Tim Geithner and Larry Summers Need Paul Krugman To Replace Peter Orszag

By Simon Johnson.  Tim Geithner and Larry Summers are talking a good game on fiscal policy to the G20.  But they are struggling with to establish traction for their “spend now, consolidate later” message.  Fortunately, there is an easy and obvious opportunity to establish credibility on this issue: Bring Paul Krugman into government.

Earlier this week, Peter Orszag resigned from his cabinet position as director of the Office of Management and Budget.  The Washington Post put out one of the first lists of candidates who could replacement him.  Senator Byron Dorgan would be a smart pick and some of the Post’s other suggestions could make sense. 

But surely the front runner is Jason Furman.   The working assumption is that Treasury Secretary Tim Geithner and National Economic Council director Larry Summers are in positions of influence for the long haul – and they have a track record of preferring team players over people who could bring competing perspectives to the table.

The Hamilton Project, housed at the Brookings Institution, was designed as a government-in-waiting by Robert Rubin.  Then-Senator Obama attended its inaugural public meeting, with Peter Orszag as head of the project.  Appointing Furman, successor to Orszag at Hamilton and currently a deputy to Larry Summers at the NEC, or another person from the same wing of the Clinton administration would continue in this tradition.

This is unfortunate, because the brilliant choice would be Paul Krugman – completely taking the wind out of the Republicans’ sails on fiscal deficits.  Krugman has scolded them, in real-time and to great effect, consistently with regard to ruining the budget.  And he has an important point – the Bush administration inherited a fairly sound fiscal position from the Clinton administration but squandered it thoroughly over 8 years. 

At the same time, the Republicans allowed unprecedented system risk to develop in the big banks.  To be sure, the Clinton administration shares responsibility for excessively deregulating financial institutions and derivatives – a point that even President Clinton now concedes.  But the rather more pointed partisan point is that the contingent fiscal liability posed by an out-of –control financial system became much larger during the Bush years. 

The purely fiscal damage wrecked by big banks – apparent in 2008 but building for longer – will end up increasing our net government debt held by the private sector by around 40 percentage points of GDP.  That’s the likely final cost of the “automatic stabilizers” (i.e., tax revenue falls and we spend more on unemployment benefits during a recession) plus the discretionary fiscal stimulus that was undertaken with the – entirely reasonable – goal of preventing a Second Great Depression in early 2009.  Around half of our existing government debt burden and much of our continuing fiscal vulnerability is due to the dangers posed by unreformed big banks.

Vice President Dick Cheney is famously associated with the catch phrase, “deficits don’t matter.”  Yet “cut budget spending now” and “President Obama is fiscally irresponsible” are the slogans that come increasingly from Cheney’s part of the political spectrum.  It would be a great move to give Krugman (and his Nobel Prize) the OMB podium from which to respond.  Even the confirmation hearing would be fiery and memorable – and get the right points across. 

Krugman embodies exactly the balance of messages required to be an effective budget director today.  He fully understands the need for budget consolidation eventually – after all, he wrote the original definitive work on balance of payments crises and how these are fueled by money creation (and implicitly by budget deficits).  No one has better anti-deficit credentials for the long haul.  And, as one of the world’s leading economists on international issues, he understands better than most both the advantages granted the United States because we issue one of the few “reserve currencies” (held by private investors and central banks alike as a safe haven). 

He also knows that if we don’t put our public debt eventually on a stable path, we could lose our reserve currency status – in which case our problems would begin to resemble much more those of Greece.  Greece has substantially higher debt relative to GDP than we do (they are over 100 percent of GDP, on their way to 140 percent; we’re crossing 60 percent, on our way to 80 percent), and its budget deficit looks more intractable.  But the ultimate difference is that when the world’s financial markets look scary and investors want to duck for cover – they run into US government obligations, and away from paper issued by governments such as Greece.

The trick, therefore, is absolutely not to engage in overly rapid fiscal contraction.  This is what President Obama is warning the G20 against – although so far with little effect.  The new British government, for example, seems keen to engage in excessively precipitate spending cuts and tax increases. 

We need instead to set achievable medium-term fiscal targets that will stabilize our debt levels.  If these are credible, this gives us the space and time we need to put our fiscal house in order without experiencing the kind of fiscal austerity that would only make our current high unemployment problems worse.

To give Peter Orszag and his colleagues – such as Tim Geithner – credit, they have tried to get this message across.  But unfortunately, they have not had the stature, the top-level political support, or the kind of voice needed to really pull off what is, after all, a delicate balance that must be explained far and wide with great credibility.

The danger is that the next budget director will too much lean towards the prevailing – and incorrect – Wall Street “wisdom” that we need Southern European style austerity and now.

If the president wants to actually make progress his broader agenda, and to experience anything other than austerity and prolonged high unemployment, Paul Krugman would be the best choice for budget director.

An edited version of this post appeared this morning on the NYT’s Economix.  It is used here with permission and if you would like to reproduce the entire article, please contact the New York Times.

155 thoughts on “Tim Geithner and Larry Summers Need Paul Krugman To Replace Peter Orszag

  1. yes paul would make a good choice. & i think its great simon that u really look @ the political more than whats rite. because unfortunately thats how decisions are made

  2. Krugman has no interest–or stomach–for politics. Sounding off in columns and classrooms is one thing. Contending with the giant, monster A-holes in DC on a daily basis is another thing entirely.

  3. To second John S, there is a necessary level of dishonesty in talking in favor of a set of policies, when some other guy sets policy. That need for dishonesty is even more pointed for a Nobel Prize winner, when the other guy is just a lawyer.

    Think what has happened to Mankiw’s reputation since he had a spin in Washington.

  4. I will miss his blogging and columns should this come to pass. The confirmation hearings should make for wonderful TV, but will the europeans listen anyway when all is said and done?

  5. USA is not in the same position as Greece and it will never be. US has its own currency therefore it can always print money, therefore it can never default. Greece does not have that option. That is one of the main arguments Krugman makes all the time. That line of thought weakens your arguments.

  6. This is one of those fine policy ideas that people on the left get excited about without considering the context. When it doesn’t happen, there’s great wailing and gnashing of teeth about selling out.

    I love Paul Krugman. Never miss his column; it’s *the* influence on my economic outlook. He understands the confluence of politics and economics like no other writer.

    But let’s be real: What leads anyone to think that he can handle the bureaucratic infighting of the Treasury Department or make his voice heard above Geithner and Summers (who would look for ways to muzzle him)? If Krugman weren’t chewed up and spit out, he’d quit in frustration.

  7. History shows that there is a need for some talking the right talk, rather than all walking the wrong walk. Why would it be different with Krugman than with Volcker? Because Krugman is smaller and can burrow more readily?
    Everything indicates that Obama will do what Rubin wants, anyway. He is as predictible as a golf cart.

  8. Did not Argentina have its own money, and still defaulted? Several times? Krugman has completely misunderstood the PIIGS problem. What he proposed basically was to go back to war. The Germans and the French and now the Brits are proposing to go back to discipline, and they teach by example.

