Krugman’s Crisis Responsibility: Reagan or Bush ?

As often as not, I find myself agreeing with professor Paul Krugman on economic issues. We both were named one of the 14 Most Strident Critics of Obama; we each have been critics of bailing out insolvent zombie banks; neither of us cared for Hank Paulson’s massive monetary giveaways.

We’ve also disagreed on things, most recently Securitization.

But last week, Krugman blamed much of the credit crisis and economic collapse on President Ronald Reagan.

I found that position unsupported by the facts. I assign only modest culpability to RR in Bailout Nation for a) appointing the ruinous Alan Greenspan to FOMC Chief; and 2) pushing the deregulation movement forward. Yes, that movement eventually became radicalized by the likes of Greenspan and Enron Texas Senator Phil Gramm (and others) — but that took place long after Reagan left office. And, I hold Bill Clinton much more responsible, for such foolish acts as the repeal of Glass Steagall and the passage of the Commodity Futures Modernization Act.

Then on Monday, Krugman totally perplexed me; he essentially exonerated George W. Bush for much of what went wrong economically:

“What would have happened if hanging chads and the Supreme Court hadn’t denied Al Gore the White House in 2000? Many things would clearly have been different over the next eight years.

But one thing would probably have been the same: There would have been a huge housing bubble and a financial crisis when the bubble burst. And if Democrats had been in power when the bad news arrived, they would have taken the blame . . .”

The professor is wrong about this. The facts do not support his perspective.

Note that this isn’t a political harangue, it is a policy critique. (The same way I critique Obama) When we look at the details of W’s 2 terms — the policies, appointments, judgment calls and overall philosophy that were the hallmarks of the Bush Administration’s economic policies — they were uniformly terrible. Time and again opportunities to avoid or reduce the disaster were missed, poor decisions were made, the wrong person (i.e., Hank Paulson, Harvey Pitt, etc.) were put into key positions.

Blaming Reagan makes little sense, exonerating Bush makes even less sense.  In just about every way a President could make an economic crisis worse, George W. Bush did.

Consider this excerpt:

But it was George W. Bush’s appointments who chanted the “laissez faire, free markets reign supreme” mantra the loudest. The SEC chairs he appointed were terrible, and many of his other appointments—Office of Thrift Supervision, Federal Reserve, Treasury secretary, and other key regulatory roles—were similarly ill-advised.

Question: What do you get when a president who doesn’t believe in government appoints those who share this philosophy to key regulatory and supervisory roles?

Answer: Neither regulation nor supervision.

Missed opportunities seem to be a hallmark of the Bush presidency: As the various crises unfolded, there were key choke points where  the damage could have been contained. None were acted upon until after the crisis had fully flowered.

When appraisers petitioned the White House in 2001, complaining of inflated home appraisals filed by corrupt home inspectors, they were rebuffed. When state banking regulators recognized signs of lending fraud early on, their attempts to curtail it were prevented by Bush.

The White House asserted that it was the federal agencies—and not the states—that had jurisdiction over federally chartered banks. That’s a fine argument to make, until those federal agencies recognized lending problems and began proposing rules to curtail them on their own. They, too, were rebuffed by the White House—not state agencies, but the federal agencies the White House claimed had exclusive jurisdiction.

The Associated Press (AP) summed up why the very government regulators assigned to prevent abuse failed so miserably to do so: “The administration’s blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.”

As to Al Gore, we do not, of course, have the counter-factual. No one knows what decisions Gore would have made. But it is hard to imagine that anyone else could have done as poor a job as the W gang that could not shoot straight.

In exonerating the British PM, Krugman inadvertently excuses the horrific reign of error of George W. Bush. That is a mistake on his part . . .

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If there is interest, I will post additional book excerpt related to this . . .

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Previously:
Paul Krugman is Wrong About Securitization (March 28th, 2009)
http://www.ritholtz.com/blog/2009/03/krugman-is-wrong-about-securitization/

The 14 Most Strident Critics of Obama (April 30th, 2009)
http://www.ritholtz.com/blog/2009/04/the-14-most-strident-critics-of-obama/

How Much is Reagan Responsible for Bailout Nation (June 1st, 2009)
http://www.ritholtz.com/blog/2009/06/how-much-is-reagan-responsible-for-bailout-nation/

Source:
Reagan Did It
PAUL KRUGMAN
NYT, May 31, 2009
http://www.nytimes.com/2009/06/01/opinion/01krugman.html

Gordon the Unlucky
PAUL KRUGMAN
NYT, June 7, 2009
http://www.nytimes.com/2009/06/08/opinion/08krugman.html