Liberal economist Paul Krugman worries that Japan's "Abenomics" may fail

Paul Krugman, the liberal economist and Nobel Prize winner, said that there was a growing risk of failure of "Abenomics" the policies of Japanese Prime Minister Shinzo Abe designed to boost the Japanese economy out of a two-decade slump.

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Krugman has been a supporter of many aspects of Abenomics. However, he convinced Abe to delay another planned sales tax hike. An increase in the tax last April probably reduced consumer spending and contributed to the resulting depression. Japan has been unable to come near its target of 2 percent inflation. Quite the opposite, for the third time this year in July, the central bank's measure of inflation fell to zero. Kozo Yamamoto of the ruling Liberal Democratic Party said that the Bank of Japan should expand its monetary easing program even more by $83 billion.

Abenomics is a response to the failure of the Japanese economy to grow. In 2010 China already passed Japan as the world's second largest economy. Abe insists that his economic strong medicine is necessary for national security and to retain Japan's position as a prime world economic power.

Abe won a mandate last December to forge ahead with plans that includes an unprecedented amount of quantitative easing, government spending and at the same time considerable deregulation of business. He calls these measures a "three arrow" strategy, borrowing an image from a Japanese folk tale that three sticks together are harder to break than one. At first, the measures appeared to be working. Certainly they sent Japanese stocks soaring and the situation was aided by a weaker Japanese currency that increased exports. However, a sales tax imposed in April to increase revenue and help reduce the world's largest debt burden only helped return Japan to recession. As mentioned, Krugman convinced Abe that he should not increase the rate further as planned. However, he has cut the corporate tax rate further reducing his revenue. He hopes this will encourage business investment.

Abe is also contemplating other measures to make the private sector more competitive and profitable. He wants to change labor regulations that offered lifetime employment at some large companies. He is contemplating other legislative changes that will bring him into conflict with farmers, drugmakers and utility companies. Ever since the Japanese stock market and real estate bubble burst in the early part of the 1990's, Japanese companies have concentrated on cutting their debt and shifting their manufacturing base overseas where they make more profit. Wages did not grow and Japanese consumers failed to increase spending leading to a no growth economy.

The earthquake disaster and problems with nuclear power have not helped the struggling Japanese economy. Japanese demographics are unfavorable as well with an aging and shrinking population. While many economists support the idea of the purchase of government debt as a way to stimulate the economy and fight inflation, the IMF and others claim that Abenomics could cause a spike in bond yields and make the government's already huge debt load unsustainable.

Japan is facing an ageing population with the labor pool shrinking and the number of retired people increasing. As a result the government faces increases in spending on pensions, medical expenses and social security that increases debt. Japan already faces the world's largest debt to GDP ratio at 240 percent. Thomas Piketty the French economist has suggested that Japan should change its tax structure to help a younger generation be able to afford the cost of supporting seniors. Piketty suggests that taxes should be doubled on the wealthy and large firms from 10 percent to 20 percent. Redistribution of wealth could constitute a fourth arrow in Abenomics, Piketty argues.

Economist Paul Krugman applauds decision to hold referendum on bailout deal

Athens - Paul Krugman, the American liberal economist, has been consistently critical of the austerity program demanded by the Troika as a condition of releasing the final funds of the Greek bailout that expires on June 30.

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Krugman in his New York Times blog notes that until now every Greek government has given in to the demands of the Troika no matter what they had said during the election. Krugman refuses to use the term "institutions" to refer to the European Commission, European Central Bank(ECB) and the International Monetary Fund(IMF) or Troika. After the Greek government refused to meet with the Troika after being elected, they were rebranded as "institutions" presenting the radical Syriza government with at least a linguistic victory. Krugman's refusal to go along with this game is refreshing.

The continuous caving in to Troika demands has damaged the credibility of centre-left parties and no doubt is a factor in the success of Syriza, a more radical leftist umbrella group. Krugman suggests the Troika thought that the Syriza government would abandon most of its anti-austerity program or the government might fall. The Greek government did abandon most of its austerity program and almost all of its red lines. They have followed the usual pattern. However, the Troika has pressed for more and abandonment of any red lines. It is as if they needed to humiliate the party to show that a radical leftist party is helpless. They must be taught to respect their superiors.

The call for the referendum should have been a wakeup call for the Troika. It was not but an occasion for the usual moralistic blather about Tsipras being irresponsible. Krugman thinks that Tsipras did the right thing. Krugman has been arguing that the Troika has been doing the wrong things all along. In fact, he claimsthat if Grexit happens, it will be because the creditors, especially the IMF wanted it to happen. This may be correct but there are certainly risks for the eurozone and Troika if there is a Greek exit (Grexit) from the zone. If Greece defaults on debt payment the ECB and IMF will suffer huge loan losses. There is also the possibility of contagion. If over the longer term Greece recovers and grows, this would encourage resistance to austerity and the rule of the Troika in other countries. The Troika must hope that somehow they will persevere without yielding much if anything even at this late stage.

Krugman approves the referendum for two main reasons. First, a referendum will give the Greek government democratic legitimacy in any future negotiations. Most Greeks are still very much for staying in the zone it seems even if their anti-austerity demands are not meant. However, given the recent increased demands and the fact that Syriza, and no doubt other parties such as the Communists, will campaign for a rejection of the Troika proposals there is no guarantee it will pass. Even if it does pass and a deal is then negotiated it would not be a long term solution to the Greek problem but kicking the can down the road again until another bailout is needed. Meanwhile social discontent might rise to the boiling point. Krugman claims that democracy still matters in Europe. Of course it does not when it comes to the power of the Troika over individual countries. The referendum is the exception not the rule. Krugman's second reason for approving the referendum is that it will solve the dilemma that the governing party Syriza faces. Syriza faces citizens who voted for anti-austerity measures but are not willing to leave the euro zone. Syriza has achieved very little if anything in the way of relief from austerity policies and so it is now quite fitting that they should ask Greeks whether they want to bow to the Troika demands and accept their offer or to turn it down. This will provide Tsipras a mandate to cave as others have done or to develop a plan B for default and possible exit from the euro zone.

Many critics have argued that a plan B should have been planned long ago when it became obvious the Troika was giving little or nothing to satisfy demands for relief from austerity. The negotiations were filled with bluster, useless rhetoric, and false optimism that a deal was close. Having the referendum at this late date creates huge problems for Greeks that would not have been as severe were it held much earlier, say on the earlier proposals of the Troika. If held then there would not have been a huge payment coming due as that to the IMF the end of June, days before the referendum. The move to hold a referendum and the lack of a plan B show that Syriza is guilty of poor planning or perhaps no planning at all. Now Greeks face a bank holiday on Monday and capital controls. In the appended video from January of this year, Krugman was even then predicting a Greek default on its debt well before the election of Syriza.

Paul Krugman condemns austerity policies

Krugman uses the title "Death of a Fairy Tale" in his NY Times blog article. Krugman calls the austerity policy employed in many European countries a destructive economic doctrine.

Krugman claims that economic textbooks suggest that in severely depressed economies governments should spend more to take the place of falling demand rather than cutting spending to try and balance budgets. No doubt Keynesian liberal oriented textbooks suggest this but not all economists would go along.

The "austerians" as Krugman calls them argue that austerity measures restore confidence to investors and hence the economy will grow rather than continue in recession. As Krugman puts it the confidence fairy will come and reward policy makers for their virtue.

The results of austerity policies throughout the European countries where it has been employed are evident. Even more contraction of GDP, increasing unemployment, social unrest, and little or no sign of recovery. Krugman seems genuinely puzzled by the continuation of austerity policies in the face of empirical evidence that they do not work. Krugman suggests that perhaps the cause is an irrational fear of increased debt levels. But there are good reasons for austerity policies from a capitalist viewpoint that Krugman's analysis ignores.