    The Germans tried that a few years back, and French and British (let alone the PIIGS!) scoffed. But it worked. And now it’s the only way to get the Western European house in order. The fall of the euro will compensate for the deflation. So it’s hoped.

  9. As repellant and odious an eel as Krugman is and Johnson insists on inflicting him on the American people! There’s something in this cheerleading for Johnson, obviously. An appointment of somekind, possibly? In any case, someone needs hand Johnson a handkerchief so as to wipe the foam from the corner of his mouth.

  10. The list of candidates in this link applies to the topic, though the comments section is wierd and I don’t understand the Petraeus connection? Krugman would be good but the foxes in the hen house ain’t about to allow it, ethical thinking and politics are different animals.

  11. I believe although Argentina had their own currency, it was pegged to the dollar. They couldn’t print as much as they needed thus the defaults.

  12. Remember, Krugman’s political judgment was to pass the TARP and then try to get bank reform later. Somewhat similarly, he was a fierce advocate for a public-option-free healthcare reform because it represented a marginal improvement over the existing system–this despite favoring a public option and even single-payer as the better solutions by far.

    Whether the problem is that he is too pragmatic (in the Rahm sense) or just plain lousy as a political negotiator, Krugman seems to offer nothing but disappointment to anyone looking for significant reforms in government.

  13. Better yet, scrap this pathetic Krugman notion, fire Gethner and Summers, and fill the three positions with Peter Schiff, Mike Shedlock, and Max Keiser.

  14. What we need is the abolition of the Federal Reserve and the end of debt-based-money.

    Does Krugman support that??????

    Somehow, Simon, your support of Krugman feels to me to be tainted by your association with the IMF. Are you too just a mouthpiece for the “ultimate” banksters?

  15. “Are you too just a mouthpiece for the “ultimate” banksters?”

    When you can see nothing but intellectual conviction in politicians and their appointees and nothing in the way of corruption one begins to wonder whose side you’re on, yes indeed.

  16. When you say he would give us

    “the space and time we need to put our fiscal house in order without experiencing the kind of fiscal austerity that would only make our current high unemployment problems worse.”

    what are the steps to this, because controlling debt would seem to be at least part of the solution.

  17. Yes, like the “first casualty of war is the truth” now manifested (or would that be lack of manifest)in the gulf fiasco, the concept of “intellectual conviction in politicians” proves we might be on a poor glide path.

  18. Again I like Krugman, but his temperament and ego are not suitable to the job. There is a reason Joseph Stiglitz is not in the administration now, the same reason Napolitano is not preparing for Supreme Court nomination hearings, and why McChrystal is not in Afghanistan now. Some people’s ego does not allow them to keep their mouth shut. Krugman is in this group.

    It would be a foot in your mouth disaster waiting to happen.

    There are plenty of smart people who can balance a budget well, and then say the cliches they need to say to Congress. It’s not like Krugman is the only guy who knows policy and how to play with numbers at a high level. I’m sure at least 10–15 guys capable of this without forcing their mouth into the process.

    If Krugman is that eager to help the world he can be an “unofficial adviser”. Of course, that depends on if he sincerely wants to help and doesn’t need his ego salved.

  19. I’m an Econ/finance blog junkie, and even I know that suggestion is humorous, ridiculous, and sophomoric.

    Schiff is the most “qualified” of the 3 for that job, and all he knows to do is run around pimping books and run for political seats he has about a 5% chance of winning.

  20. I consider France to be an honorary member of the PIIGS myself. Although I could understand if Italy refused them entry into PIIGS based on French hygiene.

  21. I could be wrong, but it seems to me that Krugman has approximately zero chance of ever having a position in any administration. Both major political parties are dominated by big money interests who have no use for Krugman’s concern for the general good. Remember, it was a Democrat who dismantled AFDC; the post-Lehman bailout proceded without missing a beat (or changing the tune) after January 20, 2009.

  22. Simon – focus on financial reform and influencing govt concerning the dangers of TBTF. If you actuallly believe that “spend (on debt) now, consolidate later (never)” will accomplish anything but further enrich the oligarthy, you need to re-read your own book.

  23. “We need instead to set achievable medium-term fiscal targets that will stabilize our debt levels. If these are credible, this gives us the space and time we need to put our fiscal house in order”

    Uh, yeah, sure, but, um … where are these ‘credible’ efforts to ‘put our fiscal house in order’?

    Is it really credible that we’re going to have credible efforts one day?

    Why would I believe that will happen?

  24. Come on, according to today’s N.Y.Times the guys with money are desparate to spend and the economy is starving. Can anyone connect the dots?

  25. Instead of just shilling for Krugman, how about writing a post on replacing one of the remaining members of The Committee To Save The World? You could title it “Tim Geithner Is An Empty Suit” or “Larry Summers Is A Blowhole.”

    Replacing Geithner with someone like Brooksley Born or Summers with someone like Peter Morici would go a long way towards reducing the Wall Street group-think in DC.

  26. Dots…..

    Counter-insurgency (AKA as nihilism) has succeeded in the USA (TBTF).

    You mean they had no “vision” beyond STEALING ALL the money from 25% of an IRRATIONALLY unemployed citizenry

    AND beyond “owning” the deeds to the entire USA infrastructure built by taxpayers over the past 100 years?!

    They’re digging for uranium, again, just east of Warren Jeff’s faith-based enclave in Colorado City, AZ

    “first rate military machine in a third world country run by tribes”

  27. My reference to “intellectual conviction” in politicians is simply a rephrasing of Johnson’s “cognitive capture”, a formulation that simply epitomises naivete in my view. Anyone that believes that a politician is capable of an honestly held point of view that hasn’t first been greeced a bit either by campaign contributions or out-and-out stuffed envelopes is an absolute schlemeil.

  28. In all seriousness: Geithner and Summers should end up in prison – for treason against “we, the people.”

    Is Simon suggesting he and Krugman belong there as well?

  29. This is a guy who was reduced to tears on Bill O’Reilly,not to mention a partisan Big Goverment Keynesian………..hardly what we need is this role.

  30. I can’t find the exact quote but one of the great liberals of the previous century, Pierre Elliot Trudeau, said something like, “You cannot lead people beyond that which they are willing to follow.”

    Just a thought maybe worthy of some consideration.

  31. One solution to this is to enact a campaign donation limit of $5000 per citizen per candidate per election. Note I said “citizen”: I intentionally exclude corporations, people who cannot legally vote, and all groups.

    Also, it must be made a federal crime for elected officials to accept gifts worth more than, say, $50. Each offense would garner a one year prison sentence.

    But I’m not holding my breath.

  32. Krugman sure does. I’m disgusted at how in two consecutive long threads there’s almost nobody condemning Krugman because he’s a neoliberal corporatist.

    No lack of ideeots who think he’s a “socialist”, though. And of course the corporate liberal teabaggers…

  33. I remember during the health care debate Obama had a meeting with the Republicans – you could clearly see who was the adult in the room and it wasn’t any of the Repugs. If Krugman was appointed you would probably see that magnified by a 1000, however who knows how long he could put up with the legions of ankle biters in D.C.

