Bobo is addressing “The Other Education.”  He says while our scholastic education is formal and supervised, our emotional education, the one we glean on our own from artists and musicians, is more important to our long-term happiness.  Mr. Cohen, in “Iranians in Exile,” says President Obama has been too weak on human rights abuses in Iran. He needs to express outrage.  Prof. Krugman, in “Taxing the Speculators,” says while a financial transactions tax would not completely prevent any future crisis, it could generate substantial revenue while providing a useful check on reckless short-term speculation.  Here’s Bobo:

Like many of you, I went to elementary school, high school and college. I took such and such classes, earned such and such grades, and amassed such and such degrees.

But on the night of Feb. 2, 1975, I turned on WMMR in Philadelphia and became mesmerized by a concert the radio station was broadcasting. The concert was by a group I’d never heard of — Bruce Springsteen and the E Street Band. Thus began a part of my second education.

We don’t usually think of this second education. For reasons having to do with the peculiarities of our civilization, we pay a great deal of attention to our scholastic educations, which are formal and supervised, and we devote much less public thought to our emotional educations, which are unsupervised and haphazard. This is odd, since our emotional educations are much more important to our long-term happiness and the quality of our lives.

In any case, over the next few decades Springsteen would become one of the professors in my second education. In album after album he assigned a new course in my emotional curriculum.

This second education doesn’t work the way the scholastic education works. In a normal schoolroom, information walks through the front door and announces itself by light of day. It’s direct. The teacher describes the material to be covered, and then everybody works through it.

The knowledge transmitted in an emotional education, on the other hand, comes indirectly, seeping through the cracks of the windowpanes, from under the floorboards and through the vents. It’s generally a byproduct of the search for pleasure, and the learning is indirect and unconscious.

From that first night in the winter of 1975, I wanted the thrill that Springsteen was offering. His manager, Jon Landau, says that each style of music elicits its own set of responses. Rock, when done right, is jolting and exhilarating.

Once I got a taste of that emotional uplift, I was hooked. The uplifting experiences alone were bound to open the mind for learning.

I followed Springsteen into his world. Once again, it wasn’t the explicit characters that mattered most. Springsteen sings about teenage couples out on a desperate lark, workers struggling as the mills close down, and drifters on the wrong side of the law. These stories don’t directly touch my life, and as far as I know he’s never written a song about a middle-age pundit who interviews politicians by day and makes mind-numbingly repetitive school lunches at night.

What mattered most, as with any artist, were the assumptions behind the stories. His tales take place in a distinct universe, a distinct map of reality. In Springsteen’s universe, life’s “losers” always retain their dignity. Their choices have immense moral consequences, and are seen on an epic and anthemic scale.

There are certain prominent neighborhoods on his map — one called defeat, another called exaltation, another called nostalgia. Certain emotional chords — stoicism, for one — are common, while others are absent. “There is no sarcasm in his writing,” Landau says, “and not a lot of irony.”

I find I can’t really describe what this landscape feels like, especially in newspaper prose. But I do believe his narrative tone, the mental map, has worked its way into my head, influencing the way I organize the buzzing confusion of reality, shaping the unconscious categories through which I perceive events. Just as being from New York or rural Georgia gives you a perspective from which to see the world, so spending time in Springsteen’s universe inculcates its own preconscious viewpoint.

Then there is the man himself. Like other parts of the emotional education, it is hard to bring the knowledge to consciousness, but I do think important lessons are communicated by that embarrassed half-giggle he falls into when talking about himself. I do think a message is conveyed in the way he continually situates himself within a tradition — de-emphasizing his own individual contributions, stressing instead the R&B groups, the gospel and folk singers whose work comes out through him.

I’m not claiming my second education has been exemplary or advanced. I’m describing it because I have only become aware of it retrospectively, and society pays too much attention to the first education and not enough to the second.

In fact, we all gather our own emotional faculty — artists, friends, family and teams. Each refines and develops the inner instrument with a million strings.

Last week, my kids attended their first Springsteen concert in Baltimore. At one point, I looked over at my 15-year-old daughter. She had her hands clapped to her cheeks and a look of slack-jawed, joyous astonishment on her face. She couldn’t believe what she was seeing — 10,000 people in a state of utter abandon, with Springsteen surrendering himself to them in the center of the arena.

It begins again.

And afterwards he took her for a special outing to the Applebee’s salad bar…   Here’s Mr. Cohen:

There is a Persian saying that goes, “Your coming is in your hands, but your leaving is in the hands of God.”

Shortly before I left Iran on June 24, there was a late-night knock at the door of my hotel room. Alright, I thought, this is it.

By then I was one of the few Western journalists left in Tehran after a savage post-election clampdown and I had been working for more than a week despite the revocation of my press pass.

As I moved, heart thumping, toward the door, I imagined being dragged blindfolded into the hell of Evin prison, built by the shah for the brutalizing of his political prisoners, used for the same purpose by the Islamic Republic.

“Laundry, sir. We forgot these.”

A hotel employee was holding a couple of shirts. I thanked him, tossed them on a sofa, and breathed out: Fear the worst but never bow to it.

I looked down at the lights of Tehran, cradled in its mountainous amphitheater. In 1936, the shah’s father had banned the veil in a furious Ataturk-like push for Westernization. In 1979, the Islamic Republic had re-imposed the hijab on all women. Now, in 2009, a reformist movement trying to chart a middle course — a non-theocratic but also non-secular path — had been bloodied before my eyes. Iran’s tragedy overwhelmed me.

A few days later, I did leave and found my parting in the hands not of God but of the Revolutionary Guards at Imam Khomeini International Airport. The stubble-faced ghouls duly toyed with me, leaving me humiliated, before letting me go.

The last people I saw were Nazila Fathi, long the wonderful New York Times local correspondent in Tehran, her husband Babak Pasha, and their children, Shayan, 5, and Tina, 3. Through 12 tumultuous post-electoral days Nazila was at my side as we were chased and tear-gassed. She never lost her composure.

By then her apartment — seen in paranoid regime eyes as a center for fomenting “velvet revolutions” and “soft overthrows” — was under constant surveillance. Evin, or worse, beckoned.

On July 1, a week after me, Nazila and her family left with a suitcase for a long-planned vacation in Canada. Five months later, they have been unable to return. They have followed millions of Iranians — an immense pool of lost talent — into exile. Dual Canadian and Iranian citizens, they have settled for now in Toronto.

That is why I came here. My debt to Nazila is immense.

She calls me — that bright, sing-song voice — and tells me there’s been a murder at the entrance to her Toronto apartment building. I start laughing. But it’s true. Canada has put on a little Iran show for us.

On Nazilia’s table are Iranian pistachios — a taste of the forbidden. She turns on the TV and there, on “60 Minutes,” is another Canadian-Iranian journalist, Maziar Bahari, who was seized in June and held in Evin prison for 118 days. We see images, filmed by Bahari, of the Basiji shooting into the crowd on June 15 and a slain man falling. Nazila and I were 100 yards from the scene.

I shudder. Bahari, a Newsweek correspondent, tells his story (as he does also in the current Newsweek) with a fine lucidity: the slapping, the lashing and death threats, the accusations that he was a velvet revolution “mastermind.”

When Bahari watches himself making a forced “confession” — that the media did give “moral support for the people who took part in those illegal gatherings” — his remorse is almost too much to bear. When you’re “broken under pressure,” he remarks, it’s hard to “gather your pieces.”

Nazila and I give each other a there-but-for-the-grace-of-God look. There are hundreds like Bahari. Iran since June 12 has veered into a paranoid bunker. President Barack Obama has been too weak on human rights abuses in Iran.

To say “the world continues to bear witness” to the “powerful calls for justice” of Iranians, as he did on Nov. 3, is not good enough. He needs to express the outrage of the United States of America.

Sure, Iran sees Evin as the mirror image of Guantánamo. But undoing that U.S. aberration was central to Obama’s message. Speaking out against the abuse of Iranian political prisoners must be equally so. Obama should continue to seek engagement — it’s the only way forward — while denouncing the outrages.

His bedside reading should be Haleh Esfandiari’s brilliant, shattering book “My Prison, My Home,” in which the Wilson Center scholar recounts her own 2007 Evin nightmare.

