Tuesday, June 7, 2011

(Day-oh? Daaay-Oh!) Can You Sing the Banana Boat Song? Beware of Charlatans, Cranks and Contemptible Politicians/Hitting the Ceiling (Debt Ceiling)

You know things have gotten endemically worse when a cool, calm (usually) intellectual like Paul Krugman starts calling out politicians as charlatans and cranks (not to mention labeling them "contemptible"). Beware of your future in the hands of these incredibly contemptible "movers and shakers" of American life (in the direction of banana republics). (Emphasis marks added - Ed.)

Beware Charlatans, Cranks and Contemptible Politicians Tuesday, 7 June 2011 Paul Krugman Ben Smith and Byron Tau commented in Politico: “In this Republican primary season, no economic or monetary policy is too unorthodox for an electorate hungry for change.” There wasn’t much new in the story, published May 20, but it did remind us that former Minnesota Governor Tim Pawlenty — who is supposed to be a noncrazy — has declared his opposition to fiat currencies, which means a return to the gold standard (although he may not know that that’s what it means). What Politico doesn’t include, but should, is the lemminglike rush to endorse the budget plan of Representative Paul D. Ryan of Wisconsin, which, although Very Serious, is also complete crank economics, with its insistence — in the teeth of all the evidence — that privatizing Medicare can somehow bring about adequate health care in the United States at a much lower cost. And then there’s the recent rise of default denialism: Hey, let’s signal to everyone that we’re a banana republic, what harm can it do? In the first edition (but only the first edition) of his textbook Principles of Economics, economist Greg Mankiw famously derided President Reagan’s supply-side advisers as charlatans and cranks. It’s pretty clear that when Mr. Mankiw wrote that, he imagined that this was only a phase, that Republicans would return to more sensible policies. In fact, however, the party is sinking ever further into deep voodoo. My take is that the hermetic nature of conservatism — its loyalty tests, its closed intellectual world where you get all your alleged facts from Fox News and the Heritage Foundation, the “wingnut welfare” that ensures that defeated politicians always have a cushy job waiting at a think tank somewhere — always made it vulnerable to this kind of spin into policy craziness. The debacle of George W. Bush’s presidency undermined the control once exercised by the establishment, which tried to keep up the appearance of reasonableness; and now people like Mr. Pawlenty and fellow Republican Mitt Romney need to sound crazy even if they (possibly) aren’t. The 2010 election may, in retrospect, turn out to have been a disaster for the Republicans: it empowered the extremists, leading them to believe that they could go the whole way and keep winning elections. I guess we’ll see. Where Have All The Mensches Gone? I asked this question five years ago, with regard to members of the Bush administration, who seemed pathologically incapable of taking responsibility for their actions. (A mensch, after all, is an upstanding person who takes responsibility for his actions). But the question is as relevant as ever. Newt Gingrich, who recently described Mr. Ryan’s plans for Medicare as “right-wing social engineering,” declared earlier this month that anyone who quoted him accurately was lying. And now, Mr. Pawlenty, who, aside from saying a whole lot of false things while declaring himself a truthteller, pulled a Gingrich when Rush Limbaugh correctly pointed out that (according to a 2006 newspaper article that quoted him as saying “the era of small government is over”) he wasn’t a true Tea Partier a few years ago. It’s possible to believe that someone is completely wrong on policy while respecting his or her character. But policy aside, these are just contemptible people.
And about "hitting" that debt ceiling . . . . Krugman:
How bad will it be if we don’t manage to raise the debt ceiling? And what should Obama’s negotiating strategy be? A few thoughts. The direct effects of hitting the ceiling would be bad enough — sharp cutbacks in spending, which would undermine essential services, not to mention derail the economy. It’s not clear to me whether there would be some wiggle room through the accumulation of arrears — say, not actually paying workers and contractors but promising to make it up when sanity returns. But it would be ugly indeed.

What might make it even worse would be indirect effects, of two kinds.

First, US government debt plays a special role in the financial system: T-bills are the universal safe asset, the ultimate collateral. That’s why, during moments of financial stress, the interest rate on T-bills has actually gone negative. Make that safe asset suddenly unsafe, and it might cause vast disruption.

Second — and I don’t think this is getting enough attention — failure to raise the debt limit could act as a terrible signal about the US political system.

When you look at the US fiscal position in terms of what we’re capable of as a nation, it’s not a big problem. Never mind those big numbers you hear about implicit liabilities; we have a big economy, too. So modest tax increases and reasonable efforts to limit health care costs could bring our long-run finances into line.

But all this depends on our having the political will and cohesion to do what’s necessary. What if it turns out that we’re a banana republic, with crazy extremists having so much blocking power that we can’t get our house in order?

And failing to raise the debt limit could be widely read as a signal that we are, in fact, a banana republic.

In that case, however, what should Obama do? My answer is that despite all that, he must not let himself be blackmailed.

Partly that’s because once he gives in the first time, the blackmail will never stop. Once the crazies know that they can get whatever they want by threatening to blow up the economy, they’ll just keep demanding more and more. Obama just can’t let that dynamic get started without setting up an even worse crash down the road.

Plus, the hard right may claim that it’s worried about deficits, but it’s actually deeply fiscally irresponsible. Realistically, the Ryan plan would sharply increase the deficit — because its spending cuts are in many cases impossible, and its supposed revenue neutrality is a sham. So giving in to the right would be just as much a signal of banana-republic-hood as a temporary default.

This is going to be very ugly. But I don’t think there’s any way to avoid taking it all the way to the edge, and possibly over it. (Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008. Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including The Return of Depression Economics (2008) and The Conscience of a Liberal (2007).)


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