Austerity policies have the effect of lowering wage demands and weakening unions. This means that labor costs will go down and this is a positive for capital and investors in the longer run. Austerity policies shrink the social safety net and pension payments and this can lead to lower taxation rates since the government requires less revenue. Finally as part of austerity measures state assets and services are sold off providing investment opportunities as the assets often are sold at fire sale prices. The money is used to pay off debt.

While in the short run the austerity policies may reduce growth, policy makers are beginning to recognize this as a problem. The response will no doubt be to provide even more incentives for business to begin investing in countries where austerity policies reign but to keep most of the austerity policies in place. In the long run they are good for investor confidence since they lead to lower labor costs, provide investment opportunities, and reduce government services that do not directly help business. A temporary decrease in GDP may be a small price to pay for policies that do help capital in the longer term. For more see this article.

Paul Krugman on what ails Europe

An op-ed in the New York Times by the well-known liberal U.S. economist Paul Krugman is titled "What Ails Europe?" Krugman writes from Lisbon in Portugal.

In Portugal Krugman notes that unemployment stands at 13 per cent. While this is bad enough the situation is worse in Greece, Ireland and perhaps in Spain as well. Even the whole of Europe may be sliding back into a recession.

Krugman maintains that several of the stories explaining Europe's situation are simply not true. Both what he calls the Republican narrative and the German narrative are false.

According to the Republican narrative pushed by the likes of Mitt Romney Europe has spent too much on the poor and that too much welfare state spending has ruined the economy and plunged states into debt.

Krugman mentions that Sweden which still has an extensive welfare state is nevertheless doing well economically. NOTE; The welfare state in Sweden has been cut back however. Those countries in the most trouble Greece Ireland Portugal Spain are not in the top five of 15 European euro zone nations. Only Italy is in the top five and still has less of a welfare state than Germany which is one of the strongest economies. These facts surely show that the welfare state spending per se was not the trouble.

The German story is all about the fiscal irresponsibility of nations having debt problems. The story fits Greece to an extent but not the other countries having problems. Italy's deficits happened long ago and Spain and Ireland actually had surpluses. Countries such as the U.S. and Japan can run huge deficits without apparently facing any huge crisis. NOTE: Some analysts might claim that those countries just have not faced up to their crisis as yet!

In spite of their debts the U.S. and Japan as well are able to borrow at very low-interest rates. Krugman sees Europe's main problem as having a common currency without the institutions that are required for the common currency to work properly.

The common Euro led investors to invest huge amounts of capital into countries around the edges of Europe a flow that was unsustainable. These large flows caused both costs and prices to rise making some countries uncompetitive. This in turned resulted in large trade deficits.

The countries involved cannot devalue their currencies and restore competitiveness because they are tied to the Euro. The nations only have painful choices whether they stay with the Euro or leave the zone.

Krugman thinks that Germany could help by reversing its imposition of austerity policies but will not do so. Probably it is not politically doable in any event. What is important for Krugman is that people should realise that the conventional wisdom about the too expensive welfare state and fiscal irresponsibility lead to failed policies that often make the situation worse. For more see the article. Even though these policies make the situation worse over the short term they do weaken labor and do cut spending on social programs. This leaves more of the economic pie for the one per cent. The theory is that once labor costs are low enough and the countries implement more policies favorable to financial capital that investment will flow back into those countries

Krugman: Obama Liquidates Himself

Obama has to throw a bone at those who are dogging him because he is spending too much and that is what this is. That it makes no economic sense is of no significance. It may make voter approval sense. However Obama has constantly irritated his supporters on the left. Soon only the most diehard left Democrats will be left. I have noticed on a list I subscribe to that almost all those who originally supported Obama and were thrilled when he was elected have now abandoned the Democratic cause altogether. Earlier this was because of his foreign policy moves but now after the health care compromises and disaster and this move it is domestic policy that is fueling the flight from Obama.


Obama Liquidates Himself
A spending freeze? That’s the brilliant response of the Obama team to their first serious political setback?

It’s appalling on every level.

It’s bad economics, depressing demand when the economy is still suffering from mass unemployment. Jonathan Zasloff writes that Obama seems to have decided to fire Tim Geithner and replace him with “the rotting corpse of Andrew Mellon” (Mellon was Herbert Hoover’s Treasury Secretary, who according to Hoover told him to “liquidate the workers, liquidate the farmers, purge the rottenness”.)

It’s bad long-run fiscal policy, shifting attention away from the essential need to reform health care and focusing on small change instead.

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

Now, I still cling to a fantasy: maybe, just possibly, Obama is going to tie his spending freeze to something that would actually help the economy, like an employment tax credit. (No, trivial tax breaks don’t count). There has, however, been no hint of anything like that in the reports so far. Right now, this looks like pure disaster.

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Krugman: Wall Street Voodoo

No one seems to advocate the permanent nationalisation of banks. Even Krugman is recommending a form of hospitalisation. After the government invests enough money to cure or carry the banks through the crisis while nationalised the bank is then sold back to the private sector. If the government is lucky it gets its money back but more likely a private investor gets a deal and the taxpayer loses some money. What the ruling class fears is that with nationalisation people might get the idea that the financial system can operate without having to provide profit for private owners of those institutions. The private sector certainly does not want people to get the idea that anything can be run efficiently by government and return savings to the people directly. This is why the standard ideological chant is that the government is inefficient. However, if this is so it is strange that government has to come to the rescue of these efficient private financial institutions operating in a free market. As the true believers would say this makes little logical sense and the government should stand aside and let the free market destruction of these losers take its wonderful course!

http://www.nytimes.com/2009/01/19/opinion/19krugman.html The New York Times January 19, 2009 Op-Ed Columnist Wall Street Voodoo
By PAUL KRUGMAN Old-fashioned voodoo economics -- the belief in tax-cut magic -- has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans. But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking. To explain the issue, let me describe the position of a hypothetical bank that I'll call Gothamgroup, or Gotham for short. On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets -- say, $400 billion worth -- are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion. So Gotham is a zombie bank: it's still operating, but the reality is that it has already gone bust. Its stock isn't totally worthless -- it still has a market capitalization of $20 billion -- but that value is entirely based on the hope that shareholders will be rescued by a government bailout. Why would the government bail Gotham out? Because it plays a central role in the financial system. When Lehman was allowed to fail, financial markets froze, and for a few weeks the world economy teetered on the edge of collapse. Since we don't want a repeat performance, Gotham has to be kept functioning. But how can that be done? Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham's current shareholders -- and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what's now supporting Gotham's stock price. A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks' debts to make them solvent; and sold the fixed-up banks to new owners. The current buzz suggests, however, that policy makers aren't willing to take either of these approaches. Instead, they're reportedly gravitating toward a compromise approach: moving toxic waste from private banks' balance sheets to a publicly owned "bad bank" or "aggregator bank" that would resemble the Resolution Trust Corporation, but without seizing the banks first. Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, recently tried to describe how this would work: "The aggregator bank would buy the assets at fair value." But what does "fair value" mean? In my example, Gothamgroup is insolvent because the alleged $400 billion of toxic waste on its books is actually worth only $200 billion. The only way a government purchase of that toxic waste can make Gotham solvent again is if the government pays much more than private buyers are willing to offer. Now, maybe private buyers aren't willing to pay what toxic waste is really worth: "We don't have really any rational pricing right now for some of these asset categories," Ms. Bair says. But should the government be in the business of declaring that it knows better than the market what assets are worth? And is it really likely that paying "fair value," whatever that means, would be enough to make Gotham solvent again? What I suspect is that policy makers -- possibly without realizing it -- are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as "fair value" purchases of toxic assets. Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word -- nationalization. The truth is that Gothamgroup and its sister institutions are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks. Unfortunately, the price of this retreat into superstition may be high. I hope I'm wrong, but I suspect that taxpayers are about to get another raw deal -- and that we're about to get another financial rescue plan that fails to do the job.