Hillary Clinton did mention Bahari. That, the Newsweek man says, is the “best thing that can happen to any prisoner, that you know someone cares about you.” Obama has not made it clear enough, name by name, that he cares.

“Fathi” — the name of his beloved, lost, longed-for grandfather — is the word little Shayan has scrawled on his bedroom walls.

Iran is betraying its aching children. There is a middle path, Shiite and democratic, of which Nazila and Babak and countless others could be part. Their country has been hijacked. The waste is immeasurable — and unnecessary.

Now here’s Prof. Krugman:

Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the world’s two great banking centers. Other European governments agree — and they’re right.

Unfortunately, United States officials — especially Timothy Geithner, the Treasury secretary — are dead set against the proposal. Let’s hope they reconsider: a financial transactions tax is an idea whose time has come.

The dispute began back in August, when Adair Turner, Britain’s top financial regulator, called for a tax on financial transactions as a way to discourage “socially useless” activities. Gordon Brown, the British prime minister, picked up on his proposal, which he presented at the Group of 20 meeting of leading economies this month.

Why is this a good idea? The Turner-Brown proposal is a modern version of an idea originally floated in 1972 by the late James Tobin, the Nobel-winning Yale economist. Tobin argued that currency speculation — money moving internationally to bet on fluctuations in exchange rates — was having a disruptive effect on the world economy. To reduce these disruptions, he called for a small tax on every exchange of currencies.

Such a tax would be a trivial expense for people engaged in foreign trade or long-term investment; but it would be a major disincentive for people trying to make a fast buck (or euro, or yen) by outguessing the markets over the course of a few days or weeks. It would, as Tobin said, “throw some sand in the well-greased wheels” of speculation.

Tobin’s idea went nowhere at the time. Later, much to his dismay, it became a favorite hobbyhorse of the anti-globalization left. But the Turner-Brown proposal, which would apply a “Tobin tax” to all financial transactions — not just those involving foreign currency — is very much in Tobin’s spirit. It would be a trivial expense for long-term investors, but it would deter much of the churning that now takes place in our hyperactive financial markets.

This would be a bad thing if financial hyperactivity were productive. But after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.” And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What’s not to like?

The main argument made by opponents of a financial transactions tax is that it would be unworkable, because traders would find ways to avoid it. Some also argue that it wouldn’t do anything to deter the socially damaging behavior that caused our current crisis. But neither claim stands up to scrutiny.

On the claim that financial transactions can’t be taxed: modern trading is a highly centralized affair. Take, for example, Tobin’s original proposal to tax foreign exchange trades. How can you do this, when currency traders are located all over the world? The answer is, while traders are all over the place, a majority of their transactions are settled — i.e., payment is made — at a single London-based institution. This centralization keeps the cost of transactions low, which is what makes the huge volume of wheeling and dealing possible. It also, however, makes these transactions relatively easy to identify and tax.

What about the claim that a financial transactions tax doesn’t address the real problem? It’s true that a transactions tax wouldn’t have stopped lenders from making bad loans, or gullible investors from buying toxic waste backed by those loans.

But bad investments aren’t the whole story of the crisis. What turned those bad investments into catastrophe was the financial system’s excessive reliance on short-term money.

As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on “repo” transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period — often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system — there was a “run on repo.”

And a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis — and could help us avoid a future replay.

Would a Tobin tax solve all our problems? Of course not. But it could be part of the process of shrinking our bloated financial sector. On this, as on other issues, the Obama administration needs to free its mind from Wall Street’s thrall.

The Pasty Little Putz, in “They Chose Celebrity,” says the Republican Party needs leaders who prefer the responsibilities of leadership to the pleasures of fame.  No shit?!  Who’d a thunk?  Prof. Krugman, in “The Phantom Menace,” says the scare stories from Wall Street seem to be intimidating Washington from doing more to rescue the economy.  Here’s The Pasty Little Putz:

Before the 2008 election, almost nobody outside Alaska and Arkansas had heard of Sarah Palin or Mike Huckabee. But in a long and crowded campaign season, they were the only Republican politicians who inspired any genuine enthusiasm.

They had other things in common as well. Both came from lower-middle-class backgrounds, and joined a soft-edged social conservatism to a strong populist streak. Both had been considered pragmatists, rather than ideologues, as governors of their home states. Both were untainted by the failures of the Bush-era Republican Party.

And both had the same Achilles’ heel: They seemed unready for high office, and owed their appeal more to personality than to substance.

This meant that both faced the same post-election choice. Did they want to take their newfound eminence seriously? Or did they want to cash in on their celebrity?

For Palin, the serious path required at least serving out her term as governor before returning to the national stage. For Huckabee, it could have involved anything from starting a think tank to running for the Senate in 2010. For both, it would have meant wedding their political identity to ideas as well as attitudes.

So far, they’ve chosen celebrity instead. Huckabee spent the last year hamming it up on a weekly talk show, and the last month hawking a book of inspirational Christmas stories. As for Palin — well, you probably know what she’s been up to lately.

Nobody should begrudge them their choices. Think tanks are a snooze; Senate races are a grind. Signing autographs for your adoring fans is more fun than rounding up budget votes in Juneau.

But they were the wrong moves if either wanted to become president someday. Huckabee’s gabfest is a weekly reaffirmation of the rap that he’s too lightweight for the Oval Office. Palin has sealed her identity as a culture-war lightning rod: she can inspire hysteria from liberals (ably catalogued in Matthew Continetti’s “Persecution of Sarah Palin”) and adulation from conservatives (visible at every stop along her book tour), but she’s unlikely to persuade anyone in the middle to trust her with the reins of government.

It’s possible to be a celebrity and a serious politician at the same time: Barack Obama’s career proves as much. But Obama’s celebrity status is frequently a political liability, and he’s (usually) wise enough to know it. That’s why he plays the wonk as often as he plays the global icon.

For now, no Republican leader projects a similar level of seriousness. Late in the Bush years, it was easy to dismiss conservatism as brain-dead. Among policy thinkers, that isn’t true anymore: the advent of Obama seems to have provided just the jolt that right-of-center wonks needed. But innovative proposals are useless without politicians willing to champion them.

When the Republican minority needed an alternative to the Obama administration’s sweeping stimulus proposal, for instance, a number of free-market economists were ready with an answer: a payroll tax cut. It was plausible, elegant and easy to explain — but there was no Republican leader with the wit to seize on it and sell it.

You could tell the same story about regulatory reform. A slew of conservative economists and think tankers, led by the University of Chicago’s Luigi Zingales and the Manhattan Institute’s Nicole Gelinas, have been working on ways to protect free markets from a re-run of last fall’s “too big to fail” fiasco. But most Republican politicians would rather rail against bailouts that have already happened than talk about how to prevent them from happening again.

In the health care debate, too, conservative and libertarian policy thinkers have floated a number of plans to expand insurance coverage. Some are incremental and some are sweeping; some build on the existing system and some would essentially replace it. But any of them would be better than that threadbare plan House Republicans actually put forward, which would hardly expand coverage at all.

True, these ideas won’t sell millions of books, or excite the crowd on Huckabee’s talk show. But they’re what the Republican Party needs if it’s going to be more than just a brake on liberalism’s ambitions. And they’re what voters are going to be looking for, in 2012 and beyond, as proof that conservatives can be trusted once again.

This means that there are substantial political rewards awaiting the politician who becomes the voice of an intellectually vigorous conservatism. It probably won’t be Mike Huckabee or Sarah Palin. If Republicans are lucky, though, it will be somebody who shares their charisma — but who prefers the responsibilities of leadership to the pleasures of celebrity.

And of course, the putz and his ilk have no responsibility at all for promoting Palin et al…  Asshole.  Here’s Prof. Krugman:

A funny thing happened on the way to a new New Deal. A year ago, the only thing we had to fear was fear itself; today, the reigning doctrine in Washington appears to be “Be afraid. Be very afraid.”

What happened? To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy. But the evidence suggests that in addition to facing political opposition, President Obama and his inner circle have been intimidated by scare stories from Wall Street.

Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now.

In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”

Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more.

But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

What? Huh?

Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.