  34. Did or did not the counter-insurgency wipe out – from page 273 Wrecking Crew – “…that warm middle-class world that I was born into: a place where blue-collar workers owned boats and suburban homes, where government seemed at least interested in fairness, and where art and learning were respected as much as accumulation. The wreckage of that America lies all around us today…”

    I keep referring to The Wrecking Crew because it’s a struggle to find cultural touchstones that aren’t from some CULT or another…

    Now here’s the thing about that era of “blue collars”

    they made enough money to have hobbies that balanced out non-exciting but necessary labor with their brain power (Monty Python skits abound about rich man’s idiot sons) – astronomy, physics, artisan activities centering upon improving architecture and mechanical assists to labor, gardening, etc. etc. etc. and yes, POLITICS at the local level…for instance, if the town was dealing with infrastructure, ENGINEERS ended up on the councils…get the drift?

    CNBC presented a piece about the Mormons openly discriminating in hiring practices. I would need another 100 year lifetime to address how much ERROR there is to what that cult is doing to USA…but in the meantime, THEY DO NOT KNOW what refugees from WWII in the USA KNOW

    about science, art, culture, politics, HISTORY, and religion…and their unspeakable arrogance in not even ASKING is inhuman. Three anti-insurgency campaigns they have hoisted upon INNOCENT, NOBLE refugees as a raw power grab – “end times” theology, the moon landing never happened, and the child abuse scandals in the Catholic Church….they are a VERY dangerous, secretive group of CRIMINALS, just like Middle East operatives in the “economy”…

    It’s TRUTH time – what do you want your doctor to tell you about the TOXIC limit injected in your veins…?


    What the hell should they care if in MY CULTURE, a woman is “allowed” to utilize freekin’ LIGHTNING BOLTS if she wants to to take care of HOME and family…?

    Go ahead and spend money on magic underwear instead…

  35. Appointment of Krugman would blow the whole Exclusion of Dissenting Voices motif that Obama has going (e.g., labor, health care, banking, Middle East policy, stimulus, etc.)

  36. One more post and I’m done and sorry that it has nothing to do with who should be money-lender in charge…

    More cheery than a soccer goal is the internet posting at the Huffington site in regards to the solar housing competition – really cool stuff – beautiful, too, from an art in architecture (HOME and family) perspective – check it out and pick one to FINANCE…

    And the other is the breakthrough came when they pointed a satellite monitoring gamma particles coming from the center of the galaxy on to earth and found thunderhead clouds gave off gamma particles, also.

    Yes, there is much more intellectual vanity in the search for the “god particle”, but a lot less application for HUMAN HEALTH AND SAFETY.

    And maybe the CULT should consider sticking uranium in their underwear :-)

  37. Quite right. As of yesterday, a Lincoln style administration is ended.

    How long before Obama challenges the patriotism of dissenters? I put the over/under at 90 days.

  38. Annie wrote:

    “An maybe the CULT should consider sticking uranium in their underwear :-) ”

    Don’t Bogart that joint Annie. :-)

    We will resume our normally scheduled broadcast shortly.

  39. If you read Krugman and Delong’s blogs you find many, many, many posts as to why controlling debt right now is the least of our problems. Two recent ones:


    Plus one where Delong shoots down some of the doomsayers:


    Read these first. If you aren’t convinced, then say that controlling debt is an issue.

  40. Just because he’s not channeling Chomsky doesn’t mean he’s not being intellectually honest.

    Now I agree Chomsky has it right, but sometimes I feel in the quest for that worldview we tend to alienate those who are on our side but who’s opinion doesn’t necessarily fit neatly with ours.

  41. Krugman isn’t perfect, but he’s better than a stick up the butt. Let’s face it, the perfect candidate is certainly not going to get nominated here (nor is Krugman, but it would be a good start).

  42. Unfortunately I think there’s some truth to that. If you’ve ever seen him interviewed he seems rather uncomfortable. I would guess he doesn’t have the best social skills, even if I share the same opinion of him.

    Still, probably better than the alternative we will get.

  43. Here’s why Krugman shouldn’t do anything except maybe drive a cab:

    The Hangover Theory

    “Here’s the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn’t that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?”


    Do you see what’s left out of the equation?

    Only a clueless acedemic could act like debt doesn’t matter or exist at this point of the game.

  44. Dr. Johnson, Mr. Kwak:

    You two are worse than useless. Your two big bad ideas are:

    1) There is a long-term budget deficit problem that must be dealt with now.

    2). TBTF should be the focus of financial reform.

    Courtesy of #1, fiscal austerity is now being implemented across the G-8, including here in the America. This austerity will kill the extremely weak recovery very quickly. The G-8 hope to export their way out of deflation and stagnation, but this won’t work, since there is no one to buy the goods being produced. This failure will worsen the imbalances in the world economy, leading to further contraction in growth and a deflationary spiral.

    Courtesy of #2:
    This was a huge distraction that you created, essentially it was the wrong battle. People tried to tell you this, but you didn’t listen. You never explained how Canada, for example, escaped the financial meltdown of 2008, even though its economy is dominated by a few very large banks.

    You seem to have moved away from #1, but the damage you both did was back in the winter/spring of this year, when you gave a lot of credibility to this ridiculous argument.
    With #2, it doesn’t matter now, I suppose, since the world will be moving very quickly into a Second Great Depression, thanks in part to the baleful influence of your bad idea #1.

    Well, congratulations, I suppose you’re both doing very well with your book sales, speeches, etc. What are you guys paid for an appearance now? $15,000 per speech?
    But what a pity that your bad ideas helped bring about the upcoming tsunami of human misery and suffering that will become known as the Second Great Depression.


  45. I’m not Simon or James, but unlike you, I actually read their book.

    >two big bad ideas

    No, they have more than two ideas, including regulating the $600 trillion (that number from memory) of OTC derivatives. Compare that against $15 trillion for USA GDP. This problem, for me, is the scariest.

    Adding back the firewall between commercial and investment banks is another of their ideas. Allowing commercial banks to feed at the teat of the Federal Reserve all the while functioning like Soros clones is a Gordon Gekko wet dream.

    “budget deficit problem that must be dealt with now”?

    I don’t remember an emphasis on this in the book. Also, why would Simon recommend Krugman for any job knowing that Krugman does not appear to worry about deficits?

    I agree that the world will be moving to Depression 2.0, but it will be a result of Congress not having the balls and/or integrity to pass laws contrary to the interests of Wall Street. Also, because tea baggers, Republicans, Democrats, Libertarians, and other rodents are actively outsourcing our jobs at an ever increasing rate.

  46. “Only a clueless acedemic could act like debt doesn’t matter or exist at this point of the game.”

    Or maybe someone who actually reads history. I am no fan of Krugman, but he pointed out that Depression 1.0 was ended only by WWII which can be, economically speaking, considered the largest stimulus in our history.

    The reason I think Krugman is not the best is his ignorance of the fact that our manufacturing base kept increasing from WWII to, say, 1980, and then started declining precipitously. We will now have a hell of a time exiting this panic because we have no manufacturing capacity anymore. China is having a much easier time of it, first, because they employed a monster stimulus, and second, because they have the manufacturing base we used to have.

