Wednesday, September 17, 2008

Chronicles of Doom Foretold XI

Sorry Cassandra I didn't believe
You really had the power
I only saw it as dreams you would weave
Until the final hour...

.................ABBA


Government isn’t the solution to our problems; government is the problem
..........................Ronald Reagan


Obama needs to make very clear that the current financial crisis is not a natural event or a historical accident, but the predictable and predicted consequence of the reckless policies that the Republicans have pursued for the last 28 years. There are problems for which government is the only practical solution, otherwise there would be no governments. Since Reagan, many have been determined to make both ends of Reagan's dictum true. George Bush has been notably evident in doing his best to make the government incomptent in all its legal duties, and John McCain has been on boad for most of it.

It is hardly an accident that John McCain has been repeating almost verbatim what Hoover recited as the world crumbled into the Great Depression: "The fundamentals of our economy are strong." Then, as now, the Republicans believed that the role of government was merely to aid the corporations in plundering the nation.

I said that the present crisis was predictable, and that it was predicted (by, among many others, Nouriel Roubini and Paul Krugman). The ingredients are familiar: A buildup of debt, a bubble in equities and housing prices, and the failure of those in charge to attempt to do anything about these things. Bubbles are always popular when they are abuilding: too many people are making money for it too be popular to try to stop it. The increase in valuation always convinces some idiots in power that their economic follies are really brilliancies.

Reinhardt and Rogoff did a nice paper of some historical comparisons with past financial crises (got link from Brad Setser's site.)