Depression Economics Returns: Paul Krugman

Of course the old capitalistic virtues of savage cuts in social programs can still be followed as much as possible but some crumbs must be allowed to trickle down so that demand will increase. However as is happening now in some areas such as oil, production is being curtailed to be more in line with demand. But often curtailment of production means job loss, loss of income and then also even less demand creating a downward spiral. No doubt Obama will come out with a large stimulus package as well as more rescue packages but hopefully some of that will be rescuing people from losing their homes.


http://www.nytimes.com/2008/11/14/opinion/14krugman.html The New York Times November 14, 2008 Op-Ed Columnist Depression Economics Returns
By PAUL KRUGMAN The economic news, in case you haven't noticed, keeps getting worse. Bad as it is, however, I don't expect another Great Depression. In fact, we probably won't see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that). We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy -- above all, the Federal Reserve's ability to pump up the economy by cutting interest rates -- have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly. To see what I'm talking about, consider the implications of the latest piece of terrible economic news: Thursday's report on new claims for unemployment insurance, which have now passed the half-million mark. Bad as this report was, viewed in isolation it might not seem catastrophic. After all, it was in the same ballpark as numbers reached during the 2001 recession and the 1990-1991 recession, both of which ended up being relatively mild by historical standards (although in each case it took a long time before the job market recovered). But on both of these earlier occasions the standard policy response to a weak economy -- a cut in the federal funds rate, the interest rate most directly affected by Fed policy -- was still available. Today, it isn't: the effective federal funds rate (as opposed to the official target, which for technical reasons has become meaningless) has averaged less than 0.3 percent in recent days. Basically, there's nothing left to cut. And with no possibility of further interest rate cuts, there's nothing to stop the economy's downward momentum. Rising unemployment will lead to further cuts in consumer spending, which Best Buy warned this week has already suffered a "seismic" decline. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction. To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress -- and the stimulus plan won't come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices. One of these prejudices is the fear of red ink. In normal times, it's good to worry about the budget deficit -- and fiscal responsibility is a virtue we'll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. F.D.R.'s premature attempt to balance the budget in 1937 almost destroyed the New Deal. Another prejudice is the belief that policy should move cautiously. In normal times, this makes sense: you shouldn't make big changes in policy until it's clear they're needed. Under current conditions, however, caution is risky, because big changes for the worse are already happening, and any delay in acting raises the chance of a deeper economic disaster. The policy response should be as well-crafted as possible, but time is of the essence. Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it's much better to err on the side of doing too much than on the side of doing too little. The risk, if the stimulus plan turns out to be more than needed, is that the economy might overheat, leading to inflation -- but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there's nothing the Fed can do to make up for the shortfall. So when depression economics prevails, prudence is folly. What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year. All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion. So the question becomes, will the Obama people dare to propose something on that scale? Let's hope that the answer to that question is yes, that the new administration will indeed be that daring. For we're now in a situation where it would be very dangerous to give in to conventional notions of prudence.

Running out of planet to exploit

For the world's poor there never have been good times. The quality of life in advanced capitalist countries that depends upon unsustainable resource use is bound to change. It is not clear that the change will be a challenge to capitalism. Green capitalism is a nascent reality. In fact the growth in industries specialising in solar energy, windpower, organic agricultural production, recycling, etc. is likely to be quite high. Most environmentalists fail to address class issues or ownership of the means of production except to badmouth big agriculture and giant corporations.

NY Times, April 21, 2008
Op-Ed Columnist
Running Out of Planet to Exploit
By PAUL KRUGMAN

Nine years ago The Economist ran a big story on oil, which was then
selling for $10 a barrel. The magazine warned that this might not last.

Instead, it suggested, oil might well fall to $5 a barrel.

In any case, The Economist asserted, the world faced “the prospect of

cheap, plentiful oil for the foreseeable future.”

Last week, oil hit $117.

It’s not just oil that has defied the complacency of a few years
back.
Food prices have also soared, as have the prices of basic metals. And
the global surge in commodity prices is reviving a question we
haven’t
heard much since the 1970s: Will limited supplies of natural resources
pose an obstacle to future world economic growth?

How you answer this question depends largely on what you believe is
driving the rise in resource prices. Broadly speaking, there are three
competing views.

The first is that it’s mainly speculation — that investors, looking
for
high returns at a time of low interest rates, have piled into commodity

futures, driving up prices. On this view, someday soon the bubble will
burst and high resource prices will go the way of Pets.com.

The second view is that soaring resource prices do, in fact, have a
basis in fundamentals — especially rapidly growing demand from newly
meat-eating, car-driving Chinese — but that given time we’ll drill
more
wells, plant more acres, and increased supply will push prices right
back down again.

The third view is that the era of cheap resources is over for good —
that we’re running out of oil, running out of land to expand food
production and generally running out of planet to exploit.

I find myself somewhere between the second and third views.

There are some very smart people — not least, George Soros — who
believe
that we’re in a commodities bubble (although Mr. Soros says that the
bubble is still in its “growth phase”). My problem with this view,
however, is this: Where are the inventories?

Normally, speculation drives up commodity prices by promoting hoarding.

Yet there’s no sign of resource hoarding in the data: inventories of
food and metals are at or near historic lows, while oil inventories are

only normal.

The best argument for the second view, that the resource crunch is real

but temporary, is the strong resemblance between what we’re seeing
now
and the resource crisis of the 1970s.

What Americans mostly remember about the 1970s are soaring oil prices
and lines at gas stations. But there was also a severe global food
crisis, which caused a lot of pain at the supermarket checkout line —
I
remember 1974 as the year of Hamburger Helper — and, much more
important, helped cause devastating famines in poorer countries.

In retrospect, the commodity boom of 1972-75 was probably the result of

rapid world economic growth that outpaced supplies, combined with the
effects of bad weather and Middle Eastern conflict. Eventually, the bad

luck came to an end, new land was placed under cultivation, new sources

of oil were found in the Gulf of Mexico and the North Sea, and
resources
got cheap again.

But this time may be different: concerns about what happens when an
ever-growing world economy pushes up against the limits of a finite
planet ring truer now than they did in the 1970s.

For one thing, I don’t expect growth in China to slow sharply anytime

soon. That’s a big contrast with what happened in the 1970s, when
growth
in Japan and Europe, the emerging economies of the time, downshifted
—
and thereby took a lot of pressure off the world’s resources.

Meanwhile, resources are getting harder to find. Big oil discoveries,
in
particular, have become few and far between, and in the last few years
oil production from new sources has been barely enough to offset
declining production from established sources.

And the bad weather hitting agricultural production this time is
starting to look more fundamental and permanent than El Niño and La
Niña, which disrupted crops 35 years ago. Australia, in particular, is

now in the 10th year of a drought that looks more and more like a
long-term manifestation of climate change.

Suppose that we really are running up against global limits. What does
it mean?

Even if it turns out that we’re really at or near peak world oil
production, that doesn’t mean that one day we’ll say, “Oh my God!
We
just ran out of oil!” and watch civilization collapse into “Mad
Max”
anarchy.

