Paul Krugman and David Brooks are worth a read today. Let’s start with Krugman:
The best single encapsulation of the greed narrative is an essay called “The Quiet Coup,” by Simon Johnson in The Atlantic (available online now).
Johnson begins with a trend. Between 1973 and 1985, the U.S. financial sector accounted for about 16 percent of domestic corporate profits. In the 1990s, it ranged from 21 percent to 30 percent. This decade, it soared to 41 percent.
In other words, Wall Street got huge. As it got huge, its prestige grew. Its compensation packages grew. Its political power grew as well. Wall Street and Washington merged as a flow of investment bankers went down to the White House and the Treasury Department.
The result was a string of legislation designed to further enhance the freedom and power of finance. Regulations separating commercial and investment banking were repealed. There were major increases in the amount of leverage allowed to investment banks.
The U.S. economy got finance-heavy and finance-mad, and finally collapsed. When it did, the elites did what all elites do. They took care of their own: “Money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves,” Johnson writes.
In short, he argues, the U.S. financial crisis is a bigger version of the crises that have afflicted emerging-market nations for decades. An oligarchy takes control of the nation. The oligarchs get carried away and build an empire on mountains of debt. The whole thing comes crashing down. Johnson’s remedy is clear. Smash the oligarchy. Nationalize the banks. Sell them off in medium-size pieces. Revise antitrust laws so they can’t get back together. Find ways to limit executive compensation. Permanently reduce the size and power of Wall Street.
Just kidding. That wasn’t Krugman, that was Brooks. I’m not sure what it says when David Brooks is even entertaining these notions of a corrupt oligarchy and not outright dismissing them, although Brooks does insist that the actual cause of this mess was incompetence, but I thought it was stunning to see this option displayed this clearly in a major newspaper. This sort of talk just a couple months ago would get you called a left-wing pinko commie America-hating traitor, and probably still is too blunt for the delicate flowers defending the status quo at Fred Hiatt’s editorial page.
Krugman is also worth a read.
Bachmann and Beck, Krugman is looking directly at you.
To mock Sully, as is my mood today: Sometimes to see what’s in front of one’s nose is unavoidable.
And hey, look at that, Iowa of all places struck down a gay marriage ban.
Don’t buy into what this asshole is selling. He’s just doing this as a setup to be able to call Obama and the Dems corrupt oligarchs a little ways down the road by framing the argument in populist terms; then he’ll oppose bank bailouts or stimulus bills or whatever spending gets proposed as oligarchs taking care of each other. Typical dissembling Brooks bullshit.
About Brooks piece, I don’t know why pundits try to simplify everything as a clear choice between two options. Why do we have to choose between greed and stupidity, when it seems to me this current crisis be caused by both greed and stupidity, namely, being greedy lead to stupid decision making. Proving the old Wall Street adage that says, bears make money and bulls make money but pigs get slaughtered.
Damn you Cole! You got me.
At some point, the "smarter" wingnuts will have to come face to face with reality. The "smart" ones understand this is for real and their past practice of ignoring reality and fooling the public is evaporating.
I have to put a contrarian view out here. Johnson, who used to work for the IMF, has been getting tons of attention and I think people just automatically take his word as the gold standard somehow. Having been at the receiving end of a lot of IMF wisdom and the disasters that this led to in many countries I found it a little odd since the IMF, or IMF experience, is not necessarily what would recommend an economist as a the best person to go to during an economic crisis. Now Dani Rodrik, probably one of the earliest critics of the idiocy of IMF one size fits all policies has come out with a great retort to Johnson. It is very much worth a read (here) for those inclined to think that Johnson’s tenure in the IMF is some seal of good house keeping. (For the record I recognize the importance and good work–at times–of the world bank and the imf but they have been at the front lines of pushing for the policies that got us into this mess)
Which if I cared to look through the archives, was one of my primary reasons for supporting Obama over Clinton. I dare to say that if we had yet another Clinton as president, that all this talk about oligarchies wouldn’t be quite as prominent.
But as others have pointed out, beware of David Brooks bearing gifts. There is only poison inside them, meant to kill the evil liberals.
krugman doesn’t mention an american innovation that china adopted. guess what it is?
The Glass-Steagall Act has had influence on the financial systems of other areas such as China which maintains a separation between commercial banking and the securities industries. In the aftermath of the financial crisis of 2008-9, support for maintaining China’s separation of investment and commercial banking remains strong.
how stupid are we that we couldn’t appreciate the wisdom of our predecessors, but china could?
