Daily Archives: May 14, 2012

Paul Krugman’s Economic Blinders

By Michael Hudson

Paul Krugman is widely appreciated for his New York Times columns criticizing Republican demands for fiscal austerity. He rightly argues that cutting back public spending will worsen the economic depression into which we are sinking. And despite his partisan Democratic Party politicking, he warned from the outset in 2009 that President Obama’s modest counter-cyclical spending program was not sufficiently bold to spur recovery.

Continue reading

Why JP Morgan Gets Away With Bad Bets

By William K. Black
(Written for CNN Opinion)

JPMorgan Chase can be considered a systemically dangerous institution, which means that it is “too big to fail” because the government fears that its collapse would cause a global financial crisis.

It is simply irrational to allow such an institution to exist, especially when it can easily incur a $2 billion trading loss.

Banks are more efficient when shrunk to the point that they can no longer endanger the world economy. But because JPMorgan and similar banks are the leading contributors to Democrats and Republicans, neither political party has the courage to order them to reform.

The Volcker Rule, which aims to prevent insured banks from engaging in speculative bets, was passed as part of the Dodd-Frank Act over the objections of Treasury Secretary Timothy Geithner and almost the entire Republican congressional delegation.

Read more

The Merkel Myths that are Devastating Europe

By William K. Black
(Cross posted from Benzinga.com)

German Chancellor Merkel wishes to stamp out any belief that there is a “magic bullet” to deal with the renewed euro zone crisis.  Merkel’s response to the crisis, however, is the fundamental cause of the second-stage of the crisis and it is the product of magical (un)realism – a series of economic myths that she asserts as if they were facts.

Angela Merkel warns there is no ‘magic bullet’ to beat debt crisis

Merkel’s rhetoric is intended to ridicule opponents of the Berlin Consensus – the austerity dogma that has thrown the euro zone back into recession and the periphery into depressions.  Tens of millions of Europe’s citizens, however, hate the Berlin Consensus’ austerity dogma as recent elections have shown.  My colleagues and I have explained many times why pro-cyclical policies (e.g., austerity in response to a Great Recession) make recessions more common and severe.  Counter-cyclical fiscal policies are not “magic” – automatic fiscal stabilizers work, they make recessions less common and less severe for reasons that are understood.  As we have also explained, it is proponents of austerity as a response to a Great Recession who rely on magic.  Paul Krugman’s withering phrase is that austerity proponents are perpetually waiting for the arrival of “the confidence fairy.”

Continue reading