But rich countries will face steady pressure on their economies from
rising resource prices, making it harder to raise their standard of
living. And some poor countries will find themselves living dangerously

close to the edge — or over it.

Don’t look now, but the good times may have just stopped rolling.
_______________________________________________

Krugman: The Dilbert Strategy

These are a couple of excerpt from a New York Times article by Krugman. It shows that the Bush administration has not fixed what caused the sub-prime crisis in the first place but simply adjusted the existing regulatory system.s

New York Times
March 31, 2008

The Dilbert Strategy
By PAUL KRUGMAN

Anyone who has worked in a large organization — or,
for that matter, reads the comic strip “Dilbert” — is
familiar with the “org chart” strategy. To hide their
lack of any actual ideas about what to do, managers
sometimes make a big show of rearranging the boxes and
lines that say who reports to whom.

[....]

Thus, in a draft of a speech to be delivered on
Monday, Henry Paulson, the Treasury secretary,
declares, “I do not believe it is fair or accurate to
blame our regulatory structure for the current
turmoil.”

And sure enough, according to the executive summary of
the new administration plan, regulation will be
limited to institutions that receive explicit federal
guarantees — that is, institutions that are already
regulated, and have not been the source of today’s
problems. As for the rest, it blithely declares that
“market discipline is the most effective tool to limit
systemic risk.”

The administration, then, has learned nothing from the
current crisis. Yet it needs, as a political matter,
to pretend to be doing something.

So the Treasury has, with great fanfare, announced —
you know what’s coming — its support for a
rearrangement of the boxes on the org chart. OCC, OTS,
and CFTC are out; PFRA and CBRA are in. Whatever.

Will rearranging these boxes make any difference? I’ve
been disappointed to see some news outlets report as
fact the administration’s cover story — the claim that
lack of coordination among regulatory agencies was an
important factor in our current problems.

The truth is that that’s not at all what happened. The
various regulators actually did quite well at acting
in a coordinated fashion. Unfortunately, they
coordinated in the wrong direction.

For example, there was a 2003 photo-op in which
officials from multiple agencies used pruning shears
and chainsaws to chop up stacks of banking
regulations. The occasion symbolized the shared
determination of Bush appointees to suspend adult
supervision just as the financial industry was
starting to run wild.

Oh, and the Bush administration actively blocked state
governments when they tried to protect families
against predatory lending.

So, will the administration’s plan succeed? I’m not
asking whether it will succeed in preventing future
financial crises — that’s not its purpose. The
question, instead, is whether it will succeed in
confusing the issue sufficiently to stand in the way
of real reform.

[....]

http://www.nytimes.com/2008/03/31/opinion/31krugman.html

Krugman: War hits US economy, stalls recovery

This is from wiredispatch. What Krugman says may be true but if the war were to wind down quickly this would mean a downturn in spending in the military-industrial complex which could itself contribute to a slowdown. However, perhaps military spending would be kept up anyway. Obama promises a large military for example. Some economists think that war spending is a type of military Keynesianism that actually is intended to stimulate the economy. Perhaps that is correct but it also has the effects that Krugman notes.

War hits US economy, stalls recovery -Nobel winner


Daniel Trotta
Reuters North American News Service

Mar 02, 2008 09:14 EST

NEW YORK (Reuters) - The Iraq war has contributed to the U.S. economic slowdown and is impeding an economic recovery, Nobel-winning economist Joseph Stiglitz says.



Meanwhile, the U.S. government is severely underestimating the cost of the war, Stiglitz and co-author Linda Bilmes write in their book, "The Three Trillion Dollar War" (W.W. Norton), due to be published Monday.

The nearly 5-year-old war, once billed as virtually paying for itself through increased Iraqi oil exports, has cost the U.S. Treasury $845 billion directly.

"It used to be thought that wars are good for the economy. No economist really believes that anymore," Stiglitz said in an interview.

Stiglitz and Bilmes argue the true costs are at least $3 trillion under what they call an ultraconservative estimate, and could surpass the cost of World War Two, which they put at $5 trillion after adjusting for inflation.

The direct costs exclude interest on the debt raised to fund the war, health care costs for veterans coming home, and replacing the destroyed hardware and degraded operational capacity caused by the war.

In addition, there are costs not accounted for in the budget such as rising oil prices and social and macroeconomic costs, which the book details.

To illustrate how the money could be spent elsewhere, Bilmes cited the annual U.S. budget for autism research -- $108 million -- which is spent every four hours in Iraq. A trillion dollars could have hired 15 million additional public school teachers for a year or provided 43 million students with four-year scholarships to public universities, the book says.

Stiglitz and Bilmes say they were excessively conservative in calculating the $3 trillion figure, overcompensating for their bias in having opposed the war.

'FLOODING THE ECONOMY'

Asked if the war has contributed to the U.S. slowdown, Stiglitz said, "Very much so."

"To offset that depressing effect, the Fed has flooded the economy with liquidity and the regulators looked the other way when very imprudent lending was going up," Stiglitz said. "We were living on borrowed money and borrowed time and eventually a day of reckoning had to come, and it has now come."

The war has also altered how the United States has reacted to its current economic troubles, he said.

"When America's financial institutions had a problem, they had to turn to the sovereign wealth funds in the Middle East for recapitalization, for the bailout," he said.

"The reason was obvious. The war had led to high oil prices. The war had meant that America had to borrow more money. There weren't sources of liquid funds in the United States. The sources of the liquid funds were in the Middle East," he said.

Bilmes, a former assistant secretary and chief financial officer of the U.S. Customs Department, said the war also limited options for the $168 billion stimulus package signed into law by President Bush Feb. 13.

"We really had very little wiggle room in order to pass this because of the fact that we're spending $16 billion a month on Iraq and Afghanistan," Bilmes said. "Actually the country could have used a larger fiscal stimulus but there is (no) cash to accommodate it."

The authors said they were surprised by the hidden costs their research found, citing, for example, what they called the underreporting of casualty figures by the Pentagon.

The official Pentagon figure of nearly 30,000 wounded in action fails to account for an addition 40,000 service members who have required medical attention for noncombat injuries or illness, Bilmes said. She based her conclusion on official Defense Department data from a restricted Web site. (Editing by Philip Barbara)

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Krugman: Progressives to Arms

Krugman has an excellent point about bi-partisanship and polarization. Inevitably policies that generate real change as against marginal issues about which most can agree will involve polarisation although with the majority on the side of progressive change. US politics though is stuck in a two party logjam in which each party tries to stick to the middle that in effect means catering to those who have the funds to buy support for their interests and leaving the vast majority to be fed by patriotic rhetoric and only minimal attention to their needs.

SLATE politics

Progressives, To Arms!
Forget about Bush--and the middle ground.

By Paul Krugman

Here's a thought for progressives: Bush isn't the problem. And the
next president should not try to be the anti-Bush.

No, I haven't lost my mind. I'm not saying that we should look kindly
on the Worst President Ever; we'll all breathe a sigh of relief when
he leaves office 405 days, 2 hours, and 46 minutes from now. (Yes, a
friend gave me one of those Bush countdown clocks.) Nor am I
suggesting that we should forgive and forget; I very much hope that
the next president will open the records and let the full story of the
Bush era's outrages be told.

But Bush will soon be gone. What progressives should be focused on now
is taking on the political movement that brought Bush to power. In
short, what we need right now isn't Bush bashing—what we need is
partisanship.

OK, before I get there, a word about terms—specifically, liberal vs.
progressive. Everyone seems to have their own definitions; mine
involves the distinction between values and action. If you think every
American should be guaranteed health insurance, you're a liberal; if
you're trying to make universal health care happen, you're a
progressive.

