[Vision2020] Nobel Laureate Economist Krugman on Debt Deal:ThePresident Surrenders: "a catastrophe on multiple levels"

[Ted Moffett]

Economics is not an objective science like physics, that determines
the operation of the objective physical world apart from human
irrationality, unpredictability and differing ethical systems, for
which there is extreme difficulty "proving" one ethical system is true
over all others.  Therefore there it can be argued there is no one
economic theoretical system that can be proved with evidence and logic
is true over and above all others.  The problems of relativisitic
ethical systems cannot be separated from human economic behavior, in
the same manner as ethics has nothing to say about physics.  One
ethical bias indicates there should be an obligation to share wealth,
another ethical bias indicates the wealthy should keep their wealth
with no obligation to share, to do with as they wish.  There is no
proof one ethical bias is absolutely true over the other.  What would
Jesus say?

Having stated that, I would need another thousand pages to even start
to unravel the problems posed, assuming I was even capable of such
analysis, which is doubtful.

However, the current US economic problems are in part a result of
following under eight years of the W. Bush administration, some of the
economic assumptions of what might be termed the Friedman Chicago
school of economic theory, assumptions that former Federal Reserve
Chairman Alan Greenspan (who I think it is correct to say, is or was
at least in part a follower of), had flaws, as admitted by Greenspan,
after the 2008 economic collapse, which is well known, and discussed
in the fascinating essay by Robert Fritz at the bottom.

Greenspan has also advocated letting the W. Bush tax cuts expire.

http://www.reuters.com/article/2008/10/23/us-financial-greenspan-idUSTRE49M58W20081023
 Greenspan "shocked" at credit system breakdown
 (Reuters) - Former Federal Reserve Chairman Alan Greenspan told
Congress on Thursday he is "shocked" at the breakdown in U.S. credit
markets and said he was "partially" wrong to resist regulation of some
securities.

http://blogs.wsj.com/washwire/2011/04/17/greenspan-steps-up-call-to-end-bush-era-tax-cuts/
“This crisis is so imminent and so difficult that I think we have to
allow the so-called Bush tax cuts all to expire. That is a very big
number,” he said, referring to how much the U.S. government could save
from letting income taxes go back up to levels last seen under former
President Bill Clinton.

------------------------
Now, I'm going to forget about relativistic economic theory, to focus
on the objective physics of climate science, a study for which,
despite the subversion of objective science on this subject by those
with ethically biased agendas related to their economic, politics, or
personal agendas, is about the operation of the objective physical
(and biological) world, which will behave as the laws of physics
indicates, apart from human needs or values.
-------------------------
http://www.robertfritz.com/index.php?content=writingnr&news_id=123

Alan Greenspan's Faulty Assumption
by Robert Fritz

Last week, Alan Greenspan, the former chairman of the United States
Federal Reserve Bank, admitted to Congress that he had made a flawed
assumption in his ideology:

"Those of us who have looked to the self-interest of lending
institutions to protect shareholder's equity (myself especially) are
in a state of shocked disbelief."

What he hadn't expected was that commercial institutions would be
prone to destroy their own economic foundation. Yet, that is exactly
what they did, leading to the most grave financial disaster in modern
history.

Yet this month's article is not about economics but structural
dynamics, and how the underlying structure of anything, such as an
organization, will determine its behavior.

In my book Corporate Tides (Berrett-Koehler 1996) I wrote:
"Wall Street has a lot to answer for when it comes to the economic
fate many corporations have suffered in recent years."

I then went on to describe the structural conflicts that drive leaders
of those corporations to ignore the long-term health and well-being of
their organizations because of their excessive focus on the
short-term.

Again from Corporate Tides: "A gambler's fever now afflicts many
investors. This has led to a devastating structural conflict that
forces those in senior management positions to make decisions that are
not in the best interests of the company."

I wrote this 12 years ago. I claim no greater insight than any of the
economic professionals that study these matters. But, there are
structural principles that are always in operation. Most senior
executives are not aware of these structural principles, and so, often
they find themselves puzzled by the consequences of their actions.

I do not join with those who would villainize Alan Greenspan and see
his wrong assumption explanation as disingenuous. In fact, I think
Greenspan is intellectually honest and is cutting right to the chase.
He had made a wrong assumption, partly because of ideology, and partly
because of his lack of understanding of the structural dynamics in
play.

And what was that assumption? That people, especially those in charge
of some of the largest and most powerful financial organizations in
the world, would be guided by self-interest.

