I always enjoy Paul Krugman’s arguments, even when I oft disagree with them seriously; nothing personal, it is just that he stands to the Left of myself on almost everything. He believes in Government intervention in everything while I do not; my position being that any Government economic policy which has been articulated has already failed because it is too intrusive in the economy. Such policy should work in the Shadows, like the Spooks of fable (they also failed in practice, most after being identified). It is like this announcement that the federal debt would be $9 trillion over the next decade; they would have gotten away with it if they had kept their mouths shut, as it is, they will never make it. No Government can publicly publish such a Spendthrift program, and expect no Public reaction. They will be faced with two options: a lack of subscription for Treasuries somewhere in the future as Investors get worried about the viability of the American Dollar, or the Dollar joining the Yen in lack of value. It is indicative of the value of economic policy based upon Public Debt, that the two nations ranked 1st and 2nd in the economic world have Currencies expected to tank.
Felix Salmon has a really good article on financial innovation, where he presents some criticism of securitization. My basic problem with the process is the fact that Investors lose Sight of the size of the indebtedness, thereby failing to understand the magnitude of the Profits necessary to repay the debt. Some of these securitization instruments covered a debt largesse equal to the GDP of major States or small Countries. Others covered huge borrowing against such Intangibles as Product loyalty, or the value of technical expertise. Examination of the nature of these CDSs finds Most based upon a technical Product innovation, which could realistically be outdated within a 3-year period. These Swaps were often financing outdated technology prior to the entire issue being sold. Still, it was Sold with no one checking where what was being financed. It is no wonder that the Credit structure fell. It is only debatable whether the Credit institutions which created such Trash should have been allowed to survive.
I would refer the Reader finally to this Piece by Arnold Kling. I disagree with Arnold about the value of the Chinn/Freiden article I commented on yesterday, but basically agree with him about Paul Krugman’s recent contributions. Arnold’s picking on James Kwak, though, was a little over the Top; James only trying to present some balance to the discussion. These things always become discordant with expansion, brought on by reactions and contributions from Others. I thought that all Contributors in this debate were highly rational and reasoned of high quality. There once was a time when economic argument could be uttered without to resort to a Party line, and ideas could be debated for their own merits; not whether it was acceptable to political tenet. lgl