And here's the thing: Progressives have an opportunity, because
American public opinion has become a lot more liberal.

Not everyone understands that. In fact, the reaction of the news media
to the first clear electoral manifestation of America's new
liberalism—the Democratic sweep in last year's congressional
elections—was almost comical in its denial.

Thus, in 1994, Time celebrated the Republican victory in the midterm
elections by putting a herd of charging elephants on its cover. But
its response to the Democratic victory of 2006—a victory in which
House Democrats achieved a larger majority, both in seats and in the
popular vote, than the Republicans ever did in their 12-year
reign—was
a pair of overlapping red and blue circles, with the headline "The
center is the place to be."

Oh, and the guests on Meet the Press the Sunday after the Democratic
sweep were, you guessed it, Joe Lieberman and John McCain.

More seriously, many pundits have attributed last year's Republican
defeat to Iraq, with the implication that once the war has receded as
an issue, the right will reassert its natural political advantage—in
spite of polls that show a large Democratic advantage on just about
every domestic issue.

In a way, it's understandable that many political analysts are finding
it hard to grasp how much things have changed. After all, not long ago
it was conventional wisdom among the chattering classes that America
had entered an era of long-term Republican—and
conservative—dominance.
I have a whole shelf of books with titles like One Party Country and
Building Red America, all of them explaining why movement
conservatism—the interlocking set of institutions, ranging from the
Heritage Foundation to Fox News, that make up the modern American
right—is invincible.

And it's true that even now, polls suggest that Americans are about
twice as likely to identify themselves as conservatives as they are to
identify themselves as liberals.

But if you look at peoples' views on actual issues, as opposed to
labels, the electorate's growing liberalism is unmistakable. Don't
take my word for it; look at the massive report Pew released earlier
this year on trends in "political attitudes and core values." Pew
found "increased public support for the social safety net, signs of
growing public concern about income inequality, and a diminished
appetite for assertive national security policies." Meanwhile,
nothing's the matter with Kansas: People are ever less inclined to
support conservative views on moral values—and have become
dramatically more liberal on racial issues.

And it's not just opinion polls: Last year, the newly liberal mindset
of the electorate was reflected in actual votes, too. Yes, some of the
Democrats newly elected last year were relatively conservative. But
others, including James Webb of Virginia and Jon Tester of Montana,
have staked out strikingly progressive positions on economic issues.

The question, however, is whether Democrats will take advantage of
America's new liberalism. To do that, they have to be ready to
forcefully make the case that progressive goals are right and
conservatives are wrong. They also need to be ready to fight some very
nasty political battles.

And that's where the continuing focus of many people on Bush, rather
than the movement he represents, has become a problem.

A year ago, Michael Tomasky wrote a perceptive piece titled "Obama the
anti-Bush," in which he described Barack Obama's appeal: After the
bitter partisanship of the Bush years, Tomasky argued, voters are
attracted to "someone who speaks of his frustration with our polarized
politics and his fervent desire to transcend the red-blue divide."
People in the news media, in particular, long for an end to the
polarization and partisanship of the Bush years—a fact that probably
explains the highly favorable coverage Obama has received.

But any attempt to change America's direction, to implement a real
progressive agenda, will necessarily be highly polarizing. Proposals
for universal health care, in particular, are sure to face a firestorm
of partisan opposition. And fundamental change can't be accomplished
by a politician who shuns partisanship.

I like to remind people who long for bipartisanship that FDR's drive
to create Social Security was as divisive as Bush's attempt to
dismantle it. And we got Social Security because FDR wasn't afraid of
division. In his great Madison Square Garden speech, he declared of
the forces of "organized money": "Never before in all our history have
these forces been so united against one candidate as they stand today.
They are unanimous in their hate for me—and I welcome their hatred."

So, here's my worry: Democrats, with the encouragement of people in
the news media who seek bipartisanship for its own sake, may fall into
the trap of trying to be anti-Bushes—of trying to transcend
partisanship, seeking some middle ground between the parties.

That middle ground doesn't exist—and if Democrats try to find it,
they'll squander a huge opportunity. Right now, the stars are aligned
for a major change in America's direction. If the Democrats play nice,
that opportunity may soon be gone.

Paul Krugman is a columnist for the New York Times.
--

Paul Krugman: Same Old Party

Krugman shows that there are at least a lot of similarities between Bush's policies and other conservative Republicans such as Reagan. This is from the New York Times.

Same Old Party


By PAUL KRUGMAN
Published: October 8, 2007
There have been a number of articles recently that portray President Bush as someone who strayed from the path of true conservatism. Republicans, these articles say, need to return to their roots.

Paul Krugman.
Well, I don’t know what true conservatism is, but while doing research for my forthcoming book I spent a lot of time studying the history of the American political movement that calls itself conservatism — and Mr. Bush hasn’t strayed from the path at all. On the contrary, he’s the very model of a modern movement conservative.

For example, people claim to be shocked that Mr. Bush cut taxes while waging an expensive war. But Ronald Reagan also cut taxes while embarking on a huge military buildup.

People claim to be shocked by Mr. Bush’s general fiscal irresponsibility. But conservative intellectuals, by their own account, abandoned fiscal responsibility 30 years ago. Here’s how Irving Kristol, then the editor of The Public Interest, explained his embrace of supply-side economics in the 1970s: He had a “rather cavalier attitude toward the budget deficit and other monetary or fiscal problems” because “the task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority — so political effectiveness was the priority, not the accounting deficiencies of government.”

People claim to be shocked by the way the Bush administration outsourced key government functions to private contractors yet refused to exert effective oversight over these contractors, a process exemplified by the failed reconstruction of Iraq and the Blackwater affair.

But back in 1993, Jonathan Cohn, writing in The American Prospect, explained that “under Reagan and Bush, the ranks of public officials necessary to supervise contractors have been so thinned that the putative gains of contracting out have evaporated. Agencies have been left with the worst of both worlds — demoralized and disorganized public officials and unaccountable private contractors.”

People claim to be shocked by the Bush administration’s general incompetence. But disinterest in good government has long been a principle of modern conservatism. In “The Conscience of a Conservative,” published in 1960, Barry Goldwater wrote that “I have little interest in streamlining government or making it more efficient, for I mean to reduce its size.”

People claim to be shocked that the Bush Justice Department, making a mockery of the Constitution, issued a secret opinion authorizing torture despite instructions by Congress and the courts that the practice should stop. But remember Iran-Contra? The Reagan administration secretly sold weapons to Iran, violating a legal embargo, and used the proceeds to support the Nicaraguan contras, defying an explicit Congressional ban on such support.

Oh, and if you think Iran-Contra was a rogue operation, rather than something done with the full knowledge and approval of people at the top — who were then protected by a careful cover-up, including convenient presidential pardons — I’ve got a letter from Niger you might want to buy.

People claim to be shocked at the Bush administration’s efforts to disenfranchise minority groups, under the pretense of combating voting fraud. But Reagan opposed the Voting Rights Act, and as late as 1980 he described it as “humiliating to the South.”

People claim to be shocked at the Bush administration’s attempts — which, for a time, were all too successful — to intimidate the press. But this administration’s media tactics, and to a large extent the people implementing those tactics, come straight out of the Nixon administration. Dick Cheney wanted to search Seymour Hersh’s apartment, not last week, but in 1975. Roger Ailes, the president of Fox News, was Nixon’s media adviser.

People claim to be shocked at the Bush administration’s attempts to equate dissent with treason. But Goldwater — who, like Reagan, has been reinvented as an icon of conservative purity but was a much less attractive figure in real life — staunchly supported Joseph McCarthy, and was one of only 22 senators who voted against a motion censuring the demagogue.