Well, there is self-interest, and there is self-interest. What
Greenspan meant was enlightened self-interest. What actually took
place was a more primitive form of self-interest in which the focus
centers on personal gain, greed, and power, often to the devastation
of the whole. Enlightened self-interest allows for the insight to
choose long-term benefits over short-term gain, when they are in
conflict.

One thing that Greenspan did not know was that organizations,
especially corporations, are a-moral. They are not immoral. They
simply do not run themselves by higher aspirations and deeper human
values. Left to their own devices, they will always gravitate to the
short-term, often to the detriment of the long-term. The short-term
focus has driven many corporations to obsess about their quarterly
performance. Too often, this myopic view hurts their long-term
sustainability. People take actions that are good from a short-term
perspective, but harmful from a long-term perspective. That is why
over the last number of decades we have seen the oscillating pattern
of building up capacity, and then downsizing, and then, later,
building up capacity again. The overall impact is to never have an
adequate workload/capacity balance, and people within the
organizations are worked to the point of chronic stress, strain, and
inefficiency.

The Leadership Factor

And here's where leadership becomes the critical factor in all of
this. Organizations do not have values. People have values. Left on
its own, the organization will lose its way like a ship without a
rudder. The leaders job is to make sure that higher organizing
principles guide critical decisions, so that the longer-term health
and well being of the company can be build on a stronger and stronger
foundation.

The great leaders always come to profound critical decision points in
which the immediate gain, often very attractive, often supported by
Wall Street, must be rejected in favor of higher order values. Great
leaders have learned how to say "No" to things that might hurt in the
long run.

Greenspan counted on great leaders. What he found was a group of
self-serving operatives who could only think in terms of the "now",
and had no sense of future. His blindness came from his ideology, as
will always be the case with any ideology. Ideologies impose fixed
conceptual frameworks on reality, thus making reality hard to observe.
Ideologues are impractical because of this factor. They find it hard
to rethink reality until they are forced into a crisis of faith. This
is true for economic, political, religious, and even scientific
ideologies. Greenspan said that he "found a flaw" in his ideology and
said that he was "distressed by that."

The structural conflict between short-term and long-term will always
be with us. It is built into our organizations, and it is built into
our lives. Do we eat the banana split (short-term) or do we stick to
our healthy way of eating (long-term?) Do we grant mortgages to people
who can't pay for them, especially when the terms change to beyond
their means, or do we refuse, even though it might seem we are not
doing as well as our competitors?

I have seen great leaders choose higher-order values consistently and
consciously. They are not ideologues, but builders, creators, and true
leaders. They are practical, visionary, guided by larger aspirations
than the mindless mantra of share holder's return on investment. They
are tuned into the reason the company has investors in the first
place, often to support a good or great purpose. Leaders like Bruce
Bodaken of Blue Shield of California (my co-author for The Managerial
Moment of Truth), William Brandt of American Woodmark, George Barrar
of LaFrance, Bob Swiggett of Kollmorgen, Terry Ortynsky of Ortynsky
Automotive, and many more who, time and again, make decisions that
uphold the long-term values of their organizations. They are not
subject to fall into the pit of short-term folly.

We cannot always count on great leadership, especially in the
financial world. This is what we discovered in 1929 when the stock
market crashed leading to a world wide depression. The regulations
that FDR put into place has lead to stable banking for over 60 years.
But the financial institutions that were leading the sub-prime mess
were not subject to these regulations. They were free to
self-organize. And, as one thing lead to another, they were free to
drive off a cliff.

A free market is a nice idea. But as an ideology, it is tragically
flawed. Without proper and sensible regulations, some people will put
melamine in milk to gain more profit, even though it will lead to
illness and death in children. Most towns have building regulations
and codes to prevent electric fires, collapse, and harmful materials
and to protect people from peril. In America, we have the FDA, which
regulates pharmaceutical products and food safety.

A society has a right to protect itself from harm. Yet its ability to
do so diminishes when ideologues gain control. This may be the
shocking lesson that Alan Greenspan has come to learn. Too bad the
rest of us must pay the tuition.

