:

I fear Paul Krugman is becoming the left-wing’s William Kristol in his single-minded partisan fervor, indifferent to political realities on the ground but true to the vision that shaped him years ago.  He remains interesting – much as Kristol has – but he seems to be somewhat disconnected from reality.

I drew a distinction then between Krugman’s approach to politics and Obama’s:

Paul Krugman illustrates as well as anyone the value of partisanship. For a political minority, partisanship is the key to survival, and the only means of blocking change. Partisanship is, in essence, a defense. The problem with the Democrats from 1994 to 2005, and even with some Democrats today, is that they were trying to be non-partisan in an environment that demands steadfast opposition – that demands partisanship…[But if] partisanship is the best strategy for a minority party, because, by it’s nature it is biased and divides the population; it is not the best strategy for a majority party…

Partisanship can only take us so far. In 2008, we need Barack Obama.

It is not surprising the Krugman now seeks to push Obama to abandon the politics that worked so well for Obama during his campaign – defeating the partisan fervor whipped up by Hillary Clinton and John Edwards, and then John McCain. Because – for Krugman, radicalized by the Bush years – partisanship is the only approach to politics he knows.