<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
<HTML><HEAD>
<META content=text/html;charset=iso-8859-1 http-equiv=Content-Type>
<META name=GENERATOR content="MSHTML 8.00.6001.19154"></HEAD>
<BODY style="PADDING-LEFT: 10px; PADDING-RIGHT: 10px; PADDING-TOP: 15px"
id=MailContainerBody leftMargin=0 topMargin=0 CanvasTabStop="true"
name="Compose message area">
<DIV><FONT size=2 face=Verdana>
<DIV id=fb-root></DIV>
<DIV class=header>
<DIV class=left><A href="http://www.nytimes.com/"><IMG
title="http://www.nytimes.com/
CTRL + Click to follow link" border=0
hspace=0 alt="The New York Times" align=left
src="http://graphics8.nytimes.com/images/misc/nytlogo153x23.gif"></A>
<NYT_REPRINTS_FORM>
<LI class=reprints>
<FORM name=cccform
action=https://s100.copyright.com/CommonApp/LoadingApplication.jsp
target=_Icon></FORM></LI></DIV>
<DIV class=right> </DIV></DIV><BR clear=all>
<HR align=left SIZE=1>
<DIV class=timestamp>October 13, 2011</DIV>
<DIV class=kicker></DIV>
<H1><NYT_HEADLINE version="1.0" type=" ">Rabbit-Hole
Economics</NYT_HEADLINE><NYT_BYLINE></H1>
<H6 class=byline>By <A class=meta-per title="More Articles by Paul Krugman"
href="http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per"
rel=author>PAUL KRUGMAN</A></H6></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody><NYT_CORRECTION_TOP></NYT_CORRECTION_TOP>
<P>Reading the transcript of Tuesday’s Republican debate on the economy is, for
anyone who has actually been following economic events these past few years,
like falling down a rabbit hole. Suddenly, you find yourself in a fantasy world
where nothing looks or behaves the way it does in real life. </P>
<P>And since economic policy has to deal with the world we live in, not the
fantasy world of the G.O.P.’s imagination, the prospect that one of these people
may well be our next president is, frankly, terrifying. </P>
<P>In the real world, recent events were a devastating refutation of the
free-market orthodoxy that has ruled American politics these past three decades.
Above all, the long crusade against financial regulation, the successful effort
to unravel the prudential rules established after the Great Depression on the
grounds that they were unnecessary, ended up demonstrating — at immense cost to
the nation — that those rules were necessary, after all. </P>
<P>But down the rabbit hole, none of that happened. We didn’t find ourselves in
a crisis because of runaway private lenders like Countrywide Financial. We
didn’t find ourselves in a crisis because Wall Street pretended that slicing,
dicing and rearranging bad loans could somehow create AAA assets — and private
rating agencies played along. We didn’t find ourselves in a crisis because
“shadow banks” like Lehman Brothers exploited gaps in financial regulation to
create bank-type threats to the financial system without being subject to
bank-type limits on risk-taking. </P>
<P>No, in the universe of the Republican Party we found ourselves in a crisis
because Representative Barney Frank forced helpless bankers to lend money to the
undeserving poor. </P>
<P>O.K., I’m exaggerating a bit — but not much. Mr. Frank’s name did come up
repeatedly as a villain in the crisis, and not just in the context of the
Dodd-Frank financial reform bill, which Republicans want to repeal. You have to
marvel at his alleged influence given the fact that he’s a Democrat and the vast
bulk of the bad loans now afflicting our economy were made while George W. Bush
was president and Republicans controlled the House with an iron grip. But he’s
their preferred villain all the same. </P>
<P>The demonization of Mr. Frank aside, it’s now obviously orthodoxy on the
Republican side that government caused the whole problem. So what you need to
know is that this orthodoxy has hardened even as the supposed evidence for
government as a major villain in the crisis has been discredited. The fact is
that government rules didn’t force banks to make bad loans, and that
government-sponsored lenders, while they behaved badly in many ways, accounted
for few of the truly high-risk loans that fueled the housing bubble. </P>
<P>But that’s history. What do the Republicans want to do now? In particular,
what do they want to do about unemployment? </P>
<P>Well, they want to fire Ben Bernanke, the chairman of the Federal Reserve —
not for doing too little, which is a case one can make, but for doing too much.
So they’re obviously not proposing any job-creation action via monetary policy.
</P>
<P>Incidentally, during Tuesday’s debate, Mitt Romney named Harvard’s N. Gregory
Mankiw as one of his advisers. How many Republicans know that <A
title="A Bloomberg News article"
href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=auyuQlA1lRV8">Mr.
Mankiw at least used to advocate</A> — correctly, in my view — deliberate
inflation by the Fed to solve our economic woes? </P>
<P>So, no monetary relief. What else? Well, the Cheshire Cat-like Rick Perry —
he seems to be fading out, bit by bit, until only the hair remains — claimed,
implausibly, that he could create 1.2 million jobs in the energy sector. Mr.
Romney, meanwhile, called for permanent tax cuts — basically, let’s replay the
Bush years! And Herman Cain? Oh, never mind. </P>
<P>By the way, has anyone else noticed the disappearance of budget deficits as a
major concern for Republicans once they start talking about tax cuts for
corporations and the wealthy? </P>
<P>It’s all pretty funny. But it’s also, as I said, terrifying. </P>
<P>The Great Recession should have been a huge wake-up call. Nothing like this
was supposed to be possible in the modern world. Everyone, and I mean everyone,
should be engaged in serious soul-searching, asking how much of what he or she
thought was true actually isn’t. </P>
<P>But the G.O.P. has responded to the crisis not by rethinking its dogma but by
adopting an even cruder version of that dogma, becoming a caricature of itself.
During the debate, the hosts played a clip of Ronald Reagan calling for
increased revenue; today, no politician hoping to get anywhere in Reagan’s party
would dare say such a thing. </P>
<P>It’s a terrible thing when an individual loses his or her grip on reality.
But it’s much worse when the same thing happens to a whole political party, one
that already has the power to block anything the president proposes — and which
may soon control the whole government. </P><NYT_CORRECTION_BOTTOM>
<DIV
class=articleCorrection></DIV></NYT_CORRECTION_BOTTOM><NYT_UPDATE_BOTTOM></NYT_UPDATE_BOTTOM></DIV></NYT_TEXT></FONT></DIV>
<DIV><FONT size=2 face=Verdana></FONT> </DIV>
<DIV><FONT size=2 face=Verdana>_______________________________</FONT></DIV>
<DIV><FONT size=2 face=Verdana>Wayne A. Fox<BR><A
href="mailto:wayne.a.fox@gmail.com">wayne.a.fox@gmail.com</A><BR></FONT></DIV></BODY></HTML>