© 2008 Robert Fritz
------------------------------------------
Vision2020 Post: Ted Moffett

On 8/2/11, lfalen <lfalen at turbonet.com> wrote:
> If you do not think Will is qualified to debate Krugman, try Thomas Sowell.
> See his NRO blog on April 28.
> Specificly I think Klugman is wrong at the points I have indicated in your
> original post. I think people lilke Sowell and Walter Washington  and
> Friedman have a better handle on economics than Krugman or Keynes.
> -----Original message-----
> From: Ted Moffett starbliss at gmail.com
> Date: Tue, 02 Aug 2011 15:33:55 -0700
> To: lfalen lfalen at turbonet.com
> Subject: Re: [Vision2020] Nobel Laureate Economist Krugman on Debt
> Deal:ThePresident Surrenders: "a catastrophe on multiple levels"
>
>> Are you implying that Noble laureate economist Krugman, who I think
>> represents the thinking of many democrats on debates regarding economic
>> policy, does not  "debate reasonably?"
>>
>> If he were addressing this list serve regarding economic policy,  the
>> serious limitations in logic and fact displayed by some who pontificate on
>> economics and politics would become glaringly apparent.
>>
>> Which is not to say there are no reasonable grounds based on a in-depth
>> knowledge of economics to disagree with Krugman.
>>
>> But I don't think it fair to imply Krugman, and many democrats, do not
>> "debate reasonably," that they display a surfeit
>> of unreasonableness compared to those who identify as republican or tea
>> party.
>>
>> Furthermore, I do not think George Will possesses the academic competence
>> in
>> economic theory required to rebut Krugman.
>>
>> He's no Milton Friedman, that's for sure!
>>
>> A Krugman/ Friedman debate at this point in history regarding
>> US economics would be a treat!
>>
>> Is this the Krugman and Will discussion you are referring to?
>>  Paul Krugman, George Will Spar About Debt Ceiling Deal On 'This Week'
>> (VIDEO)
>>
>> First Posted: 8/1/11 09:01 AM ET Updated: 8/1/11 09:25 AM ET
>>
>> http://www.huffingtonpost.com/2011/08/01/paul-krugman-george-will-_n_914760html
>> ---------------------------------------
>> Vision2020 Post: Ted Moffett
>> On Tue, Aug 2, 2011 at 11:35 AM, lfalen <lfalen at turbonet.com> wrote:
>>
>> > Krugman is wrong on almost all points except that it is a bad deal.
>> > Given
>> > the make of congress is is probably the best that can be expected. The
>> > cut,
>> > cap and balance bill would have been much  better. See George Will's
>> > rebuttal. The Democrats do themselves a disservice by shouting jihad and
>> > terrorist. Lets calm down and debate reasonably.
>> > Roger
>> >
>> > -----Original message-----
>> > From: Ted Moffett starbliss at gmail.com
>> > Date: Mon, 01 Aug 2011 17:28:09 -0700
>> > To: Moscow Vision 2020 vision2020 at moscow.com
>> > Subject: [Vision2020] Nobel Laureate Economist Krugman on Debt Deal:
>> > ThePresident Surrenders: "a catastrophe on multiple levels"
>> >
>> > >
>> > http://www.nytimes.com/2011/08/01/opinion/the-president-surrenders-on-debt-ceiling.html
>> > >
>> > > The President Surrenders By PAUL
>> > > KRUGMAN<
>> > http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per
>> > >
>> >  > Published:
>> > > July 31, 2011
>> > > A deal to raise the federal debt ceiling is in the works. If it goes
>> > > through, many commentators will declare that disaster was avoided. But
>> > they
>> > > will be wrong.
>> > >
>> > > For the deal itself, given the available information, is a disaster,
>> > > and
>> > not
>> > > just for President Obama and his party. It will damage an already
>> > depressed
>> > > economy; it will probably make America’s long-run deficit problem
>> > > worse,
>> > not
>> > > better;(me, this is wrong)
>
>  and most important, by demonstrating that raw extortion works and
>> > > carries no political cost, it will take America a long way down the
>> > > road
>> > to
>> > > banana-republic status.( Roger - we are headed toward s banana
>> > > republic if we allow the debt to sky rocket and do not control
>> > > spending.)
>
>
>
>
>
>
>> > >
>> > > Start with the economics. We currently have a deeply depressed
>> > > economy.
>> > We
>> > > will almost certainly continue to have a depressed economy all through
>> > next
>> > > year. And we will probably have a depressed economy through 2013 as
>> > > well,
>> > if
>> > > not beyond.
>> > >
>> > > The worst thing you can do in these circumstances is slash government
>> > > spending, since that will depress the economy even further. Pay no
>> > attention
>> > > to those who invoke the confidence fairy, claiming that tough action
>> > > on
>> > the
>> > > budget will reassure businesses and consumers, leading them to spend
