However, as a trader and participant in the financial markets, I am increasingly taking issue with his decidedly anti-market stance of late and his terminally negative view of the Obama/Summers/Geithner grand plan.
Krugman basically rejects any type of market-based solution to the problem. He views the Geithner plan as a lowly bribe and in his latest New York Times column (The Market Mystique) wonders if:
"a market in which buyers have to be bribed to participate can really be described as 'better functioning'.”
My problem with this is that it's basically an unhelpful (even destructive) moralistic view of the market and that it forgets that markets have always functioned thanks to what quite a few people would call an immoral sentiment but there you have it, namely greed. Greed and monetary incentives are, for better or for worse, at the heart of market-based capitalism. When you use the ethically-charged term "bribe", your are basically demonizing a key component of well-functioning markets: incentivisation.
Markets are best studied using an amoral approach, otherwise no rational discussion is possible. When one starts attaching terms such as greed, bribe, theft, fraud etc... to a reasonable discussion on what should be done to solve the financial crisis, reason and moderation are the first things to go. Then, inevitably, the solutions that come to the surface are of the "throw away the baby out with the bathwater" variety i.e. destroy the system and start anew.
Maybe, just maybe, that's exactly what we'll need to do, eventually. But it's way too early and way too dangerous to go that route without having exhausted all the other, less extreme, solutions first. It would also be irresponsible.
I'm familiar with the argument that, if we're going to totally revamp the system eventually, we might as well do it sooner rather than later, that it'll be less costly. The problem with this argument is that we actually don't know how costly a hasty destruction/reconstruction of the current financial system would be, the same way we didn't know how costly letting Lehman go under would be. In Lehman's case, I don't think anyone liked the results. So with the economic system as a whole. To paraphrase Bernanke:
A massive economic crisis is not a good time to tear up the financial system.
2 comments:
From The Seldom Seen Kid:
Muser,
I agree w/you.
Lately, the commentary saying the toxic asset plan will not work is becoming a dime a dozen. Despite the fact that there are serious firms that say they are interested and think it will work. PIMCO, Carlyle, Blackrock, Fortress, Blackstone, Farallon Capital and Wilbur Ross have all said they are interested and are optimistic.
I respect Krugman, too. But I also respect those who (like you and I) actually have some "skin" in the game.
Once the mentioned firms jump in, theory is over and the skin is at risk for them.
I would challenge Krugman to talk with these people and essentially try to talk them out of believing that they can price what they feel they can price.
Very good blog site - btw. Keep up the good work.
Much appreciated, SSK.
I think P.K. is becoming addicted to his role as Mr. Thumb Down to anything and everything this administration comes up with to try and fix the financial system.
His NYT columns and his blog posts are becoming more and more apocalyptic. Is it maybe because now that Dr. Doom and Mr. Black Swan have toned it down, somebody had to step up and fill in?
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