What does 'standard economics' have to offer? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 16 January 2013
What does 'standard economics' have to offer? A  A  A

Baltimore, Maryland

We sat by our phone last week. We checked to make sure it was working.

Nothing. Maybe they had the wrong number.

We'd heard the folks at the White House were casting around for a new Treasury chief. Logically, it should have been offered to us. Why?

Because we saw the crisis coming...and we can prove it.

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And because we had a good plan for dealing with it.

And if we'd been allowed to execute our plan...the problem would be over by now.

Surely, they'd rather have us in the Treasury department than some no-account hack like Jack Lew. Actually, we never met the man. But we know the type. He's described as a capitol "insider." A "philosophical liberal." A "numbers guy." He even went to our alma mater, Georgetown University Law Center at the same time we did (though we have no recollection of him). All of those things help us understand not who he is - we'd have to get to know him for that - but what he is. He is a jackass.

But we will leave it to Jack to prove it, in due course.

In the meantime, we would just like to sympathize with poor Paul Krugman. Yes, the Nobel Prize winner didn't get the Treasury job, either.

    Krugman Passes on Treasury Secretary Job; Wasn't Offered It Anyway

    Daniel Halper

    January 7, 2013 9:16 AM

    In a blog post on the New York Times website, columnist Paul Krugman says no to serving as treasury secretary. Which is clarifying, even though he was never offered the job anyway.

    "Yes, I've heard about the notion that I should be nominated as Treasury Secretary. I'm flattered, but it really is a bad idea," writes Krugman.

    And, by his own admission, Krugman's better at playing the "outside" game than the inside one. He writes, "The New York Times isn't just some newspaper somewhere, it's the nation's paper of record. As a result, being an op-ed columnist at the Times is a pretty big deal - one I'm immensely grateful to have been granted - and those who hold the position, if they know how to use it effectively, have a lot more influence on national debate than, say, most senators. Does anyone doubt that the White House pays attention to what I write?"

    Working for Obama, rather than the Times, would be a step down.

For us, on the other hand, it would be a big step up. What wouldn't be?

We should have at least been offered the job. Then, we could turn up our nose and turn down the job...with a superior sniff.

But Mr. Krugman deserved the job much more than we do. He sacrificed his brain for it. He actually believes the claptrap that you need to believe to be Treasury Secretary.

Here's an example: He says that "standard economics" had the solution to the Great Correction (which he regards as though it were a major ailment.) What did 'standard economics' have to offer? Well...more little pieces of green paper. If you're smart, as he is, you have to make a serious effort to misunderstand things so clearly.

And, he is willing to put his own signature on those little green pieces of paper, each one a Federal Reserve Note. A note is something you owe someone. It's a promise. You 'note' that the other person is owed...and you are the ower. But if you know anything about federal finances you know damn well you can never repay the note. We wouldn't put our signature on it. But Krugman has no sense and no shame; he'll do and say practically anything.

Money printing didn't revive the bubble years. But it sure put a lot of dollars in a lot of pockets. His support for these payoffs - bailouts, recapitalizations, boondoggles - should have put the Treasury gig in Krugman's pocket. But alas...Krugman says...economists were foiled; they were prevented from delivering enough of the green medicine to make it work.

Result: 'The Big Fail.'

Well, at least we agree on one thing. Efforts to revive the go-go economy of '05-'07 haven't worked. All they've done is to retard the correction.

What is a correction? Byron Goldberg says it's when you "get rid of the BS."

We like that definition. The Great Correction got rid of Wall Street's dopey derivative deals. It got rid of average houses priced at levels average people couldn't possibly pay. It got rid of trailers selling for $1 million and mortgage debt based on inflated house prices.

It got ride of a lot of BS. And if it had been allowed to do its work, it would have gotten rid of a lot more BS.

Which is why 'standard economics' tries to stop corrections. Because 'standard economics' is BS.

But getting back to us...if the feds had followed our advice, where would we be now?

Let's see, probably half the big Wall Street banks and investment houses would have toppled over. They just didn't have enough cash to weather a stiff correction.

Remember what happened to Citigroup? It was America's 3rd largest bank..."proudly serving 100 million clients in 40 countries" says the website. We also learn that it has 4,600 branch offices.

What it lacked, however, was money. With equity less than 4% of its assets, it barely survived the mini-crisis of 1990-1991. Come the big crisis of '08-'09 and Citi should have gone under...along with hundreds of other reckless companies.

Oh, can you imagine the wailing...the weeping...the gnashing of teeth. The outrage on the part of Paul Krugman, Joseph Stiglitz, Ben Bernanke and the rest of the meddlers! Seeing so much of their BS flushed away...they would have been horrified.

But that would have happened in 2009. What would have happened in 2010? In 2011? And 2012? Instead of spending years and trillions of dollars trying to keep the zombies alive, clever entrepreneurs and out-of-luck zombies would have spent the last three years re-building.

And what about the debt? There'd be a lot less of it. Because our plan would have balanced the budget even as tax revenues fell. Talk about BS removal! In order to balance the budget a third of spending would have had to be cut.

You can imagine the howls of protest!

A normal Treasury Secretary, trained in 'standard economics,' would have cringed, printed more dollars and rushed to succor them. To us, on the other hand, the zombie whines would have been a pleasant sound, like listening to Willie Nelson singing "Blue Eyes Crying in the Rain."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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