Now, it’s politically difficult for the Obama administration to enact a full-scale second stimulus. Still, he should be trying to push through as much aid to the economy as possible. And remember, Mr. Obama has the bully pulpit; it’s his job to persuade America to do what needs to be done.

Instead, however, Mr. Obama is lending his voice to those who say that we can’t create more jobs. And a report on Politico.com suggests that deficit reduction, not job creation, will be the centerpiece of his first State of the Union address. What happened?

It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.

Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates — any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar.

And it’s this latter claim that Mr. Obama echoed in that Fox News interview. Is he right to be worried?

Well, spikes in long-term interest rates have happened in the past, most famously in 1994. But in 1994 the U.S. economy was adding 300,000 jobs a month, and the Fed was steadily raising short-term rates. It’s hard to see why anything similar should happen now, with the economy still bleeding jobs and the Fed showing no desire to raise rates anytime soon.

A better model, I’d argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy — and saw long-term interest rates fall almost steadily. There’s a good chance that officials are being terrorized by a phantom menace — a threat that exists only in their minds.

And shouldn’t we consider the source? As far as I can tell, the analysts now warning about soaring interest rates tend to be the same people who insisted, months after the Great Recession began, that the biggest threat facing the economy was inflation. And let’s not forget that Wall Street — which somehow failed to recognize the biggest housing bubble in history — has a less than stellar record at predicting market behavior.

Still, let’s grant that there is some risk that doing more about double-digit unemployment would undermine confidence in the bond markets. This risk must be set against the certainty of mass suffering if we don’t do more — and the possibility, as I said, of a collapse of confidence among ordinary workers and businesses.

And Mr. Summers was right the first time: in the face of the greatest economic catastrophe since the Great Depression, it’s much riskier to do too little than it is to do too much. It’s sad, and unfortunate, that the administration appears to have lost sight of that truth.

Many people on Wall Street are now warning that there’s a huge bubble in government debt, that interest rates will spike any day now; it’s a warning that clearly has the Obama administration’s ear. A good sample is this piece from Morgan Stanley, according to which “Our US economics team expects bond yields to rise to 5.5% by the end of 2010 – an increase of 220bp that outstrips the 137bp increase in the fed funds rate expected over the same horizon.”

Btw: what? Almost everyone expects unemployment in late 2010 to remain close to 10%. Why, exactly, would the Fed funds rate rise sharply?

Anyway, I was wondering: it’s my impression that the same people now warning about the alleged Treasury bubble dismissed warnings about the housing bubble. Is this true?

I think so. Morgan Stanley, September 2006:

The pessimists argue that the bursting of a putative housing bubble means that prices could decline significantly. There is some risk that prices could decelerate faster or even decline in real terms — after all, investment and speculative activity has picked up in the past five years. But the character of housing demand makes the much-feared decline in prices on a nationwide basis unlikely …

Hmmm.

Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad. And sure enough, things went bad.

By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.

The Big Squander

Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done — yet finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.

About the A.I.G. affair: During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad. And sure enough, things went bad.

So why protect bankers from the consequences of their errors? Well, by the time A.I.G.’s hollowness became apparent, the world financial system was on the edge of collapse and officials judged — probably correctly — that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.

But was there any way to limit those liabilities? After all, banks would have suffered huge losses if A.I.G. had been allowed to fail. So it seemed only fair for them to bear part of the cost of the bailout, which they could have done by accepting a “haircut” on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no — and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar.

Could things have been different? Some commentators argue that government officials had no way to force the banks to accept a haircut — either they let A.I.G. go bankrupt, which they weren’t ready to do, or they had to honor its contracts as written.

But this seems like a naïve view of how Wall Street works. Major financial firms are a small club, with a shared interest in sustaining the system; ever since the days of J.P. Morgan, it has been common in times of crisis to call on the big players to forgo short-term profits for the industry’s common good. Back in 1998, it was a consortium of private bankers — not the government — that put up the funds to rescue the hedge fund Long Term Capital Management.

Furthermore, big financial firms have a long-term relationship, both with the government and with each other, and can pay a price if they act selfishly in times of crisis. Bear Stearns, the investment bank, earned itself a lot of ill will by refusing to participate in that 1998 rescue, and it’s widely believed that this ill will played a major factor in the demise of Bear Stearns itself, 10 years later.

So officials could have called on bankers to offer a better deal, for their own sake, and simultaneously threatened to name and shame those who balked. It was their choice not to do that, just as it was their choice not to push for more control over bailed-out banks in early 2009.

And, as I said, these seemingly safe choices have now placed the economy in grave danger.

For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

Some thoughts this morning on the fine art of trolling. That’s what I’m paneling on at Netroots Minnesota this afternoon, and that’s what I’ve been thinking about lately.

Not from defensive POV, but in my role as a liberal troll at my buddy Vick’s blog. I think my work in that thread is now over, and yes, I’d rate my work as “mission accomplished.” The post is about Sarah Palin. My comments were focused on her religious beliefs. If there is one point on which the hard right is vulnerable, it’s the balkanized patchwork quilt that is their collectively dyspeptic range of religious beliefs.

And yes, I just shouted MORMON! in a crowded chat thread. Not about Palin, but a good troll shifts gears now and then and the fact that Glenn Beck is a convert to Mormonism isn’t as well known among these folks as you might think.

I like to think it bothers them to learn these things. No one likes Mormons. Not really, especially not on the right where not everyone’s sure their comfort level really includes Roman Catholics. Jews they only discuss on Sundays, preferably in the Biblical sense.

Vick’s got readers I can’t reach, mostly because I don’t think they really understand half of what they read, reading not being their favorite means of gathering data. Talk radio is killing this country. Every day Rush pumps enough disinformation to keep four Media Matters staffers busy. But to the credit of Vick’s sharper rightie readers, they all make more sense than Jonah Goldberg’s latest column in which he writes about Palin’s book by using some troll’s gotcha gambit, and then beats her critics with a tire iron while singing the la-la-la song (he does not quote Palin once or offer up a single fact in her defense).

Your best defense? Know what you’re talking about. Trolls love catching you when you go off half-cocked. My traction at Vick’s came from the fact that the Palin supporters there really don’t know about her religious beliefs, not as well as they should.

Do your damage, and then disengage. Give them the last word if that last word is more or less a “and the horse you rode in on.” Or a digressive thought or somewhat off-topic fact. And if at any point you find yourself shouting at your monitor, you’re losing.

As for the panel, my contribution will be pretty much the opposite of what Mitch Berg is expecting. I tried to wordle Mitch’s post but mostly the app just picked up on his mannerisms and then it crashed Safari which I’m sure pleased Mitch to no end.

Amazingly enough, I’m on the panel because of my anti-troll work for Ford Bell’s Senate campaign. I’m not entirely sure I get that as I don’t recall that we even allowed comments, but that’s the starting point for today’s discussion. Where it goes from there is anyone’s guess, but it’s a safe bet Mitch has no clue as to how we roll when he’s not around.

Note: banning someone is not winning.

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I wonder if Tim Geithner thinks of Paul Krugman as a troll.

He should.

And we should all be rooting for the troll in this fight but maybe that’s not the best nomenclature. Thad Cochran is being pretty trollish right now, but he’s coming at the economy from the opposite side as Krugman.

The more quickly we figure out how to explain to the right’s base that they’re getting played by Wall Street, the faster we can go back to pressuring Obama from the left. But so long as the right gets to wallow in factoids, lies and disinformation, they can bitter end right through the Last Times and on that they are 100% correct. If we don’t fix this mess, end times will come for U.S., if not the world.

What is the lesson to be learned from wealth earned by the most successful ponziers? Aren’t we teaching kids that whoever screws best/last gets all the toys?

What is the right trying to teach us, and why don’t we call them on their bottom line?

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I’m not sorry to see that Oprah’s quitting. However much the right saw her as a lefty, I never saw or heard anything from her that didn’t sound very, very pro-establishment.

I don’t think her place in history is very secure. Her viewers weren’t much different from talk radio listeners. It’s not good to let others do your thinking for you.

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Obama being flat out fucking wrong, again.

As contrasted with those who are wrong every fucking time.

In Obama’s defense, I remember a lot of liberals being pretty pissed about Kirsten Gillibrand getting Hillary’s seat in the Senate. Maybe they’ll be a little less pissed after reading this.

