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Henwood	Krugman
Wall Street, 1996: [B]ehind the abstraction known as "the markets" lurks a set of institutions designed to maximize the wealth and power of the most privileged group of people in the world, the creditor–rentier class of the First World and their junior partners in the Third.	The Old Superstition, June 28, 2011 I was originally going to end this post by saying something about stupidity, but that's not right: the people at the BIS aren't stupid. What's going on here is something different and worse: we're seeing the desire for conventional respectability outweighing the lessons of history; we're seeing vague prejudice (prejudice that just so happens to serve the interests of rentiers) trumping analysis. The Rentier Regime, June 8, 2011 Still, thinking of what's happening as the rule of rentiers, who are getting their interests served at the expense of the real economy, helps make sense of the situation.
Antisocial insecurity, 1998: The Trustees of the Social Security System project economic growth over the next 75 years will be less than half that of the last 75 years…. Rerun the projections with more reasonable — though still conservative — projections and the "crisis" largely or fully disappears…. But let's take the 1.4% growth projection and apply it to the stock market, that cornucopia of wealth that's supposed to replace the public pension system. Privatizers typically assume an average real stock market return of 7% a year, from the combined increase in prices and the cash dividends. How the stock market is supposed to grow five times as fast as the economy is a mystery that's rarely noted, much less investigated. To achieve those stock returns, the ratio of stock prices to underlying corporate profits — price/earnings (P/E) ratios, a fundamental measure of whether stocks are "expensive" or "cheap" which goes out of fashion at enthusiastic times like these — would have to rise to astronomic levels.	Many unhappy returns, 2005: The Social Security projections…assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the last 75 years, will average only 1.9 percent over the next 75 years. In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade. The price-earnings ratio — the value of a company's stock, divided by its profits — is widely used to assess whether a stock is overvalued or undervalued. Historically, that ratio averaged about 14. Today it's about 20. Where would it have to go to yield a 6.5 percent rate of return? I asked Dean Baker… to help me out with that calculation…. Here's what we found: by 2050, the price-earnings ratio would have to rise to about 70. By 2060, it would have to be more than 100. In other words, to believe in a privatization-friendly rate of return, you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble - and that stock prices will nonetheless keep on rising.
Rotting from the head, 2005: For those of us who cut our teeth on the power-structure studies of William Domhoff, which saw the U.S. as ruled by an old WASP elite operating through institutions like the Ford Foundation and the Council on Foreign Relations, it's been quite a surprise to watch the Bush administration in action. Though it should have known better, it started a pointless war that's put U.S. power and prestige at severe risk, and it's driven the government's accounts deep into the red, and it's financed both reckless adventures with huge gobs of money borrowed from abroad. A serious ruling class might have reined them in long ago, but our elite has been too narcoticized by its tax cuts — your avearge millionaire got a $60,000 break, more than the pretax income of the average household — to complain. It's looking more and more like that elite shares many of the same characteristics often attributed to the couch-potato demographic: short-sightedness, political disengagement, distractability, and ignorance of the larger world....	The unwisdom of elites, 2011 What happened to the budget surplus the federal government had in 2000? Three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs. So who was responsible for these budget busters? It wasn't the man in the street. President George W. Bush cut taxes in the service of his party's ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority. Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion…. So it was the bad judgment of the elite, not the greediness of the common man, that caused America's deficit.
How to learn nothing from crisis, 2010 To that pessimistic view of the "grass-roots," let me add a gloomy diagnosis of our elite. Our rulers have learned nothing from our brush with economic death. The initial response of both the Bush and Obama administrations has been to spend enormous wads of public money on trying to restore the status quo ante bustum. One would like to think that McCain lost the election in November 2008 because he represented that status quo — and that Barack Obama represented, if only in fantasy, a fresh departure. Those hopes have proved misplaced. There's been almost no effort to stiffen financial regulation to avoid future catastrophes.	The unwisdom of elites, 2011 Does any of this matter? Why should we be concerned about the effort to shift the blame for bad policies onto the general public? One answer is simple accountability. People who advocated budget-busting policies during the Bush years shouldn't be allowed to pass themselves off as deficit hawks; people who praised Ireland as a role model shouldn't be giving lectures on responsible government. But the larger answer, I'd argue, is that by making up stories about our current predicament that absolve the people who put us here there, we cut off any chance to learn from the crisis. We need to place the blame where it belongs, to chasten our policy elites. Otherwise, they'll do even more damage in the years ahead.
EMU, 1998 One is also struck by the persistence and gradualism of the whole process [of European unification], with every step planned out, intensely argued and compromised, but largely out of public view. The single currency is a dramatic innovation, but it comes after nearly 50 years of preparation... From time to time, governments have turned to their subjects for approval, but unification has hardly been driven by popular passion. Polls show Europeans broadly in favor of monetary union, while knowing next to nothing about its details; it's doubtful that Europeans would have approved of the single-currency project if they'd known it would come with sustained unemployment rates of over 10%. EMU has mainly been driven by financiers, multinationals, politicians, and elite bureaucrats…. If the euro succeeds, it's almost certain to present a serious rivalry to the dollar's role as the world's central currency; if it fails, financial chaos could ensue. It may fail because of its own internal contradictions, or because ordinary Europeans finally rebel against rule by central bankers.… Europe is embracing a new, continent-wide form of money well before all the social structures to support it are fully in place…. Europe has already been suffering from the preparations for monetary union, but what will happen when this long overture ends and the first act begins? It seems likely that the present strains will continue, and perhaps intensify, as Portuguese and Italian firms are thrown into even more direct competition with German ones. To Europe's planners, though, insofar as they have thought about the social bases of economic union, things will sort themselves out as the currency does most of the work - a process that Timothy Garton Ash has called "a hair-raising adventure...of unification through money."	The unwisdom of elites, 2011 So it was the bad judgment of the elite, not the greediness of the common man, that caused America's deficit. And much the same is true of the European crisis. Needless to say, that's not what you hear from European policy makers. The official story in Europe these days is that governments of troubled nations catered too much to the masses, promising too much to voters while collecting too little in taxes. And that is, to be fair, a reasonably accurate story for Greece. But it's not at all what happened in Ireland and Spain, both of which had low debt and budget surpluses on the eve of the crisis. The real story of Europe's crisis is that leaders created a single currency, the euro, without creating the institutions that were needed to cope with booms and busts within the euro zone. And the drive for a single European currency was the ultimate top-down project, an elite vision imposed on highly reluctant voters.