Above all, people claim to be shocked by the Bush administration’s authoritarianism, its disdain for the rule of law. But a full half-century has passed since The National Review proclaimed that “the White community in the South is entitled to take such measures as are necessary to prevail,” and dismissed as irrelevant objections that might be raised after “consulting a catalogue of the rights of American citizens, born Equal” — presumably a reference to the document known as the Constitution of the United States.

Now, as they survey the wreckage of their cause, conservatives may ask themselves: “Well, how did we get here?” They may tell themselves: “This is not my beautiful Right.” They may ask themselves: “My God, what have we done?”

But their movement is the same as it ever was. And Mr. Bush is movement conservatism’s true, loyal heir.

Paul Krugman: Two sample articles

Here are two samples from Paul Krugman's blogs at the NY Times. They are now available to us all free. Good stuff very often. Krugman is spot on about the Petraeus coverage and exactly the same fits much coverage. The same thing happens in Canada. A recent national TV coverage on an Ontario election debate focused solely on body language and other aspects of the presentation. Policies were not even mentioned. Performance was based purlely on factors other than content. The blog site is here.

September 20, 2007, 11:26 pm
Is This the Wile E. Coyote Moment?
Lots of buzz suddenly about the possibility of a sharp fall in the dollar. The Canadian dollar is back at parity with the greenback; there are rumors that the Saudis are planning to diversify into euros, and maybe even that the Chinese might break the dollar peg. A nice summary at Barry Ritholtz’s blog The Big Picture.
I could say that I saw this coming; the problem is that I’ve been seeing it coming for several years, and it keeps not arriving (and I don’t know if this is really it, even now.) The argument I and others have made is that the U.S. trade deficit is, fundamentally, not sustainable in the long run, which means that sooner or later the dollar has to decline a lot. But international investors have been buying U.S. bonds at real interest rates barely higher than those offered in euros or yen — in effect, they’ve been betting that the dollar won’t ever decline.
So, according to the story, one of these days there will be a Wile E. Coyote moment for the dollar: the moment when the cartoon character, who has run off a cliff, looks down and realizes that he’s standing on thin air – and plunges. In this case, investors suddenly realize that Stein’s Law applies — “If something cannot go on forever, it will stop” – and they realize they need to get out of dollars, causing the currency to plunge. Maybe the dollar’s Wile E. Coyote moment has arrived – although, again, I’ve been wrong about this so far.
Much more about all this in a thoroughly incomprehensible paper I recently published in the European journal Economic Policy. Don’t bother clicking if you hate funny diagrams and Greek letters.

September 19, 2007, 9:43 pm
What I Hate About Political Coverage
Warning: this is a bit (actually, more than a bit) of a rant.
One of my pet peeves about political reporting is the fact that some of my journalistic colleagues seem to want to be in another business – namely, theater criticism. Instead of telling us what candidates are actually saying – and whether it’s true or false, sensible or silly – they tell us how it went over, and how they think it affects the horse race. During the 2004 campaign I went through two months’ worth of TV news from the major broadcast and cable networks to see what voters had been told about the Bush and Kerry health care plans; what I found, and wrote about, were several stories on how the plans were playing, but not one story about what was actually in the plans.
There are two big problems with this kind of reporting. The important problem is that it fails to inform the public about what matters. In 2004, very few people had any idea about the very real differences between the candidates on domestic policy. It remains to be seen whether 2008 is any better.
The other problem, which has become very apparent lately, is that this sort of coverage often fails even on its own terms, because the way things look to inside-the-Beltway pundits can be very different from the way they look to real people.
Which brings me to the Petraeus hearing.
To a remarkable extent, punditry has taken a pass on whether Gen. Petraeus’s picture of the situation in Iraq is accurate. Instead, it was all about the theatrics – about how impressive he looked, how well or poorly his Congressional inquisitors performed. And the judgment you got if you were watching most of the talking heads was that it was a big win for the administration – especially because the famous MoveOn ad was supposed to have created a scandal, and a problem for the Democrats.
Even if all this had been true, it wouldn’t have mattered much: if the truth is that Iraq is a mess, the public would find out soon enough, and the backlash would be all the greater because of the sense that we had been deceived yet again.
But here’s the thing: new polls by CBS and Gallup show that the Petraeus testimony had basically no effect on public opinion: Americans continue to hate the war, and want out. The whole story about how the hearing had changed everything was a pure figment of the inside-the-Beltway imagination.
What I found striking about the whole thing was the contempt the pundit consensus showed for the public – it was, more or less, “Oh, people just can’t resist a man in uniform.” But it turns out that they can; it’s the punditocracy that can’t.

Paul Krugman on the Credit Crunch

I just wonder if part of this crisis is not the result of the Bush administration animus against regulation. If there had been stricter regulations in the sub-prime mortgage market requiring genuine credit assessment before loans could be made, many of the defaults that are now happening would have been avoided. No loans would have been made.

NY Times, August 10, 2007
Op-Ed Columnist
Very Scary Things
By PAUL KRUGMAN

In September 1998, the collapse of Long Term Capital Management, a
giant
hedge fund, led to a meltdown in the financial markets similar, in some

ways, to what’s happening now. During the crisis in ’98, I attended
a
closed-door briefing given by a senior Federal Reserve official, who
laid out the grim state of the markets. “What can we do about it?”
asked
one participant. “Pray,” replied the Fed official.

Our prayers were answered. The Fed coordinated a rescue for L.T.C.M.,
while Robert Rubin, the Treasury secretary at the time, and Alan
Greenspan, who was the Fed chairman, assured investors that everything
would be all right. And the panic subsided.

Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly

tried to reassure the markets. But Mr. Bush is, let’s say, a bit
lacking
in credibility. On the other hand, it’s not clear that anyone could
do
the trick: right now we’re suffering from a serious shortage of
saviors.
And that’s too bad, because we might need one.

What’s been happening in financial markets over the past few days is
something that truly scares monetary economists: liquidity has dried
up.
That is, markets in stuff that is normally traded all the time — in
particular, financial instruments backed by home mortgages — have
shut
down because there are no buyers.

This could turn out to be nothing more than a brief scare. At worst,
however, it could cause a chain reaction of debt defaults.

The origins of the current crunch lie in the financial follies of the
last few years, which in retrospect were as irrational as the dot-com
mania. The housing bubble was only part of it; across the board, people

began acting as if risk had disappeared.

Everyone knows now about the explosion in subprime loans, which allowed

people without the usual financial qualifications to buy houses, and
the
eagerness with which investors bought securities backed by these loans.

But investors also snapped up high-yield corporate debt, a k a junk
bonds, driving the spread between junk bond yields and U.S. Treasuries
down to record lows.

Then reality hit — not all at once, but in a series of blows. First,
the
housing bubble popped. Then subprime melted down. Then there was a
surge
in investor nervousness about junk bonds: two months ago the yield on
corporate bonds rated B was only 2.45 percent higher than that on
government bonds; now the spread is well over 4 percent.

Investors were rattled recently when the subprime meltdown caused the
collapse of two hedge funds operated by Bear Stearns, the investment
bank. Since then, markets have been manic-depressive, with triple-digit

gains or losses in the Dow Jones industrial average — the rule rather

than the exception for the past two weeks.

But yesterday’s announcement by BNP Paribas, a large French bank,
that
it was suspending the operations of three of its own funds was, if
anything, the most ominous news yet. The suspension was necessary, the
bank said, because of “the complete evaporation of liquidity in
certain
market segments” — that is, there are no buyers.