You guys are really tiresome with all of the "Republicans are out to get us" rhetoric. Wake up, both R’s and D’s are corrupt to the hilt and in the pocket of the economic elite. Oh, they may give some happy talk for the little people once in a while, but watch what they do, not what they say.
Though Brooks begins by acknowledging that the explanations may overlap, he then proceeds to treat them as near exclusive alternatives. Surely a very plausible view is that the overlap is very substantial indeed. The bankers were so receptive to the mathematical flim flam & hocus pocus, so reckless when it came to risking other people’s money, precisely because they were greedy & arrogant and see themselves as a class apart to whom much is owed but who owe nothing in return.
didn’t brooks earlier call republicans who voted against the bailout "nihilists"?
And this is EXACTLY why myself and others here were saying months ago that Geithner and Obama were not going to say "nationalize" until they had the political cover to do so. Everything from then until now has been a practice of stalling a complete collapse. I could be wrong, but I would bet by July we see some if not all of the insolvent banks nationalized in one manner or another.
Unfortunately, he goes on to one of those "Didn’t they know…?" stupidity narratives. This is always mistaken. The criminals who played investors for suckers and their enablers (thank you Moody’s! thank you Standard & Poors!) knew exactly what they were doing: making themselves fabulously, obscenely wealthy off of other people’s money. Their mission wasn’t to NOT fuck up the global economy, it was to pillage it for all they could get.
FWIW, Kevin Phillips basically covers this subject matter in some of his excellent books, that are well worth the read.
the U.S. financial sector accounted for about 16 percent of domestic corporate profits. In the 1990s, it ranged from 21 percent to 30 percent. This decade, it soared to 41 percent.
this brings to mind an answer obama gave at one of the town halls. somebody asked him we could bring back the jobs that previously got outsourced abroad. he replied they’re not coming back and it wouldn’t be worth the pay if they did. really? how strong can a country be without a manufacturing base?
And people like you are getting REALLY tiresome with this false equivalence bullshit.
It’s muddled thinking like this that gave us "Gore is just Bush–no difference" crap in 2000.
Wake up. Do something hard—THINK. Evaluate each situation as unique and on their own merits. Your head may be a bit tender afterwards, but it’s worth it.
I think he meant that those jobs will not come back or many will not, but he did not mean we should not have a manufacturing base simply that we have to create a 21st one, green technology and more innovative. Trying to go back to the 20th century is out but 21st cent manufacturing is what it is about.
The Moar You Know
@Mogden: What, no Nader propaganda for a fine Friday morning?
We have a two-party system, my friend. At the moment, the Dems seem slightly less evil and more amenable to pushing towards reason. The Republicans seem to have decided to double down on stupidity and are asking for more of the same idiocy which got us here in the first place.
I never thought I’d be quoting Donald Rumsfeld, but his statement is apt for our current political problems – you go to war with the army you have, not the army you wish you had.
I don’t usually use "worth reading" and "David Brooks" in the same sentence, and I don’t trust him at all, but that last quoted graf was a really good summation of that very long article.
electronics is 21st century innovation. we used to do that. now all those jobs have gone to taiwan.
This is the straight forward, practical and logical solution…until we consider politics. Too bad this wasn’t written by a duly elected government official. You know, the ones who, in theory, represent us.
It is futile to prop up a failed system.
BTW, nice trick John. I was about to be impressed that Krugman would quote the views of another author. Academicians tend to assert their opinions as though they were self-generated, regardless of who they borrow from.
Ditto that. Wealth and Democracy was written in 2001-2002 and published in what, 2003 or so? And reads today like it was written last year. Either that or Phillips had a crystal ball. He’s basically updated his material to reflect more recent political events and republished what is essentially the same book twice more since then, and all of them are worth the read.
FWIW, Phillips’ Cousin’s War is one of the most helpful books for understanding Anglo-American politics (that I’ve ever encountered) which nobody seems to have read. Maybe because it is a monster tome, but still. If you were able to read Perlstein’s Nixonland, then obviously big books aren’t a problem, and in some sense Cousin’s War is the prequel to Nixonland, as written by a different author. After helping to popularize the term "Southern Strategy" to describe late 20th Cen US political demography, and now being right on the mark about the financialization of the US economy, Phillips has earned some serious cred, as an analyst of where we are and a predictor of where we are going. People should start paying attention to what the guy has to say.
