Dear Mr Krugman:
I am a big fan and much appreciative of the courageous stands you took during the Bush Years and the balance you've tried to maintain in the early Obama Admin, but I must say I think you continually miss the point when it comes to explaining Obama's actions (or lack of same), your latest column being a case in point. You write:
[T]he only real puzzle here is the persistence of the pundit delusion, the belief that the stuff of daily political reporting - who won the news cycle, who had the snappiest comeback - actually matters.
Some political analysts, like Charlie Cook, say that he made a mistake by pursuing health reform, that he should have focused on the economy. As far as I can tell, however, these analysts aren't talking about pursuing different policies - they're saying that he should have talked more about the subject. But what matters is actual economic results.
The best way for Mr. Obama to have avoided an electoral setback this fall would have been enacting a stimulus that matched the scale of the economic crisis. Obviously, he didn't do that. Maybe he couldn't have passed an adequate-sized plan, but the fact is that he didn't even try. True, senior economic officials reportedly downplayed the need for a really big effort, in effect overruling their staff; but it's also clear that political advisers believed that a smaller package would get more friendly headlines, and that the administration would look better if it won its first big Congressional test.
In short, it looks as if the administration itself was taken in by the pundit delusion, focusing on how its policies would play in the news rather than on their actual impact on the economy.
This shows a fundamental misunderstanding of the actual problem. No one here has been "taken in", as you put it. If the Beltway pundits and govt officials spend all their time spinning this delusion, it isn't because they believe it. It's because they have nothing else.
There is a irreducible conflict in our economic reality, a conflict that no one in politics or its puppet press wants to acknowledge. It is a conflict between an economy that serves primarily the rich - a plutonomy - and an economy that serves the whole society. The economy that has been built over the last 30 years and especially the last 10 is unarguably the former. This is from 2006:
The latest Survey of Consumer Finances, for 2004, has been released by the Federal Reserve. It shows the rich continue to account for a disproportionately large share of income and wealth in the US economy: the richest 10% of Americans account for 43% of income, and 57% of net worth. The net worth to income ratio for the richest 10% of Americans increased from 7.4x in 2001, to 8.4x in the 2004 survey. The rich are in great shape, financially.
We think this income and wealth inequality (plutonomy) helps explain many of the conundrums that vex equity investors, such as why high oil prices haven't seriously dented growth, or why "global imbalances" are growing along with the equity bull market. Implication 1:Worry less about these conundrums.
We think the rich are likely to get even wealthier in the coming years. Implication 2: we like companies that sell to or service the rich - luxury goods, private banks etc.
We are in a plutonomy, an economy geared to the needs and wants and whims of the richest. In The Great Wealth Transfer, you explained the mechanism for this shift, yet you don't seem to recognize the inevitability of the economy such a shift would produce, an economy that would be aimed, as it must be, at those in the upper income brackets, those with the resources to most affect it. IOW, it is aimed there, as Willie Sutton once said when asked why he robbed banks, "because that's where the money is."
As an Establishment political figure surrounded by other Establishment political figures, conservative Establishment financial advisors, conservative Establishment corporate sponsors, and acting as the head of the dominant conservative political wing of the Establishment party in power, a party which believes it owes its existence not to us, the voters, but to its conservative Establishment sponsors, it would be ludicrous for anyone with an ounce of sense to expect liberal, anti-Establishment actions from Obama.
At the same time, this remains a democracy in which voting still matters (sort of), and the vast majority of voters are not plutocrats. In fact, they're losing ground rather than gaining it as the money continues to flow to the top. They are not doing well in a plutonomy because they aren't supposed to. Unfortunately, if they figure out that that's what's going on, there's going to be retribution. Hence, the "delusion", which is actually not a "delusion" so much as a con to prevent people from figuring out what's just happened to what used to be their economy and who hijacked it. The pundits have to keep pretending it's the scorecard that counts or somebody's liable to figure out the game has changed completely.
I love yah, Paul, but try to keep up.
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