Fighting our way through the bullshit

This post is an illustration of why I find Krugman just soooo good.  He will probably get the Nobel Prize at some stage, but he’ll get it for a bunch of silly stuff he did which was called, at the time ‘Strategic Trade Theory’ and which he has since conceded wasn’t worth much more than a hill of beans. Meanwhile I’ll be thinking that, he should still have the Nobel – for economic journalism. I wonder if even Keynes was as good.  Keynes was more high blown and high minded – much more the full-on intellectual in every way – but still able to make his ideas clear in pamphlets and articles for the press, but in terms of getting it across with maximum clarity and directness, does this guy have a peer?

And he’s aware of what he’s doing in the wider world – of the political and cultural context of the economics he’s writing about. Here he is subjecting the Paulson/Bernanke Plan not just to an appraisal on the merits – I would presume Bernanke is a friend of his, the former head of his Economics Department at Princeton. But Krugman was without fear or favour in how he called this plan. 

And now he is providing as context evidence of the way in which the plan is simply improvised – no real problem there I guess, like he said, we’re all making it up as we go along.  But drawn into the official process, P and B put out the plan and are now improvising as to how they justify the plan.

So now the whole rationale for the plan is price discovery: were going to throw lots of taxpayer funds into the pot because that will let us find the true values of troubled assets, which are higher than the fire sale prices out there, and so balance sheet will improve, confidence will return, etc, etc..

So I just did a Nexis search trying to find out when Paulson and Bernanke started talking about price discovery, which were now told are at the core of the plans logic. And the answer is


I cant find any use of the term, or even a hint of the argument, until yesterdays Senate hearings.

One possible explanation. It wasnt until yesterday that they realized that it would actually be necessary to explain themselves.

But theres another possible explanation, which I find terrifyingly plausible: the plan came first, and all this stuff about price discovery is an after-the-fact rationalization, invented when people started asking questions.

It has seemed very strange to me that such a supposedly crucial economic program would be based on such an exotic argument.  

I wrote this before I saw this post from Krugman taking umbrage at some routine lies by Hank Paulson. And he can be hilarious too – (Letat, cest Hank?) (pdf) on Hank Paulson’s request for $700 bil to be spent not according to law, but any old way he wants.

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15 years ago

Krugman is in substantial agreement with Meltzer;

I don’t want to join a debate about different ways of picking the public’s pocket. I think, if they’re going to do something — and I don’t think that we really need to do anything. I’ve heard these stories over and over for 40 years. You know, maybe there will be a crisis.

But despite all the talk, Main Street is not doing so badly. And the fact is that they’ve been predicting disaster since January. It hasn’t happened.

And if they’re going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think — that’s an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.

People paid back the loans. They weren’t allowed to pay dividends until they repaid the loans. They weren’t allowed to take bonuses until they repaid the loans. I think that’s the way — if we’re going to do this, then that’s the way we should do it.

Pappinbarra Fox
Pappinbarra Fox
15 years ago

Just testing to see if this goes after a very very arduous process of trying to register under the new regime

15 years ago

At the moment all this is hypothetical as McCain and a bunch of conservative Republicans have just gone off on a completely different proposal:

The conservative group’s plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.

The Treasury Department, they said, should charge premiums to holders of those securities to finance the insurance.

They also called for temporary tax cuts and regulatory relief for businesses. In addition, they said, financial institutions participating in their proposed program would have to disclose more about their mortgage asset holdings.


[…] was reading Club Troppo today, and was struck by a simple line that Nicholas Gruen found in the New York Times blog of Paul […]


[…] by joni on September 30, 2008 I was reading Club Troppo today, and was struck by a simple line that Nicholas Gruen found in the New York Times blog of Paul […]