Nouriel Roubini On the Economic Crisis

Missing a Teachable Moment Have Consequences

One would hope that a crisis would be a teachable moment, but too often in history, it is just a moment. The Great Depression gave us fascism, intensified terror in Stalin's Soviet, Japan's invasion of China, a bloody civil war in Spain, the rise of Hitler and World War II. So much for teachable moments....

The currents crisis is a crisis for globalization due to unregulated markets, political corruption and extreme inequalities. It is also a crisis for the idea of democracy, democratic capitalism and world economic and political cooperation. If we leave it to Wall Street to defend capitalism, it is doomed.
Hans

Mr. Scrooge: Are there no prisons?

New York Times reports from London:

"LONDON — The rioting and looting that convulsed poorer sections of London over the weekend spread Monday to at least six new parts of the metropolitan area and broke out for the first time in another big city, in what appeared to be the worst outbreak of social unrest in Britain in 25 years.       

Prime Minister David Cameron, apparently caught off guard while on vacation at a $10,000-a-week Tuscany villa, made plans to quickly return home...."

Flashback:

SCROOGE: Are there no prisons?
2ND MISSIONARY: Plenty of prisons, sir.
SCROOGE: And the workhouses? Are they still in operation?
1ST MISSIONARY: They are.
3RD MISSIONARY: I wish we could say that they are not.
SCROOGE: The Treadmill and the Poor Law are in full vigor, then?
1ST MISSIONARY: Both are very busy, sir.
SCROOGE: Oh! I was afraid from what you said at first that something had stopped
them in their useful course. I am very glad to hear they are still operating.
2ND MISSIONARY: (Not looking up.) A few of us are endeavoring to raise a fund to
buy the poor some meat and drink, and means of warmth because at this time the want is
more keenly felt.
3RD MISSIONARY: What shall I put you down for?
SCROOGE: Nothing.

And there we are in 2011. The more things change, the more they are the same.

Hans

Krugman: It's Time To Get Serius



Paul Krugman at Princeton on the day that it was

announced that he would receive the Noble Prize

in Economics. Photo: Hans Sandberg

Paul Krugman writes in today's column for The New York Times:

"In case you had any doubts, Thursday’s more than 500-point plunge in the Dow Jones industrial average and the drop in interest rates to near-record lows confirmed it: The economy isn’t recovering, and Washington has been worrying about the wrong things.       

It’s not just that the threat of a double-dip recession has become very real. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery. (...)

And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back."

The Verdict On the Tea Party Solution Is In

Markets plunge on economic turmoil; fears of another recession

“If this economy were a bicycle, it would be about to topple over,” said Jared Bernstein, a senior fellow at the Center for Budget and Policy Priorities and formerly the top economic advisor to Vice President Biden. “We need to put pressure on those pedals, but the political system is pushing us in the other direction. The economy is crying out for help and the political system is deaf to those cries.”

(Washington Post, August 4)

Stocks Down Over 4% in Global Sell-Off

Mohamed El-Erian, chief executive of the bond giant Pimco, said investors were selling risky assets like stocks “globally prompted by concerns about the weakening economic outlook, spreading contagion in Europe and insufficient policy responses.”

(New York Times, August 4)

Tea Party’s War on America

Economic growth could have gone a long way toward shrinking the deficit, while helping put people to work. The spending cuts will shrink growth and raise the likelihood of pushing the country back into recession.

Inflicting more pain on their countrymen doesn’t much bother the Tea Party Republicans, as they’ve repeatedly proved. What is astonishing is that both the president and House speaker are claiming that the deal will help the economy. Do they really expect us to buy that? We’ve all heard what happened in 1937 when Franklin Roosevelt, believing the Depression was over, tried to rein in federal spending. Cutting spending spiraled the country right back into the Great Depression, where it stayed until the arrival of the stimulus package known as World War II. That’s the path we’re now on. Our enemies could not have designed a better plan to weaken the American economy than this debt-ceiling deal.

(Joe Nocera, New York Times)

The Lesser Depression

Right now we’re looking at not one but two looming crises, either of which could produce a global disaster. In the United States, right-wing fanatics in Congress may block a necessary rise in the debt ceiling, potentially wreaking havoc in world financial markets. Meanwhile, if the plan just agreed to by European heads of state fails to calm markets, we could see falling dominoes all across southern Europe — which would also wreak havoc in world financial markets. We can only hope that the politicians huddled in Washington and Brussels succeed in averting these threats. But here’s the thing: Even if we manage to avoid immediate catastrophe, the deals being struck on both sides of the Atlantic are almost guaranteed to make the broader economic slump worse. (...)

For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed.

Did I mention that the European Central Bank — although not, thankfully, the Federal Reserve — seems determined to make things even worse by raising interest rates?

(Paul Krugman, New York Times, July 21)

The President Surrenders

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

(Paul Krugman, New York Times, July 31)

Wasn't the Debt-Ceiling Deal Supposed to Avert a 512-Point Dow Collapse?

If Obama does not reject the failed fantasies of the past and start promoting a jobs agenda that is based on federal government investment in infrastructure, education and the stabilizing of state and local governments so that they can continue to deliver needed services, the Tea Partisans will continue to control the discourse.

Obama must take the lead—with an absolute rejection of the extreme right's extremely wrong agenda—if he hopes to rally the popular support that is needed to define the debate and, ultimately, to start winning the fights that will determine the future of the US economy.

Obama has to climb into the bully pulpit and take charge. If he does not, the circumstance will just get worse.

Compromises do not build confidence.

Cuts do not inspire.

Tax breaks for the rich do not does not jumpstart a stalled economy.

Austerity does not create jobs.

And if Barack Obama continues to surrender to the peddlers of the austerity fantasy, if he continues to refuse to use the full strength of the federal government to advance a job-creation agenda, he will have a lot more to worry about than whether John Boehner will still go golfing with him.

(John Nichols, The Nation, August 4)

The Republican’s Double-Dip, and What Must Be Done

It was never a debt crisis. The debt crisis was manufactured. It’s been a jobs, wages, and growth crisis all along. And that reality has finally caught up with us.

Now that we’re slouching toward a double-dip recession, the only hope is voters will tell their members of Congress – who are now on recess back home – to stop obsessing about future budget deficits and get to work on the real crisis of unemployment, falling wages, and no growth.

We need a bold jobs bill to restart the economy. Eliminate payroll taxes on the first $20,000 of income for two years. Recreate the WPA and the Civilian Conservation Corps. The federal government should lend money to cash-strapped states and local governments. Give employers tax credits for net new jobs. Amend the bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence. Extend unemployment insurance. Provide partial unemployment benefits to people who have lost part-time jobs. Start an infrastructure bank.

And more.

The jobs bill should be number one on the nation’s agenda. It should have been all along.

(Robert Reich on his blog. August 4)