  47. If you think about this suggestion from a “what subtle messages is Simon trying to send?” perspective than this article makes a lot more sense. It gets some semi-mainstream attention, he basically gets to call everyone pushing for fiscal austerity right now idiots, and gets to point out that Geithner and Summers have no clout and even less credibility (and by inference, Obama as well). And he does it all in the guise of a very cordial suggestion! Well, that’s my take on it, especially given all of those references to having to parse the subtle message written between the lines in IMF reports.

  48. You’re assuming that Krugman isn’t one of the foxes (in henne’s clothing). People don’t get Swedish Nobels without advancing the causes of the people that bestow awards like that.

  49. That’s your answer? Depression economics that no on can agree upon 80 years after the fact?

    If you read the rest of the piece, Krugman says that in a recession, consumers should spend more not save.

    So, in a credit based economy in which the consumer has no savings and substantial debt at a high interest rate, Krugman believes you should get deeper in the hole.

    Like I said, he doesn’t believe debt exists, but, the people getting calls every day from Chase and Citi sure do.

  50. I tend to agree with the characterization of “neoliberal corporatist”, but provide evidence please. He poo-poos his brief Enron consulting as insignificant (justifiably?) and he’s convinced himself that he’s convinced us there was no manipulation of the price of oil during the last big spike. I see him more generally as our preeminent propagandist. If you go back and scan his posts and articles for the frequency of scare words, I think you’ll see what I mean. His job is to frighten us, depress us, give us a feeling of hopelessness, and he does it very very well.

  51. I too can’t take this at face. OMB a soapbox? Krugman’s already got a soapbox. A policy/economist/philosopher guy in what is essentially a ministerial role? This is a stalking horse/straw man of some kind.

  52. Like I mentioned in my post, it was during January/February of this year, that both of these numbskulls started talking about the “long-term deficit problem” that had to be dealt with now! Obviously, they moved away from that a fair amount, but THE DAMAGE IS DONE and it’s too late.

    The problem with the TBTF was that it took up a lot of the attention of policymakers, when IT WAS NOT THE PROBLEM. It was a huge distraction. Remember, these nudnicks(Johnson, Kwak) are not from the Political Economy Research Institute at UMass-Amherst, where economists were calling for the banks to be put through an FDIC workout instead of a bailout, or that the banks be forced to recognize their losses. Johnson and Kwak are more “mainstream” and hence more muddle-headed in their thinking, but they made the right “New Deal” kind of noise(regulate derivatives, reinstate Glass-Stegall) that gave them a lot of credibility. This was a deadly combination(the muddleheadedness and the “progressive” reforms) for policymakers(and tens of millions of working people and their families), as we shall see very soon.


  53. I’m not alone in saying this, just read Martin Wolf, Paul Krugman and many others. Even Larry Summers, for god’s sake, is talking about the need for a new stimulus. And there was an article in the Telegraph about Bernanke’s concerns about deflation and the very weak recovery.

  54. “Krugman says that in a recession, consumers should spend more not save.”

    I have no idea what you are talking about. The article I read from Krugman said nothing of the kind. He said “governments” should spend more.

    And you seem to have missed my comment “I think Krugman is not the best.”

  55. Oh yes, all my dreams have come true.

    The Court Jester of Keynesian “theory” and the “conscience of liberalism” should ABSOLUTELY be the final bag holder in this ponzi nightmare.

    Tell me this is not satire because it just made my day.

  56. saucymugwamp,

    Your solution leaves the underlying structures intact, something I view as inherently problematic. What’s there to prevent their reverting to form when the only protection is the courts and the usual enforcement mechanisms? As long experience teaches, these are easily enough corrupted. Why not build wholly new structures from the bottom up based on workers’ councils? Such a model would obviate the need for electioneering of the kind we now experience. The pattern would be quite similar to that experienced in town hall democracy, with larger structures emerging from controlling smaller ones. No more supercilious pronouncements about policy from scum like Pelosi, Biden and McCain as though you were being read a kind of Papal Bull, and no more vapid media types controlling the boundaries of what you can think about the nation’s political life since everything would originates with you and in your own backyard! Do you think we’d ever have had something as hateful as the bank bailouts if such structures were in place in 2008? Think about it.

  57. “but will the europeans listen anyway when all is said and done?”

    Germany has told him to go pound sand…but I will say no more.

    If I were on the committee he’d get my vote…three times.

  58. Sorry, but I beleive your country needs to replace Mr Geithner before it starts to worry about other so-called lightweights.

  59. The New York Times Magazine
    September 6, 2009

    How Did Economists Get It So Wrong?

    sEPTEMBER 8, 2008
    “So what we’re really seeing now is deprivatization. It’s not something like the UK government seizing the steel mills; it’s more like firing Blackwater and giving responsibility for diplomatic security back to the Marines.”

    FIRING BLACKWATER !!! Geepers Batman…Nobody can say that and work in Washington DC !!!

  60. “But the ultimate difference is that when the world’s financial markets look scary and investors want to duck for cover – they run into US government obligations, and away from paper issued by governments such as Greece.”

    Do we need a strong dollar? How does that help anything?

  61. So, what planet are you from? If serious budget cutting is done now, especially in the wake of intollerably ineffective financial “reform” the economy will never recover. Steve Forbes has a lot of great ideas which would capture republicans, and wouldn’t involve government spending. We can start with a 15% flat tax (first $48,000 exempted) on all, including corporations. Flat taxes have been broadly enacted in more than one eastern European country with spectacular results. We certainly can’t afford to increase taxes at this moment, and need to find a way to make revenue collection simple and inexpensive (and possible).

  62. So, Simon, I think Krugman would be okay, but perhaps not nearly as good as Bill Black. Talk about tough, smart and resilient!!

  63. If you really want me to go fetch some links I can, but it sounds like you already know them.

    Enron consulting – that’s quite revealing. Even if Enron had never been so deranged even by the standards of corporatism, it was still even in principle a racket which created nothing but cost and complexity. (Exactly like the health insurance racket for which Krugman also shilled so eloquently.)

    So the very fact that Krugman would “consult” for them in any capacity, minor or otherwise, reveals his corporatist, anti-public ideology.

    As you say, he’s the #1 propagandist whose goal is to astroturf liberals who don’t understand the real corporate tyranny issue. As we see from these threads, he’s done a great job of that.

    Since neoliberal corporatism is the ideology and practice of the system, therefore by definition its flacks are corporate cadres.

    And sure enough, Krugman has supported the Bailout from day one. In the same post last summer (“In Sachs we trust”, I think it was called) where he said “what Goldman Sachs does is bad for America”, he said “but I still agree with bailing them out”.

    His role throughout has been to affirm the overall system and its crimes, but play the “dissenter” from some alleged “abuses”. And he was also the slated ringmaster for the scam idea of Swedish-style nationalization. That idea, like the “public option” scam in the “debate” over the health racket bailout (also for which Thugman took the lead in mustering the more pseudo-educated among the liberal teabaggers) was only kept floating around for a political contingency where they might need to pretend they were “resolving” instead of directly bailing out.