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A six-year-old girl is facing lifetime of deafness but Cigna is refusing to make good on her insurance policy.

All they have to do is stall her for a while longer and her hearing will be lost forever.

Call it a private insurer’s “hearing panel.”

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I love when smart people pretend to be stoned.

Maybe in his next video David Lazarus can pretend to be drunk. And then an intern can upload a YouTube of Lazarus belligerently punching out the cameraman afterwards.

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Prosecutors have dropped 72 immigration charges against Sholom Rubashkin.

I can see why this drives the anti-immigration crowd nuts. The law is the law is the law, but our prosecutors are quick to drop charges against corporate violators even more quickly than they look to pile on more charges when the suspect is not part of a corporation but just a lone individual hurting no one (drug users).

Was Rubashkin’s car ever seized? Did they tear apart his home looking for evidence? Did they try to flip his kids to get them to rat out dad?

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Labor unrest in India.

About time.

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No clue when the music post will go up at the other blog tonight. Maybe not until tomorrow.

Bobo and Prof. Krugman are both addressing matters economic today.  Who ya gonna believe?  Bobo, in “What Geithner Got Right,” says Timothy F. Geithner, like others on the White House economic team, is pragmatic and responds flexibly to situations, and that approach has paid off during the economic crisis.  Prof. Krugman, in “The Big Squander,” says by not extracting concessions from bankers during the rescue of A.I.G., policy makers undermined their own credibility — and put the broader economy at risk.  Hmmm…  A Nobel prize winning economist or some fool who thinks Applebee’s has salad bars…  Who ya gonna believe?  Here’s the fool:

It’s amazing to go back and read what people were saying about Timothy Geithner in the spring. Many people said he looked terrified as the Treasury secretary, like Bambi in the headlights. The New Republic ran an essay called “The Geithner Disaster.” Portfolio magazine ran a brutal, zeitgeist-capturing profile that concluded by comparing Geithner to Robert Redford’s hollow man character in “The Candidate.”

The criticism of his plan to stabilize the financial system came from all directions. House Republicans called it radical. Many liberal economists thought the plan was the product of hapless, zombie thinking and argued that only full bank nationalization would end the crisis. The Wall Street Journal asked 49 economists to grade Geithner. They gave him an F.

Well, the evidence of the past eight months suggests that Geithner was mostly right and his critics were mostly wrong. The financial sector is in much better shape than it was then. TARP money is being repaid, and the debate now is what to do with the billions that were never needed. It now seems clear that nationalization would have been an unnecessary mistake — potentially expensive and dangerously disruptive.

The course of events has vindicated the administration’s handling of its first big challenge. Obama could have flinched when the torrent of criticism was at its peak. But the president’s support for Geithner never wavered. Geithner never lost confidence in his policy. Rahm Emanuel mobilized to improve the presentation of the policy. The political team worked hard to deflect criticism from Geithner onto themselves.

In retrospect, their performance during this trial was impressive.

Events also vindicate Geithner’s basic policy instincts. The criticism back then was that Geithner was neither bold nor visionary. He was too cautious, too much the insider and bureaucrat.

But this prudence was the key to his effectiveness. In interviews and testimony, Geithner uses the word “balance” a lot. He talks about finding the right balance point between competing priorities. He also talks like a historian who sees common tendencies in certain contexts, not a philosopher who seeks clear general principles that apply across contexts.

This mentality makes it hard for him to project bold conviction, but it makes him flexible in the face of specific problems. When financial confidence is cratering, Geithner concluded, government should generally be as aggressive as possible, as early as possible. At the same time, it should try not to do things that the market does better, like set prices or run companies.

Geithner’s path was a middling one, but it helped the country muddle toward recovery.

If you wanted to step back and define Geithner’s philosophy, you’d probably say that he starts with a set of fairly conservative instincts about the role of government, which put him on the centrist edge of the Democratic Party.

In an interview on Wednesday, for example, I asked Geithner what government could do to help promote innovation. Usually when I ask leaders that, they reel off some cool technologies that government should promote — windmills, nanotechnology, etc. Often they sound like children trying to play at being entrepreneurs. Geithner didn’t do that. He said that government’s limited job was to get the underlying incentives right so the market could figure out what innovations work best. That suggests a pretty constrained view of government’s role.

On the other hand, you would also have to say that Geithner, like many top members of the Obama economic team, is extremely context-sensitive. He’s less defined by any preset political doctrine than by the situation he happens to find himself in.

In the next few months, Geithner will be confronted with a cross-cutting set of pressures. First, the need to reduce the deficits, which is uppermost on his mind. Second, the rising populism in Congress, which has to be battled sometimes and appeased sometimes by an administration that hopes to get things passed. Third, intense public cynicism about government, which means that every debate is washed in negativity.

Most important, there’s the jobs situation. If job growth returns, that will be a sign that the recovery is normal and Geithner and the administration can return to a more moderate path. If employment does not rebound or the economy double dips, that will be a sign of systemic problems. Geithner and his colleagues will probably adopt a much more activist posture and have to throw their lot in with the left.

I hate to rely on the most overused categories in punditry, but they really do apply here. Some administrations are staffed by hedgehogs, who are guided by a few core principles. But this one is staffed by foxes, who respond flexibly to situations. In the administration’s first big test, that sort of pragmatism paid off.

Here’s Prof. Krugman, who actually knows what he’s talking about:

Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

For the A.I.G. rescue was part of a pattern: Throughout the financial crisis key officials — most notably Timothy Geithner, who was president of the New York Fed in 2008 and is now Treasury secretary — have shied away from doing anything that might rattle Wall Street. And the bitter paradox is that this play-it-safe approach has ended up undermining prospects for economic recovery. For the job of fixing the broken economy is far from done — yet finishing the job has become nearly impossible now that the public has lost faith in the government’s efforts, viewing them as little more than handouts to the people who got us into this mess.

About the A.I.G. affair: During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad. And sure enough, things went bad.

So why protect bankers from the consequences of their errors? Well, by the time A.I.G.’s hollowness became apparent, the world financial system was on the edge of collapse and officials judged — probably correctly — that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.

But was there any way to limit those liabilities? After all, banks would have suffered huge losses if A.I.G. had been allowed to fail. So it seemed only fair for them to bear part of the cost of the bailout, which they could have done by accepting a “haircut” on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no — and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar.

Could things have been different? Some commentators argue that government officials had no way to force the banks to accept a haircut — either they let A.I.G. go bankrupt, which they weren’t ready to do, or they had to honor its contracts as written.

But this seems like a naïve view of how Wall Street works. Major financial firms are a small club, with a shared interest in sustaining the system; ever since the days of J.P. Morgan, it has been common in times of crisis to call on the big players to forgo short-term profits for the industry’s common good. Back in 1998, it was a consortium of private bankers — not the government — that put up the funds to rescue the hedge fund Long Term Capital Management.

Furthermore, big financial firms have a long-term relationship, both with the government and with each other, and can pay a price if they act selfishly in times of crisis. Bear Stearns, the investment bank, earned itself a lot of ill will by refusing to participate in that 1998 rescue, and it’s widely believed that this ill will played a major factor in the demise of Bear Stearns itself, 10 years later.

So officials could have called on bankers to offer a better deal, for their own sake, and simultaneously threatened to name and shame those who balked. It was their choice not to do that, just as it was their choice not to push for more control over bailed-out banks in early 2009.

And, as I said, these seemingly safe choices have now placed the economy in grave danger.

For the economy is still in deep trouble and needs much more government help. Unemployment is in double-digits; we desperately need more government spending on job creation. Banks are still weak, and credit is still tight; we desperately need more government aid to the financial sector. But try to talk to an ordinary voter about this, and the response you’re likely to get is: “No way. All they’ll do is hand out more money to Wall Street.”

So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust.

November 18, 2009, 4:21 am

At one level, there’s not much news in the SIGTARP (YHTMAAAIYP) report on the AIG bailout: officials asked bankers to take a haircut, bankers said Ni!, and that was that. But the report has renewed the debate over whether officials could have extracted something. I say yes.

Yes, you can make the legal argument: the TARP isn’t a bankruptcy court, so the Feds had only two choices: let AIG go into bankruptcy, with possibly disastrous consequences, or pay up its contracts in full.