When liquidity dries up, as I said, it can produce a chain reaction of
defaults. Financial institution A can’t sell its mortgage-backed
securities, so it can’t raise enough cash to make the payment it owes
to
institution B, which then doesn’t have the cash to pay institution C
—
and those who do have cash sit on it, because they don’t trust anyone

else to repay a loan, which makes things even worse.

And here’s the truly scary thing about liquidity crises: it’s very
hard
for policy makers to do anything about them.

The Fed normally responds to economic problems by cutting interest
rates
— and as of yesterday morning the futures markets put the probability
of
a rate cut by the Fed before the end of next month at almost 100
percent. It can also lend money to banks that are short of cash:
yesterday the European Central Bank, the Fed’s trans-Atlantic
counterpart, lent banks $130 billion, saying that it would provide
unlimited cash if necessary, and the Fed pumped in $24 billion.

But when liquidity dries up, the normal tools of policy lose much of
their effectiveness. Reducing the cost of money doesn’t do much for
borrowers if nobody is willing to make loans. Ensuring that banks have
plenty of cash doesn’t do much if the cash stays in the banks’
vaults.

There are other, more exotic things the Fed and, more important, the
executive branch of the U.S. government could do to contain the crisis
if the standard policies don’t work. But for a variety of reasons,
not
least the current administration’s record of incompetence, we’d
really
rather not go there.

Let’s hope, then, that this crisis blows over as quickly as that of
1998. But I wouldn’t count on it.

Krugman on Bush's Health Care Views

In spite of the fact that almost every other advanced capitalist state has some form of universal health care the US considers it some sort of socialist plot and even most Democrats will not even say straight out they are in favor of some single payer system. The result is a health care system that is the most expensive in the world but far from the best particularly for the working poor. It is so inefficient that even without universal care the public expenditure in the US is greater than that in the UK that has a universal system--as percentage of GDP. But the US also has a huge private expenditure as well.


The New York Times
July 30, 2007

An Immoral Philosophy

By PAUL KRUGMAN

When a child is enrolled in the State Childrens Health Insurance
Program (Schip), the positive results can be dramatic. For example,
after asthmatic children are enrolled in Schip, the frequency of
their
attacks declines on average by 60 percent, and their likelihood of
being hospitalized for the condition declines more than 70 percent.

Regular care, in other words, makes a big difference. Thats why
Congressional Democrats, with support from many Republicans, are
trying
to expand Schip, which already provides essential medical care to
millions of children, to cover millions of additional children who
would otherwise lack health insurance.

But President Bush says that access to care is no problem After
all,
you just go to an emergency room and, with the support of the
Republican Congressional leadership, hes declared that hell veto
any
Schip expansion on philosophical grounds.

It must be about philosophy, because it surely isnt about cost. One
of
the plans Mr. Bush opposes, the one approved by an overwhelming
bipartisan majority in the Senate Finance Committee, would cost
less
over the next five years than well spend in Iraq in the next four
months. And it would be fully paid for by an increase in tobacco
taxes.

The House plan, which would cover more children, is more expensive,
but
it offsets Schip costs by reducing subsidies to Medicare Advantage
a
privatization scheme that pays insurance companies to provide
coverage,
and costs taxpayers 12 percent more per beneficiary than
traditional
Medicare.

Strange to say, however, the administration, although determined to
prevent any expansion of childrens health care, is also dead set
against any cut in Medicare Advantage payments.

So what kind of philosophy says that its O.K. to subsidize
insurance
companies, but not to provide health care to children?

Well, heres what Mr. Bush said after explaining that emergency
rooms
provide all the health care you need: Theyre going to increase the
number of folks eligible through Schip; some want to lower the age
for
Medicare. And then all of a sudden, you begin to see a I wouldnt
call
it a plot, just a strategy to get more people to be a part of a
federalization of health care.

Now, why should Mr. Bush fear that insuring uninsured children
would
lead to a further federalization of health care, even though
nothing
like that is actually in either the Senate plan or the House plan?
Its
not because he thinks the plans wouldnt work. Its because hes
afraid
that they would. That is, he fears that voters, having seen how the
government can help children, would ask why it cant do the same for
adults.

And there you have the core of Mr. Bushs philosophy. He wants the
public to believe that government is always the problem, never the
solution. But its hard to convince people that government is always
bad
when they see it doing good things. So his philosophy says that the
government must be prevented from solving problems, even if it can.
In
fact, the more good a proposed government program would do, the
more
fiercely it must be opposed.

This sounds like a caricature, but it isnt. The truth is that this
good-is-bad philosophy has always been at the core of Republican
opposition to health care reform. Thus back in 1994, William
Kristol
warned against passage of the Clinton health care plan in any form,
because its success would signal the rebirth of centralized
welfare-state policy at the very moment that such policy is being
perceived as a failure in other areas.

But it has taken the fight over childrens health insurance to bring
the
perversity of this philosophy fully into view.

There are arguments you can make against programs, like Social
Security, that provide a safety net for adults. I can respect those
arguments, even though I disagree. But denying basic health care to
children whose parents lack the means to pay for it, simply because
youre afraid that success in insuring children might put big
government
in a good light, is just morally wrong.

And the public understands that. According to a recent Georgetown
University poll, 9 in 10 Americans including 83 percent of
self-identified Republicans support an expansion of the childrens
health insurance program.

There is, it seems, more basic decency in the hearts of Americans
than
is dreamt of in Mr. Bushs philosophy.

Paul Krugman: Health Care Terror

So-called reforms in universal systems recently are resulting in increased co-pays and shifting of costs to individuals. The Canadian system has always been less extensive than many European systems in that most dental work, long term care, and drugs are not covered. However there are provincial add ons that provide some pharmacare but usually involving co-pays of some description. One significant feature of the Canada Health Act is that co-pays or user fees are not allowed but of course this does not apply to what provinces have added on such as pharmacare.

July 9, 2007 / New York TIMES
Op-Ed Columnist
Health Care Terror
By PAUL KRUGMAN

These days terrorism is the first refuge of scoundrels. So when
British authorities announced that a ring of Muslim doctors working
for the National Health Service was behind the recent failed bomb
plot, we should have known what was coming.

"National healthcare: Breeding ground for terror?" read the on-screen
headline, as the Fox News host Neil Cavuto and the commentator Jerry
Bowyer solemnly discussed how universal health care promotes
terrorism.

While this was crass even by the standards of Bush-era political
discourse, Fox was following in a long tradition. For more than 60
years, the medical-industrial complex and its political allies have
used scare tactics to prevent America from following its conscience
and making access to health care a right for all its citizens.

I say conscience, because the health care issue is, most of all, about
morality.

That's what we learn from the overwhelming response to Michael Moore's
"Sicko." Health care reformers should, by all means, address the
anxieties of middle-class Americans, their growing and justified fear
of finding themselves uninsured or having their insurers deny coverage
when they need it most. But reformers shouldn't focus only on
self-interest. They should also appeal to Americans' sense of decency
and humanity.

What outrages people who see "Sicko" is the sheer cruelty and
injustice of the American health care system — sick people who can't
pay their hospital bills literally dumped on the sidewalk, a child who
dies because an emergency room that isn't a participant in her
mother's health plan won't treat her, hard-working Americans driven
into humiliating poverty by medical bills.

"Sicko" is a powerful call to action — but don't count the defenders
of the status quo out. History shows that they're very good at fending
off reform by finding new ways to scare us.

These scare tactics have often included over-the-top claims about the
dangers of government insurance. "Sicko" plays part of a recording
Ronald Reagan once made for the American Medical Association, warning
that a proposed program of health insurance for the elderly — the
program now known as Medicare — would lead to totalitarianism.