Henwood

Krugman

Wall Street, 1996:

[B]ehind the abstraction known as "the markets" lurks a set of institutions designed to maximize the wealth and power of the most privileged group of people in the world, the creditor–rentier class of the First World and their junior partners in the Third.

The Old Superstition, June 28, 2011

I was originally going to end this post by saying something about stupidity, but that's not right: the people at the BIS aren't stupid. What's going on here is something different and worse: we're seeing the desire for conventional respectability outweighing the lessons of history; we're seeing vague prejudice (prejudice that just so happens to serve the interests of rentiers) trumping analysis.

The Rentier Regime, June 8, 2011

Still, thinking of what's happening as the rule of rentiers, who are getting their interests served at the expense of the real economy, helps make sense of the situation.

Antisocial insecurity, 1998:

The Trustees of the Social Security System project economic growth over the next 75 years will be less than half that of the last 75 years…. Rerun the projections with more reasonable — though still conservative — projections and the "crisis" largely or fully disappears…. But let's take the 1.4% growth projection and apply it to the stock market, that cornucopia of wealth that's supposed to replace the public pension system. Privatizers typically assume an average real stock market return of 7% a year, from the combined increase in prices and the cash dividends. How the stock market is supposed to grow five times as fast as the economy is a mystery that's rarely noted, much less investigated. To achieve those stock returns, the ratio of stock prices to underlying corporate profits — price/earnings (P/E) ratios, a fundamental measure of whether stocks are "expensive" or "cheap" which goes out of fashion at enthusiastic times like these — would have to rise to astronomic levels.

Many unhappy returns, 2005:

The Social Security projections…assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the last 75 years, will average only 1.9 percent over the next 75 years. In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade. The price-earnings ratio — the value of a company's stock, divided by its profits — is widely used to assess whether a stock is overvalued or undervalued. Historically, that ratio averaged about 14. Today it's about 20. Where would it have to go to yield a 6.5 percent rate of return? I asked Dean Baker… to help me out with that calculation…. Here's what we found: by 2050, the price-earnings ratio would have to rise to about 70. By 2060, it would have to be more than 100. In other words, to believe in a privatization-friendly rate of return, you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble - and that stock prices will nonetheless keep on rising.