But Wall Street doesn’t work like that, and never has.

Big financial institutions are a small club, with a shared interest in sustaining the system. Ever since the days of JP Morgan it has been standard practice, in times of crisis, to get major players together in a room and get them to forgo short-term profit maximization on behalf of the industry interests. It happened in the Panic of 1907; it happened in the Latin American debt crisis of the 80s; it happened in the LTCM bailout, which was financed by private firms, not the feds.

Also, individual banks are in a long-term relationship with the public and the government. They have an interest in preserving that relationship. The Epicurean Dealmaker offers an imaginary speech that Tim Geithner an anonymous government official could have given:

[T]hose people and institutions in this room which did not help us, which put their own narrow personal and corporate interests before the interests of this nation and its people, will be remembered as well.

And let me tell you something, gentlemen, banker to banker: you do not want to be on that list. That list will be a world of pain. That list will be Death.

Indeed. Bear Stearns famously refused to participate in the rescue of LTCM — and it’s widely believed that the lingering bad feelings from that exercise in free riding had a lot to do with the firm’s demise last year.

So could the feds have negotiated a haircut? Yes. It might not have been that much money, but it would have had a lot of symbolic importance. And that matters.

Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

By itself, the AIG story would be damaging enough. But it’s part of a pattern — and that pattern has ended up undermining the economy’s prospects, big time.

When unemployment is at a real 17.5% and home foreclosures are increasing rapidly, plus the bottom is falling out of the commercial real-estate market, my feeling is that depression or recession are merely word games. Krugman has this bit in his blog today:

Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

Es gibt viele Wirtschaftswissenschaftler, die eine kommende Inflation in das Reich der Märchen verweisen. Allen voran Nobelpreisträger Paul Krugman in seinem Blog. Liebstes Argument: Solange die Arbeitslosigkeit so hoch ist, ist die Nachfrage im Keller und daher können die Preise nicht steigen. Ein Denkfehler.

Wie auch Paul sicher in seinem Studium gelernt hat, sind Preise nicht nur eine Funktion der Nachfrage (die sehe ich auch langfristig im Keller), sondern auch des Angebots. Die Firmen sind ja auch nicht dumm und stelle sich auf die verringerte Nachfrage durch Kapazitätsabbau ein. Entweder freiwillig (Werkschließung et al.) oder unfreiwillig (Pleite). In Branchen, in denen der Kapazitätsabbau gelingt, werden die Preise kräftig steigen. Inflation ist halt nicht, dass alles teurer wird, sondern Inflation das alles im Mittel teurer wird.

Daher hier mal ein offenes Brain Storming wo die Inflation auftreten wird. Die Liste ist im Hinblick auf die Fähigkeit einzelner Branchen die Kapazitäten zu verringern erstellt worden.

Immobilien: Werden eher nicht verschrottet: Keine Preissteigerung.

Autos: Die Politiker dieser Welt scheinen mit aller macht jede Werksschließung verhindern zu wollen. Keine Inflation – kostet aber Staatsgeld, dass für Inflation in anderen Branchen sorgen wird.

Gold: Meiner Meinung nach ist die Inflationserwartung inzwischen dort schon eingepreist. Große Preissteigerungen erwarte ich daher erstmal nicht (mehr).

Nahrung: Für nicht geförderte Lebensmittel wird die Produktion gekürzt. Die Preise werden steigen. Einzelne Lebensmittel wie bspw. Milch vielleicht nicht, wenn die Lobbyisten sich mit Geldgeschenken an die Bauern durchsetzen.

Möbel: Wer rettet schon Möbelhersteller? Alle viel zu klein! Steigende Preise.

Arbeitskraft: Es müssten schon mehr auswandern als arbeitslos werden, um hier das Angebot zu verknappen. Trotzdem würde ich unterscheiden zwischen gering- und mittelqualifizierten Arbeitern (keine Lohnsteigerung, weil austauschbar) und hochqualifizierten (Lohnsteigerung, knappes Angebot). Sprich: die Schere wird sich spreizen.

Rente, Harz IV: Wird nicht nach Angebot- und Nachfrage bestimmt. Keine Ahnung, wo die Reise hingeht.

Kleidung: Siehe Möbel: Preise steigen.

Frachraten der Schiffe: Angebotsverknappung kann durch Verschrottung erfolgen. Aber viele Schiffe werden noch erst ausgeliefert, neue Schiffe eher ausgelegt denn verschrottet. Keine Preissteigerung.

Dienstleistungen Handwerk: Austauschbar wie Löhne von mittelqualifizierten Arbeitskräften. Bis auf einige Spezialanbieter eher keine Preissteigerungen. Preissteigerung dürfte es aber sehr wohl bei den Rechnungspunkt “Materialkosten” geben.

Öl: Die OPEC kann die Fördermenge senken. Preissteigerungen.

Prognosen der Leser gerne in den Kommentaren.

The Pasty Little Putz has decided to address the economy on the same page as Prof. Krugman.  They say fools rush in…  In “Off the Chart” he gurgles that ten months ago Barack Obama’s economic advisers projected two scenarios for unemployment. Now reality has produced numbers of its own.  Prof. Krugman, in “World Out of Balance,” says the problem of international trade imbalances is about to get substantially worse unless China changes its weak-currency policy.  Here’s The Pasty Little Putz:

Ten months ago, at the beginning of the great stimulus debate, President-elect Barack Obama’s economic advisers produced an unfortunate chart.

The chart plotted out two lines. One projected the unemployment rate through 2014 with a stimulus package; the other projected unemployment across the same period without it.

The first line — the hopeful line, the one that was used to sell $800 billion worth of stimulus — showed the rate of joblessness peaking this fall at 8 percent, and dropping swiftly thereafter. The second line — the no-stimulus scenario — showed unemployment peaking at 9 percent, holding there across 2010, and then declining in 2011 and 2012.

Now reality has produced numbers of its own. In every month since May, the unemployment rate has been roughly a percentage point higher than the chart’s grimmer, stimulus-free scenario. This October, when Obama’s advisers predicted that unemployment would stand at 8 percent with the stimulus and just under 9 percent without it, the actual jobless rate leaped to 10.4 percent.

This dire figure isn’t Barack Obama’s fault. Even in an age of near-trillion-dollar spending sprees, the president of the United States has only limited influence over the unemployment numbers. But the White House spent the winter pretending otherwise. The stimulus bill was framed and sold primarily as a jobs bill, and the Obama administration placed a substantial bet on the promise that the unemployment rate would start dropping before 2010 arrived.

When the stimulus passed with almost no Republican support, Rahm Emanuel, the president’s chief of staff, declared that “the most important number … is how many jobs it produces, not how many votes it gets.”

He was right. But with unemployment near a 25-year high, that “most important number” isn’t looking very good. The White House is stuck arguing counterfactuals — how much worse the economy would be without the stimulus — and trumpeting obviously inflated estimates of how many jobs have been “created or saved” by federal dollars.

If the midterm elections were held today, the Democrats would probably take an unemployment-driven beating. In Gallup’s generic Congressional ballot, Republicans are up 22 points among independents, and they’ve opened up a rare lead among the voting public as a whole.

“Most of the prior Republican registered-voter leads,” Gallup notes, “occurred in 1994 and 2002.” Both were ugly years for liberalism.

If there’s any comfort for Democratic legislators in this landscape, it’s the possibility that the angst-ridden health care debate may matter less to their re-election prospects than anyone expects. Amid the town-hall tumult in August, Obamacare looked like 2010’s defining issue. But when you talk to Republicans on Capitol Hill today, it sounds as if health care will play a relatively modest role in the campaign they plan to run.

If a bill passes, they’ll attack the Democrats for reorganizing the nation’s health care sector instead of putting Americans back to work. If the legislation fails, they’ll attack the Democrats for trying to reorganize the health care sector instead of putting Americans back to work.

Either way, though, they expect the jobs issue to matter much, much more than the specific details of health care reform.

The Democrats seem to be expecting this as well. Obama is planning an ostentatious “jobs summit” for December, and a “jobs bill” has suddenly materialized on Harry Reid’s to-do list. Nobody in the Democratic Party will call it a second stimulus, but the liberals who have complained that the first $800 billion wasn’t enough may get the second round of pump-priming they’ve been asking for.