@The Moar You Know:
Sorry Moar, I don’t mean to pile on here, but I’m in 100% agreement with Mogden @10:
"both R’s and D’s are corrupt to the hilt and in the pocket of the economic elite. Oh, they may give some happy talk for the little people once in a while, but watch what they do, not what they say."
The two parties are so polarizing and rigid that it prohibits dialog and debate, and representation for that matter, from others that fall somewhere between the two.
For example, any ‘other’ party candidate for POTUS is excluded from participation in national debates. Silencing those with dissenting opinions or any ideas that interfere with the status quo, can’t be good.
BTW Moar, you said:
"the Dems seem slightly less evil and more amenable to pushing towards reason."
This is a statement I agree with but "seem" is a key word.
The Moar You Know
@passerby: I’m 100% in agreement with both of you. The system is fucked to the point of failure.
But we have what we have – a two-party system.
Nationalization is only the first step.
The next is an investigation into fraud, misfeasance, and malfeasance by the corporate boards, management, and workers of the banks and financial institutions.
Then, after a fair trial, we’ll freeze their bank accounts, repossess their assets, lead them firmly, but kindly, to Ms. Madame Guillotine, display their heads on pikes, and dance around singing the Good-Bye Song or, mayhap, that old family favorite We’ll Piss on Your Grave When You’re Dead.
It may be argued, and I have some sympathy for this line of reasoning, that the deployment and use of the Guillotine is Too French and retribution should be more in keeping with Solid American Values©. In accordance with this objection I humbly submit our old New Mexican tradition of covering a victim with honey and then staking them out an ant hill as a possible alternative.
It is good in cases like this to keep an open mind.
Here is a link to the U.S. Senate roll call vote on the Gramm Leach Bliley Act of 1999. Notable Dems voted to deregulate finance laws and a notable Democratic president signed it into law.
Also, Sen John McCain: "Not Voting" (What a hero.)
I second that.
I stumbled on to him when I bought his book American Theocracy which is a very good book on the American right.
I liked the Brooks piece a lot. I even agree with his conclusions up to a point.
That may be a first for me.
Krugman quotes people all the time – even blogs.
My theory has been, and continues to be, that there is some strange alien life force out there that periodically takes over Brooks’ body and causes him to write like a rational person.
Apparently the ALF is back.
That’s unpossible. Brooks must be right that it was all about the plutocrats’ unawareness of risk. It simply could not be greed and oligarchy.
If you had told these investors and financial institution chiefs that, oh yeah, sure, you can make fantastic, astounding, unprecedented gobs of money right now, and over the next few years, and you face no personal and likely no direct corporate risk whatsoever, gobs, gobs, gobs of money, boatloads of money, but you risk the long-term stability of your company, and the banking system, and the American people in general…
…then of course they all would have said ‘No, thanks, no way I could look straight in David Brooks’ eyes after my lack of appreciation of risk netted me several hundred million dollars personally, no way, no how, no thank you!’
Right? Right? I mean read David Brooks. He knows what’s in these peoples’ hearts, and there’s simply no way that such people would have prioritized gobs of consequence-free money over the long-term good. They just wouldn’t. That’s not the kind of people who work on Wall Street. Harrumph.
This is only partly true, but largely irrelevant. There is this ongoing fantasy that there is some mysterious third party candidate out there with the solution to all our problems who never gets a chance to get his message to the people.
This past presidential season, Ron Paul got a fair amount of traction, raised a considerable amount of money on the Internet and elsewhere, but still drifted into the political oblivion where libertarian candidates inevitably settle.
If there is anyone in America who does not know what Ron Nader believes, he or she has been living in a spiderhole.
This is good stuff. I love how some Democrats claim to be shocked at what happened in the financial markets, and act as though they weren’t around when this crappy bill was passed.
But while there is all this happy talk about nationalization and breaking up banks, there is still little in the way of concrete recommendations about what regulations are needed to correct the problems that almost led the world to a total economic meltdown.
Well, time for Brooks to pack his bags and head off into the sunset. He’s now a RINO, there’s no place for actual intelligent thought in that party right now.
Of course, that does mean there’s a higher chance that a new third party will form to take all the Republicans that failed their purity test.
Times are strange. Christopher Hitchens isn’t David Brooks by any stretch of the imagination, but it’s still odd to see him writing in the Atlantic about the resurgence of Karl Marx. Could anyone imagine in 1991 that within less than 20 years, we’d be talking about whether Marx had some good ideas about economy?
