Friday, December 11, 2009

Bad Advice

Krugman poses a troubling and puzzling incite about the White House and its advisers. All the while he stumbles on a key point even he misses:

Interesting back and forth between Brad DeLong and Noam Scheiber over the question of whether Democrats, possibly including the White House, really believed last summer that “[t]he stimulus was working more or less on schedule, and the job market was gradually recovering.”

I guess it must have been true. But all I can say is, what were they thinking?

There was ample warning, even before the severity of the crisis was clear, that the recession was likely to be followed by a prolonged jobless recovery. E.g., here (January 2008):

I still keep reading articles asserting that the last two recessions were brief and shallow. Formally, that’s true. But … in both cases the employment slump went on for a long time after the recession was supposedly over.

There’s every reason to think that the same thing will happen this time. There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending.
Plus, there was no point in the summer during which unemployment claims signaled any real good news, as opposed to things getting worse more slowly.

Oh, and the Reinhart-Rogoff work made it clear that the aftermath of a financial crisis is usually a long employment slump.

So you really have to wonder who was giving the Dems very, very bad advice.

Who was giving "very, very bad advice"? You have to be kidding me. It was Summers, Geithner, Rubin and Bernanke; it is very clear who was giving the bad advice to the administration. The same people who were a party to or whose decisions led to this mess of an economy. Why would they not give that advice? They are the kings of the bubble. The mindset is as such: if you just close your eyes long enough you don't have to worry about the people adversely effected by your own reckless policies past and present. There is no recession, there is no recession. It is getting better....

There seems to be a game of "kid gloves" amongst economists. Inside their respective field you can't lambaste and hard hit your brethren, it would be bad form. Example, Brad DeLong pretends to be puzzled by Bernanke. I understand the professionalism involved in that, but FRONTLINE did an entire piece about Summers, Rubin and Greenspan, called "The Warning." It's not a mystery who they are and what they are about. These men are arrogant, egoists who won't admit they were and continue to be wrong (or coddle banks and Wall St. intentionally you can paint it both ways). And it is apparent they will continue to allow their ideology to cloud this administration's economic policy.

Mother Jones had a piece about Elizabeth Warren last month that summed up why the bad advice continues:

a Warren colleague at Harvard (who admires her) notes that Summers—who as Harvard president speculated that women may not have the same innate math and science ability as men—might share the sentiments of fellow Harvard economists who dismiss Warren as insufficiently theoretical. "They think she shouldn't be talking about bankruptcy except as someone in the economics department would—that is, with formulas and theorems, not about how it affects real people."

Because if you start thinking about how it effects real people there has to be some culpability for your "very, very bad advice."

I am Frank Chow and I approved this message

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