They won’t get much else, though. It’s hard to imagine any legislation that might be attacked as “job killing” — like the Employee Free Choice Act, immigration reform or even cap-and-trade — finding traction in Congress next year.

This means that the broader Democratic agenda is essentially a hostage to the unemployment numbers. And Republicans are hoping that if they win enough seats in 2010, Obama will turn into Bill Clinton redux, pursuing compromises on deficits and entitlement reform in lieu of more liberal legislation.

Of course, they haven’t won yet. Even without a second stimulus, there’s still plenty of money from the first one set to wash into the economy before next year’s election (It almost seems as if Nancy Pelosi drew it up that way …). The Republicans remain broadly unpopular: they’re leading the polls more by default than because they inspire any deep affection. And they aren’t exactly overflowing with their own ideas for job creation at the moment.

If unemployment stays high enough, though, they may not need them. All they’ll have to do is tally up the job market’s performance since Barack Obama took office, and then draw a third line, in red, on a certain overly optimistic chart.

Here’s Prof. Krugman, who’s actually an economist, you know…:

International travel by world leaders is mainly about making symbolic gestures. Nobody expects President Obama to come back from China with major new agreements, on economic policy or anything else.

But let’s hope that when the cameras aren’t rolling Mr. Obama and his hosts engage in some frank talk about currency policy. For the problem of international trade imbalances is about to get substantially worse. And there’s a potentially ugly confrontation looming unless China mends its ways.

Some background: Most of the world’s major currencies “float” against one another. That is, their relative values move up or down depending on market forces. That doesn’t necessarily mean that governments pursue pure hands-off policies: countries sometimes limit capital outflows when there’s a run on their currency (as Iceland did last year) or take steps to discourage hot-money inflows when they fear that speculators love their economies not wisely but too well (which is what Brazil is doing right now). But these days most nations try to keep the value of their currency in line with long-term economic fundamentals.

China is the great exception. Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge.

That, at any rate, is the argument made in a new paper by Richard Baldwin and Daria Taglioni of the Graduate Institute, Geneva. As they note, trade imbalances, both China’s surplus and America’s deficit, have recently been much smaller than they were a few years ago. But, they argue, “these global imbalance improvements are mostly illusory — the transitory side effect of the greatest trade collapse the world has ever seen.”

Indeed, the 2008-9 plunge in world trade was one for the record books. What it mainly reflected was the fact that modern trade is dominated by sales of durable manufactured goods — and in the face of severe financial crisis and its attendant uncertainty, both consumers and corporations postponed purchases of anything that wasn’t needed immediately. How did this reduce the U.S. trade deficit? Imports of goods like automobiles collapsed; so did some U.S. exports; but because we came into the crisis importing much more than we exported, the net effect was a smaller trade gap.

But with the financial crisis abating, this process is going into reverse. Last week’s U.S. trade report showed a sharp increase in the trade deficit between August and September. And there will be many more reports along those lines.

So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.

neoclassical macro model

Lawrence Summers and Paul Krugman are in substantial agreement about how labor markets can and should operate in the normal workings of capitalism: supply and demand determine wages and the amount of employment.

As Krugman writes,

in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.

The only difference between them is right now, when capitalism is in crisis and unemployment is growing. Krugman suggests the desirability of a New-Deal-style employment program (like the W.P.A. and the Civilian Conservation Corps) and/or “policies that support private-sector employment” (such as labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoffs). Summers, for his part,  said in a recent interview that the stimulus package is working just fine and workers can just go screw themselves:

It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.

If this one doesn’t make you giggle a bit, and possibly also drool briefly on the keyboard, then you haven’t read enough economics.

Seriously.

It’s a real bodyslam.

The best part is that Paul Krugman is so thoroughly ripped apart each time that he is yet to answer to the criticism.

He is very much like politicians. Then again, this crisis did give old Keynesians like Krugman a few moments in the spotligt.

Unfortunately, the next time they will be dragged out into the light by their feet, for the mandatory tar-and-feathers procedure anyone

Bobo wants us to “Meet John Thune.”  He says the junior senator from South Dakota has conservative roots but is pragmatic at the surface, and may be a strong Republican candidate in 2012.  In “Of Fruit Flies and Drones” Mr. Cohen says President Obama has shown a quiet predilection for drone warfare, but the U.S. should not be targeting people for killing without a public debate.  In “Free to Lose” Mr. Krugman says with long-term unemployment at its highest levels since the 1930s and on the rise, the U.S. should consider policies that address job growth directly.  Here’s Bobo:

Some days the Republican Party seems to be going crazy. Its public image is often shaped by people who appear to have gone into government because they saw it as a steppingstone to talk radio.

But deep in the bowels of the G.O.P., there are serious people having quiet conversations. The people holding these conversations created and admired Bob McDonnell’s perfectly executed Virginia gubernatorial campaign. And now as they look to the future of their party, and who might lead it in 2012, the name John Thune keeps popping up.

As you may or may not know, Thune is the junior senator from South Dakota, the man who beat Tom Daschle in an epic campaign five years ago. The first thing everybody knows about him is that he is tall (6 feet 4 inches), tanned (in a prairie, sun-chapped sort of way) and handsome (John McCain jokes that if he had Thune’s face he’d be president right now). If you wanted a Republican with the same general body type and athletic grace as Barack Obama, you’d pick Thune.

The second thing people say about him is that he is unfailingly genial, modest and nice. He grew up in Murdo, S.D., population 612. His father was a Naval aviator in World War II and a genuine war hero. He was called back home after the war to work in the family hardware store and went on to become an educator, as did his wife.

John was a high school basketball star and possesses idyllic small-town manners, like the perfect boy in a Thornton Wilder play. He appears to be untouched by cynicism. In speeches and interviews, he is straightforward, intelligent and earnest. He sometimes seems to have emerged straight into the 21st century from a more wholesome time.

After high school, he attended Biola University, a small Christian college outside of Los Angeles. He then got an M.B.A. from the University of South Dakota and has spent his adult life ascending — as a Congressional staffer, South Dakota Republican Party chairman, the state railroad director, a member of the U.S. House, and now the Senate.

His positions on the issues are unremarkable. He is down-the-line conservative on social, economic and foreign policy matters. What’s notable is the way he talks about the issues and jumps off from them.

He is a gracious and ecumenical legislator, not a combative one. When you ask him to mention authors he likes, he mentions C.S. Lewis and Jeff Shaara, not political polemicists. The first person who told me I had to write a column about Thune was a liberal Democratic senator who really likes the guy.

Thune also possesses the favored Republican profile du jour: conservative at the roots but pragmatic at the surface. Like McDonnell, nobody can question Thune’s conservative bona fides. As a result, he doesn’t have to talk about them. Instead, he prefers to talk about what he calls the “economic cluster” of issues: job creation, balanced budgets and small-business-led growth.

He doesn’t have radical plans to cut the federal leviathan. He just wants to restrain the growth of government to bring deficits down. He doesn’t have ambitions to restructure the tax code. He just wants to lift burdens on small business.

He says his prairie background has given him a preference for small companies and local government. When he criticizes the Democrats, it is for mixing big government with big business: the bailouts of Wall Street, the subsidies to the big auto and energy corporations. His populism is not angry. He doesn’t rail against the malefactors of wealth. But it’s there, a celebration of the small and local over the big and urban.

Republican pros are attracted to Thune because he could rally the hard-core conservatives without scaring away the suburbanites. His weakness is that he’s never really worked outside of government, and he’s almost never shown a maverick side.

At the moment, Republicans are riding an emotional wave. Karl Rove had a piece in Thursday’s Wall Street Journal that captures the mood: Obama is being defined as a liberal. Independents are fleeing. The political tide is shifting.

That overstates things. Obama remains the most talented political figure of the age. After health care passes, he will pivot and pick some fights with his own party over spending. He’ll solidify his standing with independents, and if the economy recovers, he could go into his re-election with as much momentum as Ronald Reagan enjoyed in 1984.

Republicans are still going to have to do root-and-branch renovation if they hope to provide compelling answers to issues like middle-class economic anxiety. But in the meantime, people like Thune offer Republicans a way to connect fiscal discipline with traditional small-town values, a way to tap into rising populism in a manner that is optimistic, uplifting and nice.

