Charles and Paul On The Economy

As in Charles Krauthammer and Paul Krugman, that is. One is typically more conservative, one is more liberal, and both had columns this week on how Obama is dealing with our financial crisis, or not. Now, I have long enjoyed Paul Krugman’s work – he is a brilliant, brilliant man (the Nobel Prize Committee thought so, too), who knows his stuff when it comes to Economics.

Charles Krauthammer is someone for whom I have developed a grudging respect, thanks in no small part to my friend, SusanUnPC at No Quarter, who encouraged me to read him (until SusanUnPC told me, I didn’t know that Krauthammer is a psychiatrist who is paralyzed as a result of a diving accident. Clearly, he has not let that stop him one bit.). What I have discovered is that he is a very deliberate thinker. I may not always agree with what he says, but I can’t disagree with how he reaches his conclusions, if you know what I mean. And it is Mr. Krauthammer’s article, The Great Non Sequitur, The Sleight of Hand Behind Obama’s Agenda(h/t to LisaB for this article), with which I want to begin. Again, it is the economy that he is addressing, and Obama’s response to it:

Forget the pork. Forget the waste. Forget the 8,570 earmarks in a bill supported by a president who poses as the scourge of earmarks. Forget the “2 trillion dollars in savings” that “we have already identified,” $1.6 trillion of which President Obama’s budget director later admits is the “savings” of not continuing the surge in Iraq until 2019 — 11 years after George Bush ended it, and eight years after even Bush would have had us out of Iraq completely.

Forget all of this. This is run-of-the-mill budget trickery. True, Obama’s tricks come festooned with strings of zeros tacked onto the end. But that’s a matter of scale, not principle.

All presidents do that. But few undertake the kind of brazen deception at the heart of Obama’s radically transformative economic plan, a rhetorical sleight of hand so smoothly offered that few noticed.

The logic of Obama’s address to Congress went like this:

“Our economy did not fall into decline overnight,” he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care and education — importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.

The “day of reckoning” has arrived. And because “it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament,” Obama has come to redeem us with his far-seeing program of universal, heavily nationalized health care; a cap-and-trade tax on energy; and a major federalization of education with universal access to college as the goal.

Amazing. As an explanation of our current economic difficulties, this is total fantasy. As a cure for rapidly growing joblessness, a massive destruction of wealth, a deepening worldwide recession, this is perhaps the greatest non sequitur ever foisted upon the American people.

Well, that’s ONE way of putting it! A non sequitur. Nicely put. He continues:

At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the banking industry. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington (and greed) into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan’s Fed, irresponsible bankers pushing (and then unloading in packaged loan instruments) highly dubious mortgages, greedy house-flippers, deceitful home buyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe.

I can’t argue much with him there. And thank heavens SOMEONE is bringing up Fannie Mae and Freddie Mac. Both played a HUGE part in our current fiscal crisis, ye tfor reasons I don’t understand, these two institutions are rarely mentioned in the conversation these days.

Krauthammer continues:

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing-in, Obama has yet to unveil a plan to deal with the banking crisis.

What’s going on? “You never want a serious crisis to go to waste,” said chief of staff Rahm Emanuel. “This crisis provides the opportunity for us to do things that you could not do before.”

Things. Now we know what they are. The markets’ recent precipitous decline is a reaction not just to the absence of any plausible bank rescue plan, but also to the suspicion that Obama sees the continuing financial crisis as usefully creating the psychological conditions — the sense of crisis bordering on fear-itself panic — for enacting his “Big Bang” agenda to federalize and/or socialize health care, education and energy, the commanding heights of post-industrial society.

I guess that’s some of that Chicago-style politics we’ve heard about – not wanting a “serious crisis to go to waste.” That is just so offensive in so many ways, my head is spinning. Apparently, so was Krauthammer’s:

Clever politics, but intellectually dishonest to the core. Health, education and energy — worthy and weighty as they may be — are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime. (letters@charleskrauthammer.com )

Paul Krugman also takes as his jumping off point Obama’s address to Congress in this article,
The Big Dither (h/t to American Girl for this). You just have to love that title, don’t you? Anyway, Krugman doesn’t seem all that impressed with how Obama is handling things given his rhetoric:

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

That sounds about right, doesn’t it? Just keep plying the same piece of crap, and give it another name! Yep – same plan, different day, same result:

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.

Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.

And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.

This is the same A.I.G. that, unable to honor its promises to pay off other financial institutions when bonds default, has already received $150 billion in aid and just got a commitment for $30 billion more.

Doesn’t that just BURN YOU UP??? That AIG is getting even MORE money? HOW is this going to help, especially since they seem not to have changed their behavior one whit. Krugman continued:

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

Take the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.

But would it be enough to make the banking system healthy? No.

Think of it this way: by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued.

And this means that the government would have to lay out trillions of dollars to bring the financial system back to health, which would, in turn, both ensure a fierce public outcry and add to already serious concerns about the deficit. (Yes, even strong advocates of fiscal stimulus like yours truly worry about red ink.) Realistically, it’s just not going to happen.

Oh, dear. Well, that’s not very encouraging, is it? No, not really, and Krugman doesn’t think so, either:

So why has this zombie idea — it keeps being killed, but it keeps coming back — taken such a powerful grip? The answer, I fear, is that officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

That’s been the problem all along, isn’t it? The inability, or unwillingness, to face facts, from our officials AND the electorate, who have demonstrated that very characteristic for far too long. Heck, that’s how we ended up with Obama in the first place – the blind acceptance of his words with nary a glance at his deeds, the unwillingness to look at the FACTS about Obama, who he is, what his record is or is not, his connections to unsavory characters, his Chicago-politician history and style, his lack of policy, his blatant theft of ideas…

And the latter is the big problem now. Because he got over during his campaign by taking Clinton’s ideas, often whole cloth, he has NO idea how to implement them, or how to adjust them, or what is necessary for them to be successful. We are bearing the brunt of this Cheater in Chief, who hasn’t the foggiest how to adequately address the economic climate in which we find ourselves, through loss of jobs, homes, and retirement funds. A man who has gotten where he is not by his own hard work, but the King making of others. This man who provides the non sequitur, the Zombie plan, is not going to fix this disastrous economy. Inaction is not the answer, but WHAT the action is is crucial.

I can only hope that people of this stature, the Krugmans and Krauthammers among us, continue to speak out. Hopefully, prayerfully, their words will get through, and maybe, just maybe, we can get ourselves out of this “thing,” as Emmanuel said, not for political gain, but for the sake of the country.