Wednesday, December 12, 2012

Delusions of Wisdom

From Nobel Prize winning economist Paul Krugman's blog:

What I find remarkable about this piece is that after everything that has happened these past five years or so, Jim VandeHei and Mike Allen still take it for granted that these people actually know what they’re talking about; the whole premise of the article is that the insiders really do have the key, not just to good policy, but to achieving a dramatic rise in the growth rate.

Now, they don’t tell us everyone they talked to; but I think we can safely assume that, with few exceptions, the insiders in question:

- Believed that financial deregulation was a great idea, because bankers had really learned to manage risk
- Did not believe that there was a housing bubble
- Insisted that budget deficits, even in a depressed economy, would send interest rates soaring any day now
- Insisted that austerity measures would promote recovery, not hurt it, because of the confidence fairy

And on and on.

More here.

Financial deregulation is what allowed the massive financial crisis of '07-'08, a crisis whose fallout we continue to suffer, to happen.  The housing bubble was driven by financial deregulation, and was the catalyst for the crisis.  Interest rates have hovered around zero for almost five years now, in spite of the budget deficit.  And austerity removes masses of money from the consumer economy, which both causes and worsens recession.

These are facts, not opinions.

But to the "insiders" who run our economy and political system, they are understood as opinions, wrong opinions.  And they behave accordingly.  There is only one conclusion that can be made from this: for whatever reasons, the people in charge of everything have absolutely no idea what they're doing.  And it is very likely that they're going to screw things up very badly.

Bend over and strap in, everybody.  This ain't over yet.