Rotting from the head, 2005:

For those of us who cut our teeth on the power-structure studies of William Domhoff, which saw the U.S. as ruled by an old WASP elite operating through institutions like the Ford Foundation and the Council on Foreign Relations, it's been quite a surprise to watch the Bush administration in action. Though it should have known better, it started a pointless war that's put U.S. power and prestige at severe risk, and it's driven the government's accounts deep into the red, and it's financed both reckless adventures with huge gobs of money borrowed from abroad. A serious ruling class might have reined them in long ago, but our elite has been too narcoticized by its tax cuts — your avearge millionaire got a $60,000 break, more than the pretax income of the average household — to complain. It's looking more and more like that elite shares many of the same characteristics often attributed to the couch-potato demographic: short-sightedness, political disengagement, distractability, and ignorance of the larger world....

The unwisdom of elites, 2011

What happened to the budget surplus the federal government had in 2000? Three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs. So who was responsible for these budget busters? It wasn't the man in the street. President George W. Bush cut taxes in the service of his party's ideology, not in response to a groundswell of popular demand — and the bulk of the cuts went to a small, affluent minority. Similarly, Mr. Bush chose to invade Iraq because that was something he and his advisers wanted to do, not because Americans were clamoring for war against a regime that had nothing to do with 9/11. In fact, it took a highly deceptive sales campaign to get Americans to support the invasion…. So it was the bad judgment of the elite, not the greediness of the common man, that caused America's deficit.

How to learn nothing from crisis, 2010

To that pessimistic view of the "grass-roots," let me add a gloomy diagnosis of our elite. Our rulers have learned nothing from our brush with economic death. The initial response of both the Bush and Obama administrations has been to spend enormous wads of public money on trying to restore the status quo ante bustum. One would like to think that McCain lost the election in November 2008 because he represented that status quo — and that Barack Obama represented, if only in fantasy, a fresh departure. Those hopes have proved misplaced. There's been almost no effort to stiffen financial regulation to avoid future catastrophes.

The unwisdom of elites, 2011

Does any of this matter? Why should we be concerned about the effort to shift the blame for bad policies onto the general public? One answer is simple accountability. People who advocated budget-busting policies during the Bush years shouldn't be allowed to pass themselves off as deficit hawks; people who praised Ireland as a role model shouldn't be giving lectures on responsible government. But the larger answer, I'd argue, is that by making up stories about our current predicament that absolve the people who put us here there, we cut off any chance to learn from the crisis. We need to place the blame where it belongs, to chasten our policy elites. Otherwise, they'll do even more damage in the years ahead.

EMU, 1998

One is also struck by the persistence and gradualism of the whole process [of European unification], with every step planned out, intensely argued and compromised, but largely out of public view. The single currency is a dramatic innovation, but it comes after nearly 50 years of preparation... From time to time, governments have turned to their subjects for approval, but unification has hardly been driven by popular passion. Polls show Europeans broadly in favor of monetary union, while knowing next to nothing about its details; it's doubtful that Europeans would have approved of the single-currency project if they'd known it would come with sustained unemployment rates of over 10%. EMU has mainly been driven by financiers, multinationals, politicians, and elite bureaucrats…. If the euro succeeds, it's almost certain to present a serious rivalry to the dollar's role as the world's central currency; if it fails, financial chaos could ensue. It may fail because of its own internal contradictions, or because ordinary Europeans finally rebel against rule by central bankers.… Europe is embracing a new, continent-wide form of money well before all the social structures to support it are fully in place…. Europe has already been suffering from the preparations for monetary union, but what will happen when this long overture ends and the first act begins? It seems likely that the present strains will continue, and perhaps intensify, as Portuguese and Italian firms are thrown into even more direct competition with German ones. To Europe's planners, though, insofar as they have thought about the social bases of economic union, things will sort themselves out as the currency does most of the work - a process that Timothy Garton Ash has called "a hair-raising adventure...of unification through money."

The unwisdom of elites, 2011

So it was the bad judgment of the elite, not the greediness of the common man, that caused America's deficit. And much the same is true of the European crisis. Needless to say, that's not what you hear from European policy makers. The official story in Europe these days is that governments of troubled nations catered too much to the masses, promising too much to voters while collecting too little in taxes. And that is, to be fair, a reasonably accurate story for Greece. But it's not at all what happened in Ireland and Spain, both of which had low debt and budget surpluses on the eve of the crisis. The real story of Europe's crisis is that leaders created a single currency, the euro, without creating the institutions that were needed to cope with booms and busts within the euro zone. And the drive for a single European currency was the ultimate top-down project, an elite vision imposed on highly reluctant voters.

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