Saturday, March 28, 2009

From Paul Krugman's blog: Oh, those touchy magicians!


Krugman: unfair to magicians?

"That boring, primitive financial system serviced an economy that doubled living standards over the course of a generation."
-- Paul Krugman, in his Friday NYT column, "The Market Mystique"

by Ken

Here is a blog post, in its entirety, from Paul Krugman's "Conscience of a Liberal" NYT blog yesterday:
March 27, 2009, 12:44 pm

Was I unfair?

A reader writes in to complain about today’s column, in which I compared the supposedly productive activities of financial wizards to the sleight-of-hand of stage magicians.

As a magician, he resents being compared to investment bankers.

As a matter of fact, without joining the issue of fairness-to-prestidigitators, let me just say that the column in question struck me as an especially lovely one -- one of those periodic reminders we get of PK's special ability to take his remarkable body of knowledge and understanding and step back and see a Bigger Picture than most of the rest of us.

President Obama, he notes ruefully, seems clearly in sync with the financial-services industry champions who would never think to question how we came to have a financial-services industry and why we need such a thing. Before there was a financial-services industry, he recalls, before the catastrophic waves of deregulation that allowed the creation of all these financial "players" unaccountable to anyone, what we had was a banking system, and that banking system -- with the reforms instituted in response to the Great Depression -- was not only singularly unglamorous but singularly small ("Even during the 'go-go years,' the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P.").

"Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation."

Of course the modern financial-services industry that was birthed in the Reaganite '80s has made lots and lots of moolah -- for the participants in that financial-services industry. And in time it generated this giant sucking collapse. Is it really obvious, Krugman asks, that our goal now should be to reconstitute that system, even with such reinings-in as Treasury Secretary Geithner is now proposing?

About the best argument I can think of for such an industry is that it occupies all those self-validating "best and brightest" greedheads who really think their "services" are worth all the gazillions of dollars they've helped themselves to. Otherwise, who knows?, they might involve themselves in, well, goodness only knows what.

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