>> > more.
>> > > It doesn’t work that way, a fact confirmed by many studies of the
>> > historical
>> > > record.
>> > >
>> > > Indeed, slashing spending while the economy is depressed won’t even
>> > > help
>> > the
>> > > budget situation much, and might well make it worse. On one side,
>> > interest
>> > > rates on federal borrowing are currently very low, so spending cuts
>> > > now
>> > will
>> > > do little to reduce future interest costs. On the other side, making
>> > > the
>> > > economy weaker now will also hurt its long-run prospects, which will
>> > > in
>> > turn
>> > > reduce future revenue. So those demanding spending cuts now are like
>> > > medieval doctors who treated the sick by bleeding them, and thereby
>> > > made
>> > > them even sicker.
>> > >
>> > > And then there are the reported terms of the deal, which amount to an
>> > abject
>> > > surrender on the part of the president. First, there will be big
>> > > spending
>> > > cuts, with no increase in revenue. Then a panel will make
>> > > recommendations
>> > > for further deficit reduction — and if these recommendations aren’t
>> > > accepted, there will be more spending cuts.
>> > >
>> > > Republicans will supposedly have an incentive to make concessions the
>> > next
>> > > time around, because defense spending will be among the areas cut. But
>> > the
>> > > G.O.P. has just demonstrated its willingness to risk financial
>> > > collapse
>> > > unless it gets everything its most extreme members want. Why expect it
>> > > to
>> > be
>> > > more reasonable in the next round?
>> > >
>> > > In fact, Republicans will surely be emboldened by the way Mr. Obama
>> > > keeps
>> > > folding in the face of their threats. He surrendered last December,
>> > > extending all the Bush tax cuts; he surrendered in the spring when
>> > > they
>> > > threatened to shut down the government; and he has now surrendered on
>> > > a
>> > > grand scale to raw extortion over the debt ceiling. Maybe it’s just
>> > > me,
>> > but
>> > > I see a pattern here.
>> > >
>> > > Did the president have any alternative this time around? Yes.
>> > >
>> > > First of all, he could and should have demanded an
>> > > increase<
>> > http://krugman.blogs.nytimes.com/2011/07/31/tax-cut-memories/?scp=1&sq=krugman%20conscience%20tax%20cut%20memories&st=cse
>> > >in
>> >  > the debt ceiling back in December. When asked why he didn’t, he
>> > > replied
>> > > that he was sure that Republicans would act responsibly. Great call.
>> > >
>> > > And even now, the Obama administration could have resorted to legal
>> > > maneuvering to sidestep the debt ceiling, using any of several
>> > > options.
>> > In
>> > > ordinary circumstances, this might have been an extreme step. But
>> > > faced
>> > with
>> > > the reality of what is happening, namely raw extortion on the part of
>> > > a
>> > > party that, after all, only controls one house of Congress, it would
>> > > have
>> > > been totally justifiable.
>> > >
>> > > At the very least, Mr. Obama could have used the possibility of a
>> > > legal
>> > end
>> > > run to strengthen his bargaining position. Instead, however, he ruled
>> > > all
>> > > such options out from the beginning.
>> > >
>> > > But wouldn’t taking a tough stance have worried markets? Probably not
>> > > In
>> > > fact, if I were an investor I would be reassured, not dismayed, by a
>> > > demonstration that the president is willing and able to stand up to
>> > > blackmail on the part of right-wing extremists. Instead, he has chosen
>> > > to
>> > > demonstrate the opposite.
>> > >
>> > > Make no mistake about it, what we’re witnessing here is a catastrophe
>> > > on
>> > > multiple levels.
>> > >
>> > > It is, of course, a political catastrophe for Democrats, who just a
>> > > few
>> > > weeks ago seemed to have Republicans on the run over their plan to
>> > dismantle
>> > > Medicare; now Mr. Obama has thrown all that away. And the damage isn’t
>> > over:
>> > > there will be more choke points where Republicans can threaten to
>> > > create
>> > a
>> > > crisis unless the president surrenders, and they can now act with the
>> > > confident expectation that he will.
>> > >
>> > > In the long run, however, Democrats won’t be the only losers. What
>> > > Republicans have just gotten away with calls our whole system of
>> > government
>> > > into question. After all, how can American democracy work if whichever
>> > party
>> > > is most prepared to be ruthless, to threaten the nation’s economic
>> > security,
>> > > gets to dictate policy? And the answer is, maybe it can’t.
>> > > ------------------------------------------
>> > > Vision2020 Post: Ted Moffett
>> > >
>> > >
>> >
>>
>>
>