(And yes I know that Marx’s reputation has been unfairly tarnished by the collapse of communism…but still!)
Smash the oligarchy.
Damn f*cking straight.
@guest omen: how strong can a country be without a manufacturing base?
Because a modern manufacturing base does not = jobs. Unless the power grid shuts down for good, it never will. They can move it all back here, it will be only a small blimp on the employment numbers. For once the man was being honest with everyone.
Not that I’m against having more manufacturing here… It astounds me how much of a serious national defense issue it is, but it gets ignored (especially by the supposedly strong on defense party) because they are actually greedy as hell party of Phil "lets make the u.s. a banana republic" Gramm.
And any other company with more than say, 10 employees; exempt small business but nothing else. (I don’t see why medium big is somehow better than really big,unless you can come up with some intelligible standard.
That’s pretty easy – wage controls. Nixon did it, coupled with price controls. It worked despite the fact that Nixon did it. No reason we couldn’t. And since Wall Street is a regulated market, all you need is more regulation and you should be able to destroy Wall Street’s power in whatever way you like. Prohibitive taxes (say 90%+) on profit earned through stock trading, commodities, futures or derivatives would probably do it.
All you need is the votes, or a president willing to step up and make it happen, then pack the Supreme Court when the wingers try to fight back. Again, that’s been done before. I don’t get why this is so hard.
Thanks El Cid for a characteristically funny and penetrating set of observations. My thought is that things were much as you say, except that there probably was a good deal of–highly culpable–self deception going on. Brooks’ column reminds of how during the Bush years (of golden memory) the question somehow became, ‘was GWB sincere in claiming that Saddam Hussein was preparing to launch an invasion by spaceship from Mars or whatever?’, with the implication that if he was–Bush was sincere that is–it was somehow alright. Those who wanted to argue that Bush shouldn’t be trusted, should be regarded with something other than abject adoration were then burdened with the nearly impossible task, not of showing that he was wrong, that he had reached his conclusions recklessly in the teeth of opposing evidence and with disastrous consequences and the like, but of proving that in his heart of hearts he was insincere.
But people in general, and especially people who hold positions of responsibility and public trust, are under an obligation to arrive at conclusions after careful thought and the judicious weighing and balancing of the evidence. They are in breach of this weighty obligation, and prove themselves unfit for offices they hold and the honors and rewards attendant upon them, when they fail to submit ideas and proposals to sceptical consideration, not least, in fact especially, when those ideas are congenial to their prejudices or likely to benefit themselves. Greed and arrogance are not incompatible with self-deception, they are one of its principle causes. Brooks sets things up so as to give the bankers an easy out if they weren’t knowingly guilty of fraud. I wouldn’t be surprised if some of them were, but it’s not good enough for the rest to point to some bit of mathematical gobbledygook and say–sincerely for all I know–‘we deceived ourselves into thinking…’. We already know, just as we already knew about Bush, that they have signally failed to discharge their responsibilities, responsibilities whose importance and their skill at which allegedly justified their grotesquely inflated salaries and perquisites.
@Anoniminous: That’s a waste of good honey. Use HFCS instead!
Another important read on the causes of growth of the financial sector is:
"Infinite debt: How unlimited interest rates destroyed the economy"
By Thomas Geohagen in April’s Harper’s magazine.
Mr. Geohagen’s main theme is that the abolition of usry made lending money so profitable that it distorted the economy and made finance a much more profitable business than manufacturing. Credit cards can now get 35% interest or more, plus unconscienable fees. Pay day loans can earn interest of two to four hundred per cent. Adjustable rate mortgages took rates to higher amounts than homes could support, and in concert with all that, new bankruptcy laws were passed so that every last dollar could be sucked out of borrowers which emboldened lenders even more. Since little of this is the type of borrowing that builds wealth, our economy is now built on debt so we can afford to sell each other goods manufactured in other countries. Not a recipe for long term success.
Half the country voted for Bush and thought he was the better choice. Twice.
A recent London Times article puts this into global perspective (Filthy rich: the 10 highest paid hedge fund managers of 2008).
But we should feel some sympathy for John Paulson (estimated earnings $2 billion), who is having trouble selling his house.
It wasn’t just that Wall Street got huge, but the implemntation of Wall Street trade polcies killed the rest of the corporate sector, including manufacturing. Wall Street will be all that is left.
