Rabbit-Hole Economics By PAUL KRUGMAN

[dtotire]

Rabbit-Hole Economics

By PAUL KRUGMAN

Published: October 13, 2011



Reading the transcript of Tuesday’s Republican debate on the economy is, for anyone who has actually been following economic events these past few years, like falling down a rabbit hole. Suddenly, you find yourself in a fantasy world where nothing looks or behaves the way it does in real life.

And since economic policy has to deal with the world we live in, not the fantasy world of the G.O.P.’s imagination, the prospect that one of these people may well be our next president is, frankly, terrifying.

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

But down the rabbit hole, none of that happened. We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking.

The demonization of Mr. Frank aside, it’s now obviously orthodoxy on the Republican side that government caused the whole problem. So what you need to know is that this orthodoxy has hardened even as the supposed evidence for government as a major villain in the crisis has been discredited. The fact is that government rules didn’t force banks to make bad loans, and that government-sponsored lenders, while they behaved badly in many ways, accounted for few of the truly high-risk loans that fueled the housing bubble.

more:
http://www.nytimes.com/2011/10/14/opinion/rabbit-hole-economics.html?_r=1&hp

[Stuart G]

1. k & r

[libinnyandia]

2. Republican fantasies

When one looks at what the Republicans are saying in their debates, one has to wonder how anyone who doesn't belong to that party could support any of the candidates. One would hope independents, who will make the decisions that determine the face of the govenment in 2013, will come to realize how far from reality the GOP has gone. And you would think that trhere would be some republicans who would reject all the candidates and maybe become Obama Republicans.