    As it turned out, they never felt the need to go that far, but if they had, Krugman would’ve been there to propagandize for how great and meaningful it was.

    (In all of this, Krguman’s not just a shill for kleptocracy but a Democrat partisan. That’s why he was so eloquent in opposing many Bush policies he no longer opposes now that they’re Obama policies, like the war.)

  64. He is refering to the paradox of thrift. For the individual the best thing a person can do is be thrifty cut spending and save. When everyone does that it is a disaster for the economy as a whole because it lowers demand bringing on unemployment and deflation as productive capacity is underutilized.

    Keynesian stimulus is spending by the government to replace the demand lost from individuals thriftiness. Something the Chinese did massively putting them in the best position to grow their economy.

  65. Perhaps it would be good to read more Krugman. His concern is with the long term deficit. Part of his support for health care reform was the idea of “bending the curve” of costs downwards that will bankrupt us as a nation, whether as a government or individuals, if nothing is done about it. Also his protest against the Bush tax cuts was that they would bring about a long term deficit.

    The idea of short term Keynesian deficit spending is to jump start the economy so as it goes forward it will be on a higher curve in the years and decades to come.

  66. Simon: I’m shocked at two things. First, you stoppoed commenting on the final throes of the financial bill at this crucial time, And second that you’ve chosen this moment to advocate liberal budget-buster Krugman as the new budget director. Krugman is no doubt a most avid proponent of all-out free trade and our masssive trade deficits ( $6 trillion in the recent decade ended 12/31/09). You’re well aware how much impact the funding of those immediate debts had on the recent financial crisis. Ben Bernanke has often mentined them as a critical factor.They must be
    stopped, and Paul Krugman isn’t the man to do it!
    Ken Davis, Former U.S. Ass’t Secretary of Commerce

  67. @Barney – I think you are missing most of what Simon is advocating. A collapsed economy will never retire debt. I think Simon is saying that the economy must be a healthy economy before budget and deficit reductions are implemented. I think Simon’s idea is that there is a delicate balance between stimulus and austerity.

  68. Again Simon Johnson writes about “excessively deregulating financial institutions and derivatives” and this is pure nonsense!

    By allowing lower capital requirements for what was perceived as having lower risk the regulators arbitrarily intervened like never before in the markets, and increased the expected returns for banks from investing or lending to what was perceived by the credit rating agencies having a lower risk of default.

    Have you ever heard about a financial crisis that happened from lending or investing in anything considered risky? Don’t think so. Even the infamous Dutch tulips, in their own bubble time, would probably have been rated AAA.

    Also, to allow financial regulators to focus so excessively on the risk that lies closest to their heart, namely the risk of default, is, in a world with so many other risks, like the AAA rated BP can attest to, just scandalous.

    The biggest risk for society is that our banks will not perform efficiently their role in allocating capitals and it is always better for them to fail when taking real and worthy risks than to survive, or fail, taking useless Potemkin risks!

  69. The Renminbi Runaround

    6/24/2010 11:59:00 PM – Calculated Risk

    From Paul Krugman in the NY Times:

    “As of Thursday, the currency was only about half a percent higher than its typical level before the announcement. And all indications are that watching the future movement of the renminbi will be like watching paint dry: Chinese officials are still making statements denying that a rise in their currency will do anything to reduce trade imbalances, and prices in the forward market, in which traders agree to exchange currencies at various points in the future, suggest a rise of only about 2 percent in the renminbi by the end of this year. This is basically a joke.”


  70. Actually I have thought of it, but in a slight different context. As I explained in some of blog posts (e.g. “A cooperative America” and “Sturm und Drang: communism to capitalism”), cooperatives could be used to eliminate a single owner taking most of the profits. Your term “workers’ councils” is a complete non-starter, given the USA’s vitriolic atmosphere; it would be poisonously labeled as socialist, if not worse. Cooperatives become more problematic as the level of complexity in the business increases, but it could be applied to any business.

  71. You don’t understand debt, either. In a debt-based economy you eventually don’t have a choice but to stop spending because you can no longer service the debt.

    It’s not thrift at all. People would happily go on spending, but they can’t.

  72. I must admit I am shocked that a former senior member of the Commerce Department understands that free trade has almost dealt us an economic coup de grace. We import almost twice as much as we export — a world record — and this is an unsustainable course. The past/current several Commerce secretaries were ersatz cheerleaders for China and India. The fact that Obama’s first state dinner was for the PM of India speaks volumes. Krugman is as clueless as Obama with respect to global trade.

  73. Without employment and income you can’t pay the debt service. There’s plenty of credit available but no capacity to take it down and do anything productive with it. Credit-based economies require recessions to maintain balance. Permit the economy to go through a recession since we have confirmed that credit capacity has been exceeded in the aggregate. Putting more stimulus in the system merely allows the Ponzi Scheme to keep going – it merely extends and compounds the problem.

  74. FIRING BLACKWATER !!! Geepers Batman…Nobody can say that and work in Washington DC !!!

    It’s “Xe” now.

    Rumor is Prince is moving residence to UAE from where he’ll be safe from Wyatt Earp :-)

  75. Talk like like this about African-Americans, and you would be called a racist. It is strange this need to be racist. Considering the greater occurence of contagious disease in the USA, your observation is pertinent.

  76. “The Mondragon model”

    Yes, quite. Thanks for the heads-up; I had never heard of that before. The Wiki page describes it as a “business model based on people . . . but without neglecting business excellence.” Great idea. It sure beats the heck out of the robber baron / George Pullman school of management.

  77. Wow, the Bank Interchange Fee Act of 2010 appears to contain a lot of amendments otherwise greatly favoring the financial industry. What happened to the financial reform bill I heard about?

  78. “When everyone does [is thrifty] that it is a disaster for the economy as a whole..”

    That is a bunch of hooey, except in a debt based economy. Open your mind!!

    The problem is under our current system money = debt. That paradigm needs to be flushed out to sea, preferable the GOM where it can become coated with oil and die.

  79. Dear Saucymugwump: Thanks much for your right-on reply. It was so bad on trade policy in Commerce and the White House that I resigned in protest. It didn’t do any good o0 course just like General McChrystal
    this week. Who knows what really caused his criticisms
    of civilian authority while he was risking the lives of he and his men every day. I only had to explain to small business CEO’s why we wouldn’t get a level playing field for them against subsidized import competition. There is an answer – balanced trade legislation limiting imports to our prior year’s exports. Obama’s people won’t even discuss it while they go on borrowing $2 billion every day to pay for ourtrade deficits. That’s national fiscal insanity

  80. Dear Saucymugwump: Thanks much for your reply. It was so bad at Commerce and the White House that I resigned in protest. I couldn’t go on turning down small business CEO’s who wanted a “level playing field” to compete with subsidized foreign imports. There is a good answer – balanced trade legislation that would limit imports each year to the amount of our prior year’s exports. Currently, Obama economists
    won’t even discuss it while they borrow $2 billion abroad every day to pay for our trade deficits. That’s
    national fiscal insanity!