I didn’t realize that he did that, oops. But…the portion of the Brooks article that John quoted relied heavily on Johnson to anchor his point, so the idea of Krugman would use a chunk like that to make his point struck me as being magnanimous on his part. Him being Mr. Nobel Prize and all that.
Bullshit. First of all academics has a far longer history of citation than whatever field you hail from. Second, Krugman has cited numerous outside sources in his columns including popularizing blogs such as Calculated Risk. Third, it’s blatant ad hominem based on a popular bullshit mythology: the ivory tower academic.
As a former academic, I’d probably tell you off. But since your comment is on the blog of John Cole, who is STILL an academic, I’ll assume that all the readers are shaking their heads in the stupidity of this rhetorical ploy.
Again with the hatred of academics. Your prof fail you in your college Micro course or something?
It seems that every other piece on P.K.’s blog begins with a cite to another source—the last two cover an admission of an error and a critique of him from another blog. Let’s see how Krugman feels about his fellow MIT alum, Simon Johnson (the author of the Atlantic piece that Brook’s quotes and you imply Krugman is to egomaniacal to cite).
Five mentions this year, mostly complimentary, all after he received the Nobel Prize in economics. Here they are
“(Simon Johnson has been very good on that)”
“Sounding a lot like me… * And Simon Johnson, Nouriel Roubini, and many others.”
“But Simon Johnson nails it:”
“Simon Johnson and James Kwak read it the same way I do:”
“And I can’t believe that the discussions would have gone so off the rails if any of the high-visibility outsiders had been in the loop — Joe Stiglitz, Nouriel Roubini, Simon Johnson, etc. (No, I wasn’t in the loop either.)”
I respectfully disagree with the statement that Brooks was worth reading. The only good thing about his piece was that it will perhaps expose a larger audience to the original Simon Johnson essay. Maybe my opinion is colored by the fact that I had already read the Johnson piece before coming across Brooks’s pointless meta-analysis. After reading the article twice, I feel like this piece was just a pragmatic way for Brooks to fill his quota of pontificating for the day. He read the Johnson piece, knocked the first third of the article out in no time flat, by summarizing Johnson. Knocked the second third out by regurgitating his usual free market apologies. Finished with a flair by adding no new insight. I could have saved the Times some ink: "Is this mess because Wall Street is greedy or stupid? Probably both, and so is everybody else. Go read what Simon Johnson has to say over at the Atlantic if you want to fume and fixate on the greed hypothesis."
On an unrelated note: The news each day has me running through the grief cycle so quickly I am torn between going on anti-depressants and withdrawing from society altogether.
Thoughts of the financial crisis out of my mind.
Listen to NPR while making breakfast:
Find out first that accounting rules are made up by a five member accounting board called the FASB with no apparent oversight and second that they have decided to redefine "Mark-to-Market" accounting to no longer really mean what the name says. Anger.
15 Minutes Pass:
Skip bargaining, go right to depression.
Read CNN’s upbeat take on these new accounting rules, back to anger. Return to depression after 30 minutes.
See the market close after work:
Wall Street loves to see handouts to the Oligarchy. Back to anger, etc.
Anybody else feel this way?
A better analogy might be post-Soviet Russia. Kleptocracy seems to be a good model for an ex-superpower.
The past 8 years shows that old adage needs some updating:
"You can fool some of the people all of the time and you can fool all of the people some of the time, but you can’t fool all of the people all of the time unless you can fool enough of the people enough of the time. Then it’s just as if you fucking did."
Nice try John; I had previously read both of the Op-Eds and for a moment I thought you had your head screwed on backwards! In a rare event, Brooks was better than Krugman today, at least for the first half of his article. In the second half, he just couldn’t bring himself to state that thievery was the major cause of this crisis. Rather he blames Wall Street "not understanding" what they were getting into. Will he ever totally come around, do you think?
BTW, the three largest banks in the world, by market capitalization, are the Industrial and Commercial Bank of China, China Construction Bank, and the Bank of China. I’m not so sure they’ve learned the lesson.
We have a two-party system, my friend. At the moment, the Dems seem slightly less evil and more amenable to pushing towards reason.
There’s two cops in this room pal. One of ’em is offering you a cigarette and the other wants to shoot you. Now just sign that confession and go along like a good boy.
The good cop and the bad cop want the same thing. Why is that so hard to accept?