Optimistic, uplifting and nice — three attributes Republicans have recently proven they don’t have.  Here’s Mr. Cohen:

I hadn’t thought much about the relationship between fruit flies and Predator drones before visiting the California Institute of Technology, but Caltech, which boasts more than 30 Nobel laureates, teaches many things, not least about the fast-growing field of robotics and war.

Fruit flies, as I learned from a graduate student, use optic flow to navigate their environment. Optic flow is the apparent motion of the landscape relative to the insect as it flies through it. When the insect gets closer to an object, that object appears to get larger; the expansion in the optic flow field triggers a collision avoidance response in the fly, which veers away from the expanding object.

“The insect eye is not, and does not need to be, high resolution to make this computation, so it follows that low resolution sensors can be employed in robotics and serve the same purpose,” she told me.

Call this bio-mechanics — biologically inspired engineering principles. It’s a booming field. You’ll find fruit flies tethered to pins under microscopes in a virtual arena with the aim of developing simplified command algorithms that will tell a robot sensor how to mimic the insect for navigation. The feedback loop for the robot is simple: If an object is expanding at a certain rate, that equals proximity, so turn away!

The U.S. military is interested in such experiments because robotics is its hot new thing. The loss of more than 5,000 U.S. military personnel in Iraq and Afghanistan since 2001 has concentrated minds on putting robots rather than flesh and blood in harm’s way.

When the United States went into Iraq in 2003, it had a handful of pilotless planes, or drones; it now has over 7,000. The invasion force had no unmanned ground vehicles; the U.S. armed forces now employ more than 12,000. One is called the PackBot and is made by iRobot, manufacturers of the popular robot vacuum cleaner called the Roomba.

Since taking office, President Obama has shown a quiet predilection for drone warfare. He’s been vacuuming up targets. There are two programs in operation: a publicly acknowledged military one in Iraq and Afghanistan and a covert C.I.A. program targeting terror suspects in countries including Pakistan.

As Jane Mayer notes in a groundbreaking recent piece in The New Yorker, “The intelligence agency declines to provide any information to the public about where it operates, how it selects targets, who is in charge, or how many people have been killed.”

According to a just-completed study by the New America Foundation, quoted in Mayer’s piece, Obama has authorized as many drone strikes in Pakistan in nine and a half months as George W. Bush did in his last three years in office — at least 41 C.I.A. missile strikes, or about one a week, that may have killed more than 500 people.

The dead have included high-value targets like Osama bin Laden’s oldest son and Baitullah Mehsud, the Taliban leader in Pakistan — as well as bystanders. Circling drones have struck panic. But as Mayer notes, “The embrace of the Predator program has occurred with remarkably little public discussion, given that it represents a radically new and geographically unbounded use of state-sanctioned lethal force.”

These are targeted international killings, no less real, and indeed more insidious, for their video-game aspect. The thing about robotic warfare is you can watch people get vaporized on a screen in Langley, Virginia, and then drive home for dinner with the kids. The very phrase “go to war” becomes hard to distinguish from going to work. That’s a conflation fraught with ethical danger. The barriers to war get lowered.

P.W. Singer, the author of an important new book called “Wired for War,” told me that, “We are at a breakpoint in history. The U.S. Air Force this year will train more unmanned system pilots than fighter and bomber pilots combined. And, as Bill Gates has noted, robotics are now where computers were back in 1980.”

Now you might think that a “pilot” sitting behind a computer bank in Nevada blowing away people in Afghanistan is less liable to combat stress than a soldier in a unit deployed there, but Singer said the opposite has often proved the case

It’s time for a reckoning, especially from a president who campaigned so vigorously against the “dark side” of the war on terror. Congressional review of the drone programs and the full implications of robotic warfare is essential to cast light and lay ground rules. The Obama administration should not be targeting people for killing without some public debate about how such targets are selected, what the grounds are in the laws of war, and what agencies are involved. Right now there’s an accountability void.

There are also broader questions. When robots are tomorrow’s veterans, does war become more likely and more endless? Do drones cow enemies with America’s technological prowess or embolden them to think America is not man enough to fight? What is the psychological toll on video-screen warriors?

There’s nothing innocent after all about the fluttering of a fruit fly’s wing.

And now here’s Mr. Krugman:

Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.

Don’t you think Country A might have something to learn from Country B?

This story isn’t hypothetical. Country A is the United States, where stocks are up, G.D.P. is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a hit to its G.D.P. when world trade collapsed, but has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment.

Here in America, the philosophy behind jobs policy can be summarized as “if you grow it, they will come.” That is, we don’t really have a jobs policy: we have a G.D.P. policy. The theory is that by stimulating overall spending we can make G.D.P. grow faster, and this will induce companies to stop firing and resume hiring.

The alternative would be policies that address the job issue more directly. We could, for example, have New-Deal-style employment programs. Perhaps such a thing is politically impossible now — Glenn Beck would describe anything like the Works Progress Administration as a plan to recruit pro-Obama brownshirts — but we should note, for the record, that at their peak, the W.P.A. and the Civilian Conservation Corps employed millions of Americans, at relatively low cost to the budget.

Alternatively, or in addition, we could have policies that support private-sector employment. Such policies could range from labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoffs.

And that’s what the Germans have done. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.

Should America be trying anything along these lines? In a recent interview, Lawrence Summers, the Obama administration’s highest-ranking economist, was dismissive: “It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.” True. But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. So shouldn’t we be considering other measures, if only as a stopgap?

Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.

But these aren’t normal times. Right now, workers who lose their jobs aren’t moving to the jobs of the future; they’re entering the ranks of the unemployed and staying there. Long-term unemployment is already at its highest levels since the 1930s, and it’s still on the rise.

And long-term unemployment inflicts long-term damage. Workers who have been out of a job for too long often find it hard to get back into the labor market even when conditions improve. And there are hidden costs, too — not least for children, who suffer physically and emotionally when their parents spend months or years unemployed.

So it’s time to try something different.

Just to be clear, I believe that a large enough conventional stimulus would do the trick. But since that doesn’t seem to be in the cards, we need to talk about cheaper alternatives that address the job problem directly. Should we introduce an employment tax credit, like the one proposed by the Economic Policy Institute? Should we introduce the German-style job-sharing subsidy proposed by the Center for Economic Policy Research? Both are worthy of consideration.

The point is that we need to start doing something more than, and different from, what we’re already doing. And the experience of other countries suggests that it’s time for a policy that explicitly and directly targets job creation.

from: Paul Krugman’s Blog:

November 9, 2009, 1:44 pm

And another: one assertion I keep hearing in comments is that well, maybe China never got much capital from abroad, so you can’t attribute its takeoff to modern finance, but lots of other fast-growing developing countries did.

To which the answer has to be a question: who are you talking about?

Since the early 1980s there have been three big waves of capital flows to developing countries.

The first wave was to Latin American countries that liberalized trade and opened their markets in the wake of the 80s debt crisis. This wave ended in grief, with the Mexican crisis of 1995 and the delayed Argentine crisis of 2002.

The second wave was to southeast Asian economies in the mid 90s, when the Asian economic miracle was all the rage. This wave ended in grief, with the crisis of 1997-8.

The third wave was to eastern European economies in the middle years of this decade. This wave is ending in grief as we speak.

There have been some spectacular development success stories since 1980. But I’m not aware of any that were mainly driven by external finance. The point is not necessarily that international capital movement is a bad thing, which is a hotly debated topic. Instead, the point is that there’s no striking evidence that capital flows have been a major source of economic success.

Article by Paul Krugman, “If the G.O.P. essentially shrinks down to a rump party across America, the country could become ungovernable in the midst of a continuing economic disaster.” Oh we all know who that tone belongs too.

Well thought out ofcourse. A must read.

Paranoia Strikes Deep

Krugman states the, “grotesque and …ominous” protest rally that was held outside of the U.S. Capitol last Thursday on the pending health care legislation. He explains how the “inappropriate” rally was actually officially billed as a G.O.P. press conference. Krugman says that, “What all this shows is that the G.O.P. has been taken over by the people it used to exploit.” Inapt Hitler comparisons by such people like Rush Limbaugh “conjures up images that frankly are not, I think, very helpful.” The Godwin Law sounds appropriate here. Whoever uses Nazi comparison in an argument, loses.  Krugman uses pathos to reach out how immature the act was with details on the protest and reactions from both parties.