  81. Krugman is the new poster child for the “ugly american”, bashing Germany or anyone who disagrees with the “pump and dump” economic policies of the U.S. – pumping dollars into world market bubbles with the objective of eventually dumping the worthless dollars on world investors still standing when the bubbles collapse.

    Krugman’s latest diatribe is his sarcastic ridicule of Bundesbank President Axel Weber, who is considered a frontrunner to succeed Jean-Claude Trichet as head of the European Central Bank when Trichet’s term expires in October 2011 – “If you are looking for someone who is aiming for zero inflation while unemployment is rising to 13%, then Weber is definitely the right guy,” Krugman said ,according to Real Time Economics{RTE}.

    Krugman continues his disparaging comments – “German politicians, he wrote, “seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead.” “German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover,”. {RTE}

    It is incomprehensible to Krugman that other countries might have a different set of economic values and follow differernt policies than the U.S. -how dare they.

    Chancellor Angela Merkel has previously stated Germany’s position – Consumption “that is financed by debt is not our mentality,” ; “there is no alternative” to cutting the budget deficit;” We have to push through this difficult phase.” “In this process, the weak need to get stronger, not the strong weaker,” Merkel said, according to Bloomberg

    Krugman continues with “cold war trade rhetoric” saying he wouldn’t rule out sanctions against Germany if it continued to rely on its export-driven model. “If the euro falls to parity with the dollar, the Europeans are going to be surprised by the demands that will come out of the U.S. Congress, and I would support that,” (RTE)

    If the U.S. is in a financial bind, it got there with reckless economic policiies, and an unwavering belief that high debt levels don’t matter, and that when push comes to shove – the U.S. can always lay off the burden of worthless dollars on others.

    Krugman will not be appointed. Obama does not need a “loose cannon” or a “runaway General of Economics” in the White House.

    Investors have seen that pump and dump scheme before. My guess is that that trick will be harder to pull off a second time around.



  82. Saucy,

    Couldn’t post this reply to your comments a bit above. Thought I’d try here to see if it’ll take. There would seem to be a limit of replies that this blog will accept. Anyway, here it is. Hope you see it:

    Recall, now, that what is being suggested here would be a follow-on to political changes worked by the people through spontaneous demonstrations and strikes. The entire atmosphere would be wholly different at such a time. Any attempts by reactionary elements to deride the peoples’ achievements – where they were risked – likely would be regarded with suspicion. I’ll stick with “workers’ councils”. That’s what they’d be, of course.

  83. To whom are you replying?

    If me, I would simply state a “liberal” (whatever incarnation that is called at this time…”progressive” one supposes) will NEVER say it’s a good time to cut government spending.

    I would say Libertarian’s are more liberal than what is termed “liberal” these days.

    You should note, Keynesian “theory” fits quite well into a totalitarian paradigm where the STATE and NOT the people is the preeminent concern. Comforting no?

    You write…”Flat taxes have been broadly enacted in more than one eastern European country with spectacular results.”

    Ummm…I suppose you would be including Romania as one of your “eastern European country’s with spectacular results.”…I read the news today “Oh Boy”…LOL.


    Riot police to protect the Romanian Presidential Palace from THE PEOPLE…lovely.

  84. The concentration of wealth is the end game of Monopoly. You can create debt and pretend to continue, but it is essentially game over. Those with wealth wont support taxes and those without can’t. Tha TBTFs are the repositories of the wealth, are going nowhere and the sword over our head.

  85. The open letters you present for the domestic economy are absolutely core neglect in the Obama policy agenda, but your own approach to anti-Chinese capital is most interesting in that they are doing for themselves precisely what you advocate for the U.S.. Given the dilemma of being mutual exclusive for both to pursuit the same strategy, it is perhaps a relativistic posture based partly upon the Global imbalances and the Triffin dilemma | Analysis & Opinion |
    Jan 13, 2009 … The whole concept of a single reserve currency (the dollar) and a principal reserve asset (US Treasury bonds) is set to undergo a profound …
    blogs.reuters.com/…/global-imbalances-and-the-triffin-dilemma/ – Cached – Similar
    http://blogs.reuters.com/great-debate/2009/01/13/global-imbalances-and-the-triffin-dilemma/ (main article)

    http://www.reuters.com/assets/siteindex#analysisAndOpinion (Total indexed infrastructure & service economy with geopolitical/economic nations/ global local focus)

    The China-bashers here seem to forget that China bases its economy on REAL GOODS rather than commercial paper


    130 Congressman sign letter to Treasury and Commerce Departments asking them to address Chinse currency manipulations
    Howard Richman, 3/16/2010

    Meanwhile, while the rhetoric of “Free Trade” is so ambiguous that it defies definition, the fact that derivatives and financials inhouse and domestic have brought us to our knees is more essential than Krugman’s well documented (if politically nieve) stance on open international markets. Whiel I respect your stance in material terms of what the US must do for our manufacturing, I don’t think the culprit is China per se; and outsourcing from the US is greatly an American Corporate Strategy more than anything else that has been blamed…essentially profit driven to the point of betraying our own people in principle and loyalty. I am no Obama fan at this point, but I must wonder if you are more upset with his choice of Asian support in his enlistments than his lack of concentration upon the real infrastructure of our domestic economy.

    “As a general rule, the US Secretary of Commerce
    is replaced with every new Presidential administration, since most Presidents want to surround themselves with a supportive and productive Cabinet. Presidents usually seek out appointees who share their goals for the American economy, and their philosophy about how these goals can be accomplished http://www.wisegeek.com/what-is-the-us-secretary-of-commerce.htm

    “Locke is the first Chinese American Secretary of Commerce, and the third Asian American in Obama’s cabinet, joining Energy Secretary Steven Chu and Veteran Affairs Secretary Eric Shinseki, the most of any administration in United States history.http://en.wikipedia.org/wiki/United_States_Secretary_of_Commerce

  86. There something even easier than appointing Krugman – fill the two open seats on the FOMC at the Fed, which were left open for over a year before Team Summers decided to even _nominate_ someone.

  87. okay, that got a big giggle…

    I gotta get out of this freekin’ hot desert…too much uranium in the Colorado River and if that is the only water to drink…

    I always believed that people look for stuff (like joints) that gets them to the state I’m in naturally – “high”…

    Look, we went to the moon and back :-), built some crazy super-magnet underground highway for speeding sub-atomic particles and smashing them into each other as a way to leave the planet via a “god particle” or something, spanned oceans with our various traveling contraptions, and then got too “complex” with bad software to maintain ALL of it – and you don’t BELIEVE we are techno enough to figure out how to manage lightning bolts…?

    They’re thinking about it now in the Gulf of Mexico as the energy starts huddling into a whirlwind hurricane…and we got a 200 mile slick…yikes…

  88. You know, as usual, I think you’re quite about Paul Krugman in the role of Budget Director, but as this seems about as likely an appointment as say, Sarah Palin, I just thought I’d make the point that Geithner and Summers are going to struggle with credibility from here on out… politically speaking.

