Krugman's Point

Reader comment on: Krugman's Bizarro Universe

Submitted by benjamin (United States), Dec 14, 2009 16:18

I think this post misreads what Krugman is saying (I think Krugman did not say it clearly himself). It would seem that he thinks that Washington mishandling government's important responsibility to regulate Wall Street was the issue. In that sense, government was the problem, but only because it didn't do enough. The lack of regulation was the problem which enabled bankers to make risky bets at taxpayer expense. In the purest sense, government did not cause the problem, but enabled the conditions for wall street to take advantage of the lack of regulation, which resulted in the problems. An apt (and somewhat absurd) analogy might be that farmer took the fences away from the barnyard and expected the horses and cows to stay put. This was obviously an unreasonable expectation, but the cows and horses clearly ran off on their own, the farmer didn't force them. If anything, futureofcapitalism makes a compelling argument for government regulation in this post. Had government effectively regulated the financial industry, we would not be in the mess we currently find ourselves. Perhaps this site would argue that the large financial institutions should have been allowed to fail (AIG, CITI etc). Although it seems economists across the political spectrum think this would have been catastrophic, at least it would have been ideologically pure and "free market." What does futureofcapitalism propose for government regulation today? Should we break up the huge banks? Should we let them fail if they find themselves in a similar situation to last fall?

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