Krugman explains how the influence in the G.O.P. party rests with more media oriented figure, instead of a conventional politician. The article points out a major problem with the Political Party system in America. There is no competition with Third Parties and the two parties have become a monopoly with political ideas where no one else gets a hearing.

I share many of Paul Krugman’s insight on the issue. Myself being a Republican, I am very ashamed by my own party. I believe that we need to take a step back and recognize the meaning of the word “republic”. As Krugman states, “the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.”

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Op-ed by Paul Krugman

Paul Krugman, New York Times

New York Times/Paul Krugman—Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.

The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.

True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is “mild.” The signs were “inappropriate,” said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, “conjures up images that frankly are not, I think, very helpful.”

What all this shows is that the G.O.P. has been taken over by the people it used to exploit.

The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?

But while the paranoid style isn’t new, its role within the G.O.P. is.

More @

Via Steve Benen, I see that Paul Krugman’s column today addresses a particular concern of this blog over the last few months, the long-term consequences of a GOP “taken over by the people it used to exploit”:

In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.

In fact, the party of Limbaugh and Beck could well make major gains in the midterm elections. The Obama administration’s job-creation efforts have fallen short, so that unemployment is likely to stay disastrously high through next year and beyond. The banker-friendly bailout of Wall Street has angered voters, and might even let Republicans claim the mantle of economic populism. Conservatives may not have better ideas, but voters might support them out of sheer frustration.

And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.

The point is that the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.

That a radicalized GOP will degrade to permanent minority status but still retain enough power to obstruct constructive legislation is certainly a concern. But the bigger concern, as I’ve written a few times before, is that eventually the Democrats will have bad luck and the logic of the two party system will propel the Palinized Republicans back into power—at which time the lunatics really will be in charge of the asylum.

In “Life After the End of History” the Pasty Little Putz says the only thing that may be more frightening than the possibility of annihilation is the possibility that our society could coast on forever as it is.  Well, that and the idea that he’ll keep appearing on the NYT op-ed page forever…  Prof. Krugman says “Paranoia Strikes Deep,” and that if the G.O.P. essentially shrinks down to a rump party across America, the country could become ungovernable in the midst of a continuing economic disaster.  Here’s the Pasty Little Putz:

For most of the last century, the West faced real enemies: totalitarian, aggressive, armed to the teeth. Between 1918 and 1989, it was possible to believe that liberal democracy was a parenthesis in history, destined to be undone by revolution, ground under by jackboots, or burned like chaff in the fire of the atom bomb.

Twenty years ago today, this threat disappeared. An East German functionary named Günther Schabowski threw open his country’s border crossings, and by nightfall the youth of Germany were dancing atop the Berlin Wall, taking hammers to its graffiti-scarred facade. It was Nov. 9, 1989. The cold war was finished.

There will be speeches and celebrations to mark this anniversary, but not as many as the day deserves. (Barack Obama couldn’t even fit a visit to Berlin into his schedule.) By rights, the Ninth of November should be a holiday across the Western world, celebrated with the kind of pomp and spectacle reserved for our own Independence Day.

Never has liberation come to so many people all at once — to Eastern Europe’s millions, released from decades of bondage; to the world, freed from the shadow of nuclear Armageddon; and to the democratic West, victorious after a century of ideological struggle.

Never has so great a revolution been accomplished so swiftly and so peacefully, by ordinary men and women rather than utopians with guns.

Twenty years later, we still haven’t come to terms with the scope of our deliverance. Francis Fukuyama famously described the post-Communist era as “the end of history.” By this, he didn’t mean the end of events — wars and famines, financial panics and terrorist bombings. He meant the disappearance of any enduring, existential threat to liberal democracy and free-market capitalism.

This thesis has been much contested, but it holds up remarkably well. Even 9/11 didn’t undo the work of ’89. Osama bin Laden is no Hitler, and Islamism isn’t in the same league as the last century’s totalitarianisms. Marxism and fascism seduced the West’s elite; Islamic radicalism seduces men like the Fort Hood shooter. Our enemies resort to terrorism because they’re weak, and because we’re so astonishingly strong.

Yet nobody seems quite willing to believe it. Instead, we keep returning to the idea that liberal society is just as vulnerable as it was before the Berlin Wall came down.

On the right, pundits and politicians have cultivated a persistent cold-war-style alarmism about our foreign enemies — Vladimir Putin one week, Hugo Chavez the next, Kim Jong-il the week after that.

On the left, there’s an enduring fascination with the pseudo-Marxist vision of global capitalism as an enormous Ponzi scheme, destined to be undone by peak oil, climate change, or the next financial bubble.

Meanwhile, our domestic politics are shot through with antitotalitarian obsessions, even as real totalitarianism recedes in history’s rear-view mirror. Plenty of liberals were convinced that a vote for George W. Bush was a vote for theocracy or fascism. Too many conservatives are persuaded that Barack Obama’s liberalism is a step removed from Leninism.

These paranoias suggest a civilization that’s afraid to reckon with its own apparent permanence. The end of history has its share of discontents — anomie, corruption, “The Real Housewives of New Jersey.” And it may be that the only thing more frightening than the possibility of annihilation is the possibility that our society could coast on forever as it is — like a Rome without an Attila to sack its palaces, or a Nineveh without Yahweh to pass judgment on its crimes.

Humankind fears judgment, of course. But we depend on it as well. The possibility of dissolution lends a moral shape to history: we want our empires to fall as well as rise, and we expect decadence to be rewarded with destruction.

Not that we want to experience this destruction ourselves. But we want it to be at least a possibility — as a spur to virtue, and as a punishment for sin.

This was how the Soviet threat often played on the home front. Remove the stain of segregation, liberals argued in the 50s, or the Communists will win the world. Repent of your hedonism and pacifism, neoconservatives urged Americans in the 70s, or the West will go the way of Finland.

Neither group wanted the United States to lose the cold war. But they wanted to inhabit a world where America could lose, and pass into history, if we failed to live up to our ideals.

This could be why we don’t celebrate the anniversary of 1989 quite as intensely as we should. Maybe we miss living with the possibility of real defeat. Maybe we sense, as we hunt for the next great existential threat, that even the end of history needs to have an end.

What a horse’s ass…  Here’s Prof. Krugman:

Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.

The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.

True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is “mild.” The signs were “inappropriate,” said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, “conjures up images that frankly are not, I think, very helpful.”

What all this shows is that the G.O.P. has been taken over by the people it used to exploit.

The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?

But while the paranoid style isn’t new, its role within the G.O.P. is.

When Hofstadter wrote, the right wing felt dispossessed because it was rejected by both major parties. That changed with the rise of Ronald Reagan: Republican politicians began to win elections in part by catering to the passions of the angry right.

Until recently, however, that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and “values,” only to announce, as soon as the election was behind him, that his first priority was changing Social Security.

But something snapped last year. Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they’d get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.

Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York’s special Congressional election.

Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren’t interested in actually governing, they feed the base’s frenzy instead of trying to curb or channel it. So all the old restraints are gone.

In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.

In fact, the party of Limbaugh and Beck could well make major gains in the midterm elections. The Obama administration’s job-creation efforts have fallen short, so that unemployment is likely to stay disastrously high through next year and beyond. The banker-friendly bailout of Wall Street has angered voters, and might even let Republicans claim the mantle of economic populism. Conservatives may not have better ideas, but voters might support them out of sheer frustration.

And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.

The point is that the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.

Saturday night, and I can’t stop reloading the blogs to see how health care is doing. Image at the right via kate.

* The White House press corps does not believe you have not heard of V.

* Democratic congresswomen shouted down by Republicans. Matt has the video, and it’s pretty astounding.

* Krugman: “There’s no measure I can think of by which the U.S. economy has done better since 1980 than it did over an equivalent time span before 1980.”

* Kurt Vonnemutt.

* Ladies and gentlemen, Mars. Related: 1924, the year Navy radiographers were asked to listen for communication from Mars.