Krugman believes that liberalism can be restored to its 1950's health without the need for any new policies. However, 1950's liberalism was based on southern white racism and solid support from the unions, neither of which exists any more. There is no future in pure redistributional policies in the USA for this reason. Indeed, if one looks at other social democratic countries, almost all are moving from corporate liberalism to embrace new options, such as Sarkozy in France (French socialists have the same pathetic political sense as American liberals, and will share the same fate).
I am sorry that we can't do better than Krugman. There are very serious social problems to be addressed, but the poor, pathetic, liberals simply haven't a clue. Conservatives, on the other, are political sophisticated and hold clear visions of what they want. It is too bad that what they want does not include caring about the poor and the otherwise afflicted, or dealing with our natural environment.

from Gintis' Amazon review of Krugman's book.

Crossposted People's View

In the early months of the Obama administration, with the economy in  free-fall and Bush's bank bailout having poured hundreds of billions  into an apparently bottomless bank collapse, Nobel Prize winners Paul  Krugman and Joe Stiglitz among others "on the left", authoritatively and  confidently  explained that the policies advanced by the new  Administration were naive, stupid, complicit, and sure to fail abysmally  and catastrophically. The extent of the error made by these economists  and others, like Dean Baker, Simon Johnson, and Robert Reich, not to  mention all their often ludicrously ignorant followers in "progressive"  blogs  is all the more remarkable given their subsequent lack of  interest in figuring out why they were so wrong or even admitting to  error in the first place.

I was under the impression that he might bring in the voices of brother Joseph Stiglitz and brother Paul Krugman. I figured, OK, given the structure of constraints of the capitalist democratic procedure that's probably the best he could do.
-Princeton Professor Cornel West (not a hotel porter)

The  basic Krugman/Stiglitz argument was that the financial markets had  correctly priced bank assets as junk and so the biggest banks owed more  money than they could ever repay and the government should "nationalize"  them. The Administration, on the other hand, said that the financial  markets were in the grip of a panic and that arranging for temporary government  and government/private finance would calm things down at less cost to  the taxpayer. Obviously, Geithner, Obama, and Bernanke were correct and  the critics from the left were incorrect - the banks have stabilized,  the "toxic assets" purchased by government have turned out to be a great  investment, and the economy is recovering slowly, not smoldering in  ruins. But the strangest thing about the incorrect analysis of the "left  critics" is that it's based on a fundamentally right wing view of the  economy wrapped up in a bunch of pseudo-populist signifying.  The right  insists that that market price is value. The right insists that financial  markets are rational. And the right is contemptuous and derisory about  reformers.

Just for reference, I want to provide a little counter-narrative on what is left/right in the US and the continuing worldwide economic crisis: A Quick Note on Bank Liabilities (The Baseline Scenario blog)

[S]ome decision must be reached on bank liabilities. Sweden guaranteed all of them. If forced to say, I would go the Swedish route; but of course we can't do that unless we're prepared to put all troubled banks in receivership. And I'm ready to be persuaded that some debts should not be honored -- this is a deeply technical question.

This is Paul Krugman advocating the Irish solution for the US in 2009.

Crossposted at People's View

Most of us think of economic theories as lining up from left to right, from communism to free-marketism, but there is a whole other school of economics that is on a slant to that line and provides an escape from the limits of conventional economics. During the 1800s that school was so influential in the USA that it was called "The American System" or the "high wage system". Here is something from the right winger economists at the Mises Institute complaining about one of the advocates of that system:

And those political views were clearly stated by Lincoln when he first ran for the Illinois legislature in 1832: "My politics are short and sweet, like the old woman's dance. I am in favor of a national bank . . . in favor of the internal improvements system and a high protective tariff." These three things -- protectionism, government subsidies to railroad and canal-building companies, and central banking -- were called the "American System" by Henry Clay. Economists have another word for them: "mercantilism."

Practically every conventional economist from Marx to Hayek to Paul Krugman and Gary Becker shares this same contempt for the American System. According to them, it's just dumb "mercantilism" and economics theory proves that it can't work. But every single nation that has become wealthy since the dawn of the industrial age has embraced something very much like the American System: China, Korea, Sweden, Taiwan, Germany, and of course the USA. And every nation that has adopted or been forced to adopt the recipes of conventional economics has seen wages fall, manufacturing collapse, and the middle class disappear. That is where we are going in our era of wage cuts where even a decent education is something that middle class people can no longer afford. Sadly for America we have abandoned the American System and we are paying the price.

Beginning in the 1760s the mighty Dutch system experienced several serious incapacitating crisis: crisis which all resemble one another and appear connected with credit. The mass of commercial paper, the total sum of 'artificial money', seems to have enjoyed a degree of autonomy vis-a-vis the economy in general, but there were limits that could not be overstepped.  

Braudel.