Right now, by the way, Medicare — which did enormous good, without
leading to a dictatorship — is being undermined by privatization.

Mainly, though, the big-money interests with a stake in the present
system want you to believe that universal health care would lead to a
crushing tax burden and lousy medical care.

Now, every wealthy country except the United States already has some
form of universal care. Citizens of these countries pay extra taxes as
a result — but they make up for that through savings on insurance
premiums and out-of-pocket medical costs. The overall cost of health
care in countries with universal coverage is much lower than it is
here.

Meanwhile, every available indicator says that in terms of quality,
access to needed care and health outcomes, the U.S. health care system
does worse, not better, than other advanced countries — even Britain,
which spends only about 40 percent as much per person as we do.

Yes, Canadians wait longer than insured Americans for elective
surgery. But over all, the average Canadian's access to health care is
as good as that of the average insured American — and much better
than
that of uninsured Americans, many of whom never receive needed care at
all.

And the French manage to provide arguably the best health care in the
world, without significant waiting lists of any kind. There's a scene
in "Sicko" in which expatriate Americans in Paris praise the French
system. According to the hard data they're not romanticizing. It
really is that good.

All of which raises the question Mr. Moore asks at the beginning of
"Sicko": who are we?

"We have always known that heedless self-interest was bad morals; we
know now that it is bad economics." So declared F.D.R. in 1937, in
words that apply perfectly to health care today. This isn't one of
those cases where we face painful tradeoffs — here, doing the right
thing is also cost-efficient. Universal health care would save
thousands of American lives each year, while actually saving money.

So this is a test. The only things standing in the way of universal
health care are the fear-mongering and influence-buying of interest
groups. If we can't overcome those forces here, there's not much hope
for America's future.

--

Paul Krugman on ethanol

This is from the New YOrk times via http://economistsview.typepad.com/economistsview/2007/01/paul_krugman_th_1.html.
Krugman mentions the lack of net energy production and also the contrast with Brazil that produces ethanol from sugar cane. No one mentions corn as food production as Castro does. Of course Krugman is not voted into office and so does not run in Iowa either.




The Sum of All Ears, by Paul Krugman, Corn Cop-Out, Commentary, NY Times: For those hoping for real action on global warming and energy policy, the State of the Union address was a downer. There had been hints and hopes that the speech would be a Nixon-goes-to-China moment, with President Bush turning conservationist. But it ended up being more of a Nixon-bombs-Cambodia moment.

Too bad... The only real substance was Mr. Bush’s call for ... ethanol to replace gasoline. Unfortunately, that’s a really bad idea. There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, ... researchers ... estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year...

What’s more, ethanol production has hidden costs. ...[T]he Department of Energy ... says that the net energy savings from replacing a gallon of gasoline with ethanol are only ... about a quarter of a gallon, because of the energy used to grow corn, transport it, run ethanol plants, and so on. And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions.

So why is ethanol, not conservation, the centerpiece of the administration’s energy policy? Actually, it’s not entirely Mr. Bush’s fault.

To be sure, ... Mr. Bush’s people seem less concerned with devising good policy than with finding something, anything, for the president to talk about that doesn’t end with the letter “q.” And the malign influence of Dick “Sign of Personal Virtue” Cheney, who no doubt still sneers at conservation, continues to hang over everything.

But even after the Bushies are gone, bad energy policy ideas will have powerful constituencies... Subsidizing ethanol benefits two well-organized groups: corn growers and ethanol producers (especially the corporate giant Archer Daniels Midland). As a result, it’s bad policy with bipartisan support. For example, earlier this month legislation calling for a huge increase in ethanol use was introduced by five senators, of whom four, including ... Barack Obama and Joseph Biden, were Democrats. In a recent town meeting in Iowa, Hillary Clinton managed to mention ethanol twice...

Meanwhile, conservation doesn’t have anything like the same natural political mojo. Where’s the organized, powerful constituency for tougher fuel economy standards, a higher gasoline tax, or a cap-and-trade system on carbon dioxide emissions?

Can anything be done to promote good energy policy? Public education is a necessary first step, which is why Al Gore deserves all the praise he’s getting. It would also help to have a president who gets scientific advice from scientists, not oil company executives and novelists.

But there’s still a huge gap between what obviously should be done and what seems politically possible. And I don’t know how to close that gap.

_____

Paul Krugman: Reagan and Bush

While no fan of Reagan it seems to me that Reagan was not as bad as Bush and did not lead the US into disastrous wars but maybe my memory is going!

March 19, 2007
Paul Krugman: Don’t Cry for Reagan
Paul Krugman says there's no reason to shed any tears over Reagan's lost legacy:

Don’t Cry for Reagan, by Paul Krugman, Commentary, NY Times: As the Bush administration sinks deeper into its multiple quagmires, the personality cult the G.O.P. once built around President Bush has given way to nostalgia for the good old days. The current cover of Time magazine shows a weeping Ronald Reagan, and declares that Republicans “need to reclaim the Reagan legacy.”

But Republicans shouldn’t cry for Ronald Reagan; the truth is, he never left them. There’s no need to reclaim the Reagan legacy: Mr. Bush is what Mr. Reagan would have been given the opportunity.

In 1993 Jonathan Cohn ... published an article in The American Prospect describing the dire state of the federal government. Changing just a few words ... makes it read as if it were written in 2007.

Thus, Mr. Cohn described how the Interior Department had been packed with opponents of environmental protection, who “presided over a massive sell-off of federal lands...” that “deprived the department of several billion dollars in annual revenue.” Oil leases, anyone?

Meanwhile, privatization had run amok, because “the ranks of public officials necessary to supervise contractors have been so thinned... Agencies have been left with the worst of both worlds — demoralized and disorganized public officials and unaccountable private contractors.” Holy Halliburton!

Not mentioned..., but equally reminiscent of current events, was the state of the Justice Department under Ed Meese, a man who gives Alberto Gonzales and John Mitchell serious competition for the title of worst attorney general ever. The politicization of Justice got so bad that in 1988 six senior officials, all Republicans, ... resigned in protest.

Why is there such a strong family resemblance...? Mr. Reagan’s administration, like Mr. Bush’s, was run by movement conservatives... And both cronyism and abuse of power are part of the movement conservative package.

In part this is because people whose ideology says that government is always the problem, never the solution, see no point in governing well. So they use political power to reward their friends, rather than find people who will actually do their jobs.

If expertise is irrelevant, who gets the jobs? No problem: the interlocking, lavishly financed institutions of movement conservatism, which range from K Street to Fox News, create a vast class of apparatchiks who can be counted on to be “loyal Bushies.” ...

Still, Mr. Reagan’s misgovernment never went as far as Mr. Bush’s. As a result, he managed to leave office with an approval rating about as high as ... Bill Clinton... But the key to Reagan’s relative success, I believe, is that he was lucky in his limitations.

Unlike Mr. Bush, Mr. Reagan never controlled both houses of Congress — and the pre-Gingrich Republican Party still contained moderates who imposed limits on his ability to govern badly. Also, there was no Reagan-era equivalent of the rush, after 9/11, to give the Bush administration whatever it wanted in the name of fighting terrorism.

Mr. Reagan may even have been helped, perversely, by the fact that in the 1980s there were still two superpowers. This helped prevent the hubris, the delusions of grandeur, that led the Bush administration to believe that a splendid little war in Iraq was just the thing to secure its position.

But what this tells us is that Mr. Bush, not Mr. Reagan, is the true representative of what modern conservatism is all about. And it’s the movement, not just one man, that has failed