    This is what happens when, as an administration, you sacrifice transparency and real communication with an electorate that supported you in large part because of an assurance that there would be transparency and real communication, if nothing else.

    For me personally, I think I’ve started to miss Dick Cheney’s style of transparency. I always knew he was lying to me and certainly witholding information, but I also had some idea what and why. Maybe he was torturing someone in an Eastern European prison, not listed in my Fodor’s guide in order to unfairly steal oil rights or the like. But Geithner… I still know he’s lying when he answers certain questions or makes most statements, but I have no sense that he’s rock solid sure that what he’s hiding won’t wake
    him up in the middle of the night and bite off his Johnson. One minute he says look over there, then he points his finger towards China and BAM! A pidgeon shoots out of his arse.

    I think it comes down to this:

    When you base bank accounting on something that quickly becomes known as “extend and pretend” you’re asking for trouble in the ongoing credibility department. Unless perhaps you’re eleven, in which case it’s cute.

    How about you, Stiglitz, Krugman, Tavakoli, Liz Warren, Michael Lewis as Press Secretary… Take the Hill and divide up the responsibilities as you see fit. Obama might learn a thing or two and stop being so afraid to talk about the fact that we have problems to solve.

    I never imagined that I’d one day miss Dubya telling the country “it’s hard work”. Ah well, As I once wrote in an article, when economics and politics collide, no good can come.

  89. You have raised the most important point of political organizing. How seldom I see this issue raised. Well done.

    Cutting smaller and finer lines of differences eventually leaves your position out in the cold. It is the nature of reality that many small differences will always exist depending on the position of advancement and understanding of many different people. I have always thought that we should watch out for the major differences, joining with others who are essentially on the correct Path and moving ahead instead of stopping and fighting it out over many small unimportant tiny little issues.

    Again, very well done!

  90. Krugman would be less exposed to ankle biters in an appointed government position than writing for the New York Times.

    Brave of Simon to suggest him actually since I see there are so ankle biters right here.

  91. I only spent one week in Paris, but I did not smell any hygiene-challenged people. I have, however, smelled hundreds of Americans and a few Brits who seem to have never been taught the necessity of brushing one’s teeth.

  92. No, “workers’ councils” is a non-starter. That phrase would trigger tea bagger and Faux News McCarthy-esque screams of communism.

    Your idea would work in Europe and South America, but it would take a very bloody revolution in the USA. I suspect you do not live in the Midwest, because if you did you would realize that tens of millions of people are tea baggers or clones thereof. People in the Northeast are RADICALLY different than people in the rest of the country.

    I honestly believe that our only salvation is corporations based on the Mondragon model (thanks, btraven). Eliminating the latter-day George Pullmans will free-up enough capital to reverse our industrial slide.

  93. I certainly sometimes act like the class clown I once was, but speaking as a former engineer / product manager (before the jobs were outsourced), I will say that BP’s devilwork really depresses me. I cannot fathom how competent management would not plan for a few problems; competent, there’s the rub. This is going to be the world’s largest science project, monitoring massive quantities of oil being shifted by hurricanes.

  94. “balanced trade legislation limiting imports to our prior year’s exports”

    I really like this idea. People trying to counter it by spouting “protectionist” pablum will have to explain why parity is bad.

  95. I wonder about Paul Krugman. Some of his thinking seems not bad. Some seems horrible.

    I don’t know enough to recommend a way out of this economic mess, but, frankly, I think we are all out at the end of the plank and, when we finally jump, no one knows what will happen. (I suspect that what is coming is worse than anything we have seen, to date. Will it be sooner…. or later… on “someone else’s watch…?)

    Not knowing enough to do more than follow a leader myself, I pick through thought and writing shards here and there looking for credibility. Hell, I liked Simon Johnson….but.

    ….even, he did not write about Elizabeth Warren’s report that alternatives were available to the AIG bailout…. Mostly, neither did anyone in MSM. Just spend, spend… fast, fast… never look back and analyze or re-think. Spend some more.

    So, now, we need more stimulus…? Hmmmmm…. Would that ever be a way out of a personal financial crisis, I wonder. Yes, I can envision situations where it might be…. But, if the first demonstration of glitz didn’t work, nor the second, how many more tries are reasonable before one accepts the reality of moving into the Valley Mission house – and starting over, from scratch.

    Mostly, Paul Krugman lost me several years ago with his vapid defense of the Social Security system, that it wasn’t a ponzi scheme, not in need of reform or privatization. That’s a game politicians play – kick the stone down the road to be dealt with later – but not a position I would expect a credible economist to defend.

    If Krugman does that, I consider him suspect. If Simon Johnson likes Paul Krugman, I find myself questioning Johnson. It’s only another point on a curve. I amass simple points.
    …….Lady in Red

  96. As an engineering estimator for several firms, Some managers are risk averse (even aware) most are not.

  97. Is it just me or does a company “formally known as Blackwater” and run by a guy named Prince strike anyone as mildly amusing?

    Next we’ll see Prince change his name to some unpronounceable symbol.

  98. Is (was) Blackwater a publicly traded company or one of Cheney’s side arms? No wonder he’s not feeling so well.

  99. By the time the people will have worked the requisite political changes through demonstrations and strikes, the Tea Party Movement will have been utterly discredited for it’s role in having enabled the ruling class through its reactionary deficit hawkishness and its sociopathic libertarianism. Fox News will have ceased to exist, its owners under arrest and facing public trial. No vestige of the former criminality will have been left in place.

    There is likely to be an order to these things, saucy. First the failed experiment in Tea Party fascism, then an authentic peoples’ moment. At that point things can begin anew with structures built from the ground up. The example of Hungary in 1956 might be instructive here.

  100. Paul Krugman would get lost going to his office in the New OMB Building, much less trying to guide a large essentially accounting bureaucracy through the maize of federal budget prep requirements, political dances, and the rest. This is not a job for an economist, it is job for someone who knows how to create, manage, and review budgets.

    Get a professional to do the job.

  101. In The Long Run, We Are Still All Dead

    June 25, 2010, 5:04 AM – NY Times – Paul Krugman

    “So, reading Mohamed El-Erian, I’m somewhat at a loss about what he’s actually saying; what, exactly, is the policy recommendation? But in any case, here’s what struck me: he writes,

    The world is facing deep structural challenges yet its leaders are stuck in a short-term, cyclical mindset.

    I disagree. If anything, we’re suffering from the opposite problem. Talk to German officials about high unemployment and the looming threat of deflation, and they ramble on about the demographic challenge and the cost of pensions.

    I mean, why shouldn’t we be focused on the business cycle? We’ve suffered the worst cyclical downturn since the Great Depression; in terms of unemployment and output gaps, we have recovered almost none of the lost ground. Millions of willing workers are idle because of lack of demand; let them stay idle, and we can turn this into a long-term structural problem, but right now it is precisely a short-term, cyclical problem.

    So saying that we need to focus on the long term, and not worry our little heads about trivial short-term issues like the highest long-term unemployment rate since the Great Depression, may sound like wisdom — but it’s actually folly.