If the "progressive" blogs represented a functional American left wind power success would be being trumpeted as a massive victory.So one might expect a message like: Our efforts to put Obama in office saved 100,000 good jobs and helped America start becoming energy independent and rebuild manufacturing - we need 10 times more . Instead, the "progressives" are complaining that an anti-waste component of the Presidents state of the union "accepts framing" of the right. This exemplifies two characteristics of the US "progressive" movement: focus on elite governance tactics and focus on (pathetic) efforts to persuade elites as opposed to building popular movements.

To create corporations and invest in political debate in the USA. Just imagine, the French Socialists should conduct a television campaign explaining how well the French health care system works and inviting Americans to enjoy the benefits of social democracy. Norwegians - use your oil money to keep the Republicans out of office. The Supreme Court has invalidated US laws limiting corporate electioneering, so come on in and help us out.

(mostly the same in Boomantribune) During the US Presidential primary campaign, Paul Rosenberg's essays (from here) on ideology and "hegemony" provoked nothing more than laughter from me, but he was sort of right. It's impossible to understand the destructive role of the "anger left" as represented by Taibbi, Rosenberg, Firedoglake, and others in American politics without applying some class analysis. First, consider the cohesive underlying political message of this group - which can be boiled down to

We, the people, have been betrayed by a weak, unqualified Obama who is under the control and inimical influence of a shadowy Rahm Emmanuel and too close to bankers like Ben Bernancke.

All you have to do is fill in the ethnicity of the characters, which everyone knows, and you've produced something from the traditional language of the far right. Now mentioning this provokes howls of rage from the guilty, who are deeply offended that anyone should question their enlightened bone-fides - howls that are especially ironic from people like Rosenberg who throw around the term "hegemony" apparently with no understanding of what it means.

The "independent" inspector" of the US bailout issued a report on the AIG bailout. Table 2--Total Payments to AIG Credit Default Swap Counterparties
(in billions) (collateral, cash, total)

Société Générale                            6.9                   9.6  16.5
Goldman Sachs                               5.6                   8.4  14.0
Merrill Lynch                               3.1                   3.1   6.2
Deutsche Bank                               2.8                   5.7   8.5
UBS                                         2.5                   1.3   3.8
Calyon                                      1.2                   3.1   4.3
Deutsche Zentral-Genossenschaftsbank        1.0                   0.8   1.8
Bank of Montreal                            0.9                   0.5   1.4
Wachovia                                    0.8                   0.2   1.0
Barclays                                    0.6                   0.9   1.5
Bank of America                             0.5                   0.3   0.8
The Royal Bank of Scotland                  0.5                   0.6   1.1
Dresdner Bank AG                            0.4                   0.0   0.4
Rabobank                                    0.3                   0.3   0.6
Landesbank Baden-Wuerttemberg               0.1                   0.0   0.1
HSBC Bank, USA                              0.0*                  0.2   0.2
                           Total           27.1**                35.0  62.1

Krugman and Sachs make an expected value argument as if each asset was covered by a non-recourse loan. But the Geithner plan is based on pools. Let use Krugman's numbers of $100 face, $50 bad, $150 good with an even distribution. If you are able to assure 50/50 distribution, then $130 is investor break even since the investors 1/12 investment of about $10 makes $10 profit on the good assets and loses $10 on the bad ones. I'd say that nobody would be stupid enough to make investments on this type of basis, but reliance on Moody's AAA ratings convinces me otherwise. However the loans are not being sold individually, but in pools. If we minimally pool in sets of 4 then the investor only earns profit on sets with majority good loans and loses money on the even and majority bad loan sets. Binomial distribution then tells us that the break even bid is $105 (oops!)

Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner -- and this gang knows nothing about production and has nothing to do with it.

Marx, Capital Vol. III Part V
Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital.

And then he quotes this
"Banking establishments are ... moral and religious Institutions.... How often has the fear of being seen by the watchful and reproving eye of his banker deterred the young tradesman from joining the company of riotous and extravagant friends? ... What has been his anxiety to stand well in the estimation of his banker? ... Has not the frown of his banker been of more influence with him than the jeers and discouragements of his friends? Has he not trembled to be supposed guilty of deceit or the slightest misstatement, lest it should give rise to suspicion, and his accommodation be in consequence restricted or discontinued? ... And has not that friendly advice been of more value to him than that of priest?" (G. M. Bell, a Scottish bank director, in The Philosophy of Joint Stock Banking, London, 1840, pp. 46, 47.)

During WWI, British officers were famous for living well back from the front and living luxuriously well, while their soldiers lived and died in mud. I only recently read
 "The last true story" a memoir of a US National Guardsman who "served" in Iraq. The grisly picture of effect of the US occupation on Iraq comes through well, but what also is striking is the gross incompetence, stupidity, delusion, and lack of responsibility in the Republican officer class. While the soldiers live 15 to a room without even fans in the Iraqi summer, sleeping on bare floors with no water, patrolling the streets with no mission, equipped with Vietnam era worthless body armor, lacking guidance, intelligence, or any semblance of a plan, the officers cower in air-conditioned fortresses, emerging only to play Patton and give cliched speeches to soldiers whose names they can't bother to remember.

Somehow, without a heriditary aristocracy, the US has found itself managed by a collection of twits who could have emerged from Mayfair.