June 4, 2009
In case you’ve wondered whether Nobel laureates ever emit brain farts, Paul Krugman answered that question in the May 31 edition of The New York Times. His column of that date targeted former President Ronald Reagan for causing our current economic crisis:
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 was never a big fan of Ronald Reagan. My reaction to his nomination as the Republican Presidential candidate in 1980, conjured up James Coburn’s sarcastic line from the movie In Like Flint: “An actor for President!“ Reagan’s legacy was exaggerated — which is why the book, Tear Down This Myth by Will Bunch, is available on this site, under the “Featured Books” section on the left side of this page. I never believed that Reagan deserved all the credit he was given for the collapse of the former Soviet Union. In my opinion, that distinction belongs to Lech Walesa, leader of Solidarity (the former Soviet bloc’s first independent trade union) and his old buddy, Karol Wojtyla, who later became Pope John Paul II. In fact, former Soviet leader Mikhail Gorbachev admitted that the demise of the Iron Curtain would have been impossible without John Paul II.
Another literary deflation of that aspect of the Reagan legend can be found in The Rebellion of Ronald Reagan: A History of the End of the Cold War by James Mann. In his review of that book for The Washington Post, Ronald Steel noted how James Mann addressed the claim that Reagan broke up the Soviet Union:
And in 1991 the Soviet Communist Party disintegrated and with it ultimately the Soviet Union itself. Did Reagan make it happen? This would be too strong, Mann insists. The Cold War ended largely because Gorbachev “had abandoned the field.”
Despite my own feelings about the Reagan legacy, upon reading Paul Krugman’s attempt to blame Ronald Reagan for the economic meltdown, I immediately rejected that idea. What became interesting was that in the aftermath of that article, commentators from “left-leaning” news sources voiced objections to the piece. For example, William Greider is the national affairs correspondent for The Nation. On his own blog, Greider wrote an essay entitled: “Krugman Gets His History Wrong”. While upbraiding Krugman, Mr. Greider took care to note the complicity of the Democrats in causing the current economic crisis:
What Krugman leaves out is that financial deregulation actually started two years earlier — before the Gipper got to Washington. A Democratic Congress and Democratic president (Jimmy Carter) enacted the Monetary Control Act of 1980 which removed all remaining controls on interest rates and repealed the federal law prohibiting usury (note that sky-high interest rates and ruinous predatory lending have been with us ever since). It was the 1980 legislation that took the lid off banking and doomed the savings and loan industry, the mainstay that used to provide housing loans and home mortgages. The thrifts were able to raise capital because they were allowed to pay a half percent more in interest to depositors. Bankers wanted them out of the way. The Democratic party obliged.
Robert Scheer is the editor of Truthdig. The columns he writes for Truthdig regularly appear in The Nation. (He is famous for getting Jimmy Carter to admit for Playboy magazine, that Carter often “lusts in his heart for other women”.) Mr. Scheer’s reaction to Krugman’s vilification of Reagan as the saboteur of the economy includes such words as “disingenuous” and “perverse”. Beyond that, Sheer lays blame for this crisis where it properly belongs:
Reagan didn’t do it, but Clinton-era Treasury Secretaries Robert Rubin and Lawrence Summers, now a top economic adviser in the Obama White House, did. They, along with then-Fed Chairman Alan Greenspan and Republican congressional leaders James Leach and Phil Gramm, blocked any effective regulation of the over-the-counter derivatives that turned into the toxic assets now being paid for with tax dollars.
* * *
How can Krugman ignore the wreckage wrought during the Clinton years by the gang of five? Rubin, who convinced President Clinton to end the New Deal restrictions on the merger of financial entities, went on to help run the too-big-to-fail Citigroup into the ground. Gramm became a top officer at the nefarious UBS bank. Greenspan’s epitaph should be his statement to Congress in July 1998 that “regulation of derivatives transactions that are privately negotiated by professionals is unnecessary.” That same week Summers assured banking lobbyists that the Clinton administration was committed to preventing government regulation of swaps and other derivatives trading.
Thank goodness Eliot “Socks” Spitzer is still around, writing for Slate. His most recent article about the economy not only provides an accurate assessment of the cause of the problem – it also suggests some solutions:
We have had a fundamentally misguided industrial policy over the past decade. Yes, industrial policy is a dirty phrase to many, some of whom would argue that we haven’t had one, and indeed shouldn’t. But the truth is we did have one: to leverage up and guarantee the bets of a financial services sector that has now collapsed and left nothing of value in its wake.
What would be a better approach? A policy to support those sectors that actually create goods and value. Investment in transformational technology and infrastructure are core national needs. So why not start with a government order for 500,000 electric cars, subject to an RFP two years from now, by which time a true electric car prototype will have been developed? It should be open to any manufacturer, as long as 75 percent of the value of the car is domestically produced. I don’t care if the name on the plate is GM or Toyota, as long as the value added is here. (I prefer a “Toyota” produced in Tennessee to a “GM” produced in China. Why struggle to save the shell of a company –GM– that intends to ship jobs overseas anyway?) Guaranteeing an order of 500,000 will give manufacturers the needed scale to generate profits and reassure private customers that service and support will be around for the long haul. And the federal government could also issue an RFP for recharging stations, to be built by private companies, along the interstate highway system, wherever there is a traditional filling station, so that recharging will be possible.
(By the way: An “RFP” is a Request for Proposals, or bids, on a government project — just in case you were thinking it might mean “request for prostitutes”.)
I have always been a fan of Socks Spitzer. His personal story underscores the simple truth that all of us, regardless of our accomplishments, are only human and we all make mistakes – even Nobel Prize winners such as Paul Krugman.