    Oh, and one more point — not about El-Erian, but about quite a few policymakers and economists: the attempt to shift the discussion away from the short run is not, as often portrayed, an act of vision of courage. On the contrary, it’s an act of cowardice, an attempt to evade responsibility for a disastrous state of affairs that we could fix, but choose not to.

    Keynes had it right:

    But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”


  102. PK, a Nobel-prize winner in economy, and who has no qualms opining in financial matters, and was yet not capable to speak out even once against financial regulations that had to cause this crisis… is now one you suggest we need to get us out of this crisis? You’ve got to be kidding us! Perhaps he should be made to wear a cone of shame instead!

  103. “Human history becomes more and more a race between education and catastrophe.”

    H. G. Wells (1866 – 1946)

  104. Big B: “You don’t understand debt, either. In a debt-based economy you eventually don’t have a choice but to stop spending because you can no longer service the debt.”

    Fortunately, that is not true for gov’ts with their own fiat currencies (like the U. S., the U. K., Japan, etc.). If need be they can create money without debt. (OC, if they are forced to do that, they have other problems.)

  105. Ted Kaminski: “When everyone does [is thrifty] that it is a disaster for the economy as a whole..”

    btraven: “That is a bunch of hooey, except in a debt based economy. Open your mind!!”

    Everybody can save, and the gov’t can run a balanced budget, if the country exports more than it imports (in terms of money). Otherwise, if everybody saves, the gov’t must run a deficit, regardless of the money system. That’s a simple fact.

  106. Timmy is Obama’s man. A guy he has repeatedly congratulated and who Obama trusts without reservation to protect big business interests. The same interests that contributed heavily to Obama’s campaign to win office. Timmy should make these decisions and he would probably prefer another wall street insider. Go Team Obama!

  107. The problem with your Hungary analogy is the next phase. As you know, the Soviets moved in to crush the rebellion. This is what the US Army / National Guard would do in the case of riots. It took another 33 years to eject the Soviets. When I was in Budapest a few years ago, I saw an exhibit of the Soviet troop departure; Hungarians were clearly jubilant over the departure.

    Andropov was in Budapest during that time and that was a major reason he was no friend to perestroika and glasnost. He later commented that seeing Hungarian secret policemen hanging from lamp posts strengthened his belief in violently cracking-down on uprisings. The president in power at the time will crack down hard.

    I also think you overestimate the people’s tendency to rise up. During 1956 people had very little, and had very little to lose. Today most people are satisfied with their large-screen TV, crappy American beer, La-z-boy recliners, and BBQs on the deck.

  108. A couple of thoughts.

    First, my reference to Hungary had in mind the independent workers councils that spontaneously arose as events progressed. I was thinking of Hungary in that respect and that respect alone.

    Second, an important point on the history. The Soviet Union was mostly concerned with the possibility that the Hungarians might take themselves out of the Warsaw Pact and establish a neutral state along the lines of Austria. That is why Andropov was present in Budapest. When that threat was felt acutely enough, the tanks were introduced. From the end of World War II until the collapse of the Soviet Union, Soviet policy in Eastern Europe was aimed primarily at providing a buffer against a nascent Germany. And that was as true of Khrushchev as it was of Stalin. One wonders what might have happened in Hungary had sufficient assurances had been given Moscow as to continued Warsaw Pact participation.

    I have no illusions about how the ruling class might react to a spontaneous demonstrations and strikes by the American people. But I am equally aware of the extent of the rot at the heart of our government. You’ll recall how the Soviet Union fell. To use an expression once employed by Hitler, one might need only “to kick in the door and the whole rotten structure would come tumbling down”. It is not only the American people who have become self-satisfied, my friend. The certainty of foreclosure and perhaps decades of 12-15% unemployment might take the all of the comfort out of those La-z Boy recliners. It already has in many instances.

  109. “If me, I would simply state a “liberal” (whatever incarnation that is called at this time…”progressive” one supposes) will NEVER say it’s a good time to cut government spending. ”

    I would simply state your comment is drivel.

    You are clearly incapable of reading the 8 years of columns in which Krugman repeated warned about Bush’s fiscal irresponsibility during a boom, or his nonstop warnings about the dire threat to the budget posed by health care spending.

  110. “If you read Krugman and Delong’s blogs you find many, many, many posts as to why controlling debt right now is the least of our problems.”

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion.
    The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

    – Ludwig Von Mises

    Orzag knows this is true so he’s been trying to force the administration into choosing sooner, rather than later. I.E.- “voluntary abandonment”, as opposed to “total catastrophe of the currency system”.

    But Orzag lost the battle, so he’s getting the hell out of Dodge.

    Now Obama-Summers-Geithner will find a flunky who does what he’s told. Which is all that Obama really is.

  111. And other countries are not obligated to continue to accept our currency should we choose to so debase it. That line of thought destroys yours (Krugman’s).

  112. Sadly, I must agree with John that Krugman does not have the elbows or the stomach for the DC nonsense. Since the Republicans are only interested in the positional blame game and do not traffic in logic–whether in economics or any other field–sheer determination and sharp elbows matter more than insight or brilliance.

  113. “Krugman looks at a giant A-hole every time he looks into a mirror.”

    Typical Neocon tactic. Can’t find flaws in someone’s arguement, so just attack the person!

  114. Myths of Austerity

    July 1, 2010 – PAUL KRUGMAN – NY Times – excerpt

    “When I was young and naïve, I believed that important people took positions based on careful consideration of the options. Now I know better. Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions…

    Which brings me to the subject of today’s column. For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

    This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.”

  115. Brilliant!

    I vote YES!

    (Sadly, I don’t think it will happen. Krugman is not someone who can toe the party/administration line.)

  116. I see.

    The old “It’s Bush’s Fault” meme. You people are unreal.

    How you can talk about fiscal irresponsibility and what Krugman advocated >>>FOR<<>>and then GOT<<< is beyond my humble abilities to quantify expenditures vs. revenues to you.

    Because you obviously live in a world devoid of any reality it is impossible.

    Well the meme worked for FDR who STILL in 1944 was blubbering about Hoover but we have the internet now.

    At least for awhile, then the other side can say it's was Obama's fault for it's loss…that should even things out wouldn't you say?

  117. “The Hamilton Project, housed at the Brookings Institution, was designed as a government-in-waiting by Robert Rubin.”

    The one bit of information in a wasteland of irrelevancy.

    To change the subject to something more interesting – care to comment on this?

    Baker on IMF vs. Social Security

    The part about the “austerity for the not yet dead” push to cut Social Security payouts that I do not understand is the endgame. You keep (or raise) FICA deducations, but you reduce payouts, so the trust fund continues to grow (or at least does not shrink), no payments have to be made from general revenue to repay the trust fund, so no new taxes/additional deficits/federal budget cuts. Is that it? The eternally growing trust fund, never to be defaulted upon, never to be repaid, one fund to fleece them all, into poverty lead them?

  118. You’re kidding about Krugman (e.g. the tool), right? It’s too subtle for most of us, but … I think I get it.

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