Krugman misstates recession’s causes
Counterpoint:
By Walter Sperko
Could it be that when you become a Nobel Prize winner, you get to make up your own facts? This appears to be the case in Paul Krugman’s “Current economic crisis had origins in Reagan administration” (N&R, June 2).
Krugman characterized our current recession as “the worst economic crisis since the Great Depression.” I remember the 1979-1982 recession: unemployment at 10.8 percent, interest rates and inflation in double digits. Stagflation. Lines to get gasoline. Worse than today, by a long shot.
He claimed that the federal debt fell steadily from the end of World War II until Reagan was elected. The U.S. Government Printing Office historical budget tables show the deficit on average around one-half percent of GDP annually until 1974 when it bumped to around 3 percent for six years until Reagan came to office in 1981. Sorry, Mr. Krugman, the deficit bump predated Reagan.
He blamed our current recession on Reagan’s deregulation of banking. He conveniently forgot the federal government’s feel-good meddling in banking: the Community Reinvestment Act of 1979 that, in later revisions, demanded that banks meet quotas in lending to the “under served”; Fannie and Freddie buying up questionable loans, taking banks off the hook, putting the taxpayers on the hook; the American Dream Downpayment Act of 2003, giving those unable to save a down payment free money; Alan Greenspan’s too-loose money policies. All of these resulted in rapid expansion of home ownership from 64 percent of families in 1994 to 69 percent by 2004. A good thing, but many who bought could not pay and the bubble burst.
He blamed “Reagan-era deregulation” for our “poor savings rate.” Did you know that the government doesn’t count retirement accounts (IRAs, 401(k)s, etc.) as savings? What is a retirement account if not savings?
Traditional savings accounts get taxed annually (resulting in a negative return after inflation). The same money in an IRA earns interest that stays in the account untaxed, compounding on itself. As long as government continues taxing savings accounts and Americans have better options, savings will be anemic. The savings rate has nothing to do with deregulation. It has to do with stupid tax laws and stupid government accounting practices.
Krugman demeans the worth and stature of the Nobel Prize by his sloppy, politically driven writing. Maybe his work was always that way, but the Nobel committee liked his politics and degraded the caliber of the prize.
The writer lives in Greensboro.
News & Record Network Sites
Triad Weather
- Current Condition: FAIR
- Current Temperature: 43°
- UV Idx: 0
- Forecast High/Low: H: 0° L: 37°
User Tools
Search News-Record.com
closeSearch News & Record Article Archives
Not all of the newspaper's content appears online.
*There is a fee for downloading some older articles.
