Krugman: The Competition Myth

According to New York Times columnist Paul Krugman, the Great Recession was a teachable moment for Americans to learn that unregulated markets are unstable.

That’s not the only thing Krugman would like Americans to learn from the latest recession, but it’s a key point that he feels was missed.

Another one is that corporations don’t really give a rip about what happens to the US economy, and in his latest column he takes President Obama to task for what he’s expected to say in his State of the Union speech on Tuesday.

Krugman thinks that Obama is going to talk a lot about competition. He’s going to say things like he did in his Saturday radio address, “We can out-compete any other nation on Earth.”

“But let’s not kid ourselves: talking about ‘competitiveness’ as a goal is fundamentally misleading,” explains Krugman. “At best, it’s a misdiagnosis of our problems. At worst, it could lead to policies based on the false idea that what’s good for corporations is good for America.”

Krugman might be right, because in order for the US to compete with China for example, wages will have to come way down, the Environmental Protection Agency will have to go away, labor laws will have to be shredded and so on. It’s a recipe for a race to the bottom.

So what does the administration’s embrace of the rhetoric of competitiveness mean for economic policy?

The favorable interpretation, as I said, is that it’s just packaging for an economic strategy centered on public investment, investment that’s actually about creating jobs now while promoting longer-term growth. The unfavorable interpretation is that Mr. Obama and his advisers really believe that the economy is ailing because they’ve been too tough on business, and that what America needs now is corporate tax cuts and across-the-board deregulation.

My guess is that we’re mainly talking about packaging here. And if the president does propose a serious increase in spending on infrastructure and education, I’ll be pleased.

But even if he proposes good policies, the fact that Mr. Obama feels the need to wrap these policies in bad metaphors is a sad commentary on the state of our discourse.

Even though it’s clear to many well-respected economists that unregulated markets are unstable, there’s been little political capital spent to beef up regulatory agencies. The Pecora Investigation was a congressional committee that investigated the causes of the Great Depression, and they learned that it was a lack of proper market regulation. As a result, government agencies, such as the Securities and Exchange Commission and others were created. While those agencies were strong, the economy was relatively stable. But since those agencies have been weakened, starting in the early 1980s, the US has experienced a series of major economic crises.

Our modern-day version of the Pecora Investigation is the Financial Crisis Inquiry Commission. The FCIC is expected to release its report on January 27. The Commission split along party lines with the GOP blaming Fannie Mae and Freddy Mac for the global economic meltdown, and the Democrats on the Commission mumbling to themselves in the corner.

The fact is that any and all legislation that was expected to fix what broke the economy has already been passed and there’s no more to be done about it. So expect to see more of the same, which is a boom and bust economy.

“The financial crisis of 2008 was a teachable moment,” Krugman said, “an [abject] lesson in what can go wrong if you trust a market economy to regulate itself. Nor should we forget that highly regulated economies, like Germany, did a much better job than we did at sustaining employment after the crisis hit. For whatever reason, however, the teachable moment came and went with nothing learned.”

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