The Big Zero

http://www.nytimes.com/2009/12/28/opinion/28krugman.html?pagewanted=print

by hack_edu • 17 years ago

42 46 17 years ago

Hard to argue with this:

So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.

What percentage of all this turned out to be true? Zero.

pwnstigator2• 17 years ago

In 1999, I was 16 and thought the world was run mostly by idiots, scumbags, and criminals, and that it was going to fall to pieces within a few years. Everyone thought I was just expressing "teenage angst" and that I'd be proven wrong by maturity. By 2008, these sentiments-- established to be largely true-- were common knowledge.

Even the liberals of the time (e.g. Clinton) had a steadfast belief in corporate benevolence as a general principle. You were seen as a whiner and a loser (envious, insecure) if you suggested otherwise. Now? Turns out the "whiners" were right.

pavel_lishin• 17 years ago

In 1999, I was 16 and thought that the world wasn't being run at all.

foldr3• 17 years ago

I think the truth is somewhere in the middle. You were just expressing teenage angst, but by coincidence you happened to be right :)

byrneseyeview3• 17 years ago

If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up restating their earnings. It's one thing to say that people are flawed, and are dishonest when they can get away with it; but it's another idea entirely to imagine that government regulation does a better job. Madoff's competitors called him a scam artist before the SEC got involved; Paulson made a fortune by correctly betting that housing was overpriced; the Enron story was pushed by short sellers and journalists, to the point that the government didn't get involved until after the bankruptcy.

So why would we trust the government--which has failed miserably so far--to suddenly do a better job than the private sector?

roc4• 17 years ago

Luckily it's not an either/or.

There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks.

The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency.

If those banks weren't absurdly leveraged, the housing bubble would have just been another recession.

Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging.

But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.

jbooth6• 17 years ago

That's a silly assertion. Between the Freedom of Information Act and various federal, state and local procurement rules, the government never spends any money without making much more information available than Sarbox requires. That's part of why it's inefficient.

"Blah government is stupid" is not a sufficient answer to most questions.

ajscherer• 17 years ago

I don't follow your argument. Are you saying the government's failure to prevent those three things from happening somehow proves regulation is worthless? Or are you just pointing out that individuals in the private sector were able to figure these things out before any government agencies?

It certainly doesn't appear that the private sector was able to prevent those three things from happening, so I can't see how your conclusion follows from your argument.

drewr• 17 years ago

Not hard to argue at all. This narrative is worn out. The populist belief that Corporate America was a down-home hoe down where good guys get together and make deals with a handshake is revisionist at best.

Summers perfectly illustrates that the financial system is a nepotistic web of USG, banks, and investors which is heavily regulated to maximize profits at all endpoints. The fact that it only comes crashing down every few decades is a testimony to the small remnants of capitalism one might find in the edifice.

Krugman is economics theatre.

logicalmind2• 17 years ago

The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve.

*By person I mean a legal person http://en.wikipedia.org/wiki/Legal_person

anamax4• 17 years ago

> The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve.

The fix, making it impossible for ordinary people to contribute useful amounts of money to political causes in which they believe, makes things worse.

Note that we didn't actually have rich people buying elections before the various campaign finance restrictions. Out of fear of a then-imaginary problem, we set up a system where the problem actually occurs.

Malice or incompetence - either way, it's not much of a recommendation.

logicalmind2• 17 years ago

I don't think that ordinary people are the problem. If by ordinary people you mean natural persons* . In the US government, the elected officials should represent the will of the people who elected them. The problem is that special interests find that money is better spent through lobbying. This allows them to buy votes and even write laws. A massive amount of money is spent lobbying:

http://www.opensecrets.org/lobby/index.php

This money obviously has an effect. Ordinary people aren't creating lobbying groups.

*http://en.wikipedia.org/wiki/Natural_person

rms2• 17 years ago

We could also outlaw corporate personhood.

olegk• 17 years ago

This decade has been really really good for IT, especially salary-wise. There were tons of successful startups.

WilliamLP2• 17 years ago

> This decade has been really really good for IT, especially salary-wise.

Yet somehow I'm making a lot less than I did in 1999, before inflation. Part of that is my fault, but still!

Tichy• 17 years ago

But it gave us the iPhone! Perhaps we could call it the "iCade" or something like that?

WilliamLP2• 17 years ago

Basically the decade involved a ridiculous penetration of cheap phones, cameras, and texting, along with vastly improved TV and monitor technology. Along with this came an extreme social change towards being plugged into a social and media network at all times, toward where this is now near its logical conclusion of the devaluation and death of individual thought.

dandelany• 17 years ago

[citation needed]

kees• 17 years ago

My life is improved so much due to technology. Remember only your computer and the internet in 1999.....

The same counts for almost every other product you're using.

Maybe financially there wasn't much progress, but the silent and steady motor of improving daily life is still running.

habitue• 17 years ago

Yeah this is what I thought when reading this. He does, however, preface his statement that "nothing good happened" with "economically speaking", and he makes a good case from that perspective.

mmphosis• 17 years ago

The good news is that there is only one way to go once you hit rock bottom. The bad news may be that I don't think that we've hit bottom. And, we don't necessarily know what the bottom is. The Big Zero is a nice round number, but I think we've been borrowing towards an unpayable debt for longer than ten years, and we are only falling further. Planes, both figuratively and literally, continue to keep dropping out of the sky. If it was left up to me, I would get right to the bottom of it.

The Big Zero

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