...elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.This scenario is much more frightening than Krugman has painted it. Economists know that the very people who oversaw and approved the recent bubble build-up and crash are the same ones in charge of any potential systemic change, and their lack of will for any genuine reform has set the stage for bigger and better crashes in the near future. Here was Simon Johnson in late September of this year, speaking on WHYY's Radio Times:
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.
Marty Moss-Coane: But are you saying that Wall Street is essentially back to its bad old ways? Before the bailout and the implosion last fall?And yes, if Americans vote with their stupid bone, the crazies will be in charge when it all blows up. But don't worry, they will still manage to blame the liberals.
Simon Johnson: Oh yes, absolutely. I think in some ways we're in worse shape than that. Now I'm not saying that we're going to have another crisis immediately. Back to back, severe financial crises are very rare. Instead, of course, you go through another cycle where people feel good and the major players take on a lot of risk. Of course, they'll have a good run for a while. They'll pay themselves massive bonuses. When there's an upside, they get the upside. When the downside comes -- 2? 3? 5? 7? maybe 12? years down the road -- it's huge. Look back over the last 20 years. Think about Alan Greenspan's achievement as governor of the central bank, as chairman of the Federal Reserve in this country. In 2001-2005, people said he's the greatest central banker we've ever had. Now you look back and say, "I don't think so. I think he was actually a disaster." What happened over the past 20 years. He was probably the worst central banker this country has ever experienced.
Marty Moss-Coane: What do you say about Ben Bernanke so far?
Simon Johnson: [laughs] Ben Bernanke has done a very good job as a fire fighter. Once the financial fire broke out and once the meltdown occurred, he worked really hard to prevent that from spreading and from becoming even more damaging. But of course fire fighters have two jobs, really. One is fighting the fires when they break out. The other is trying to prevent fires, trying to think ahead, trying to design systems and strategies that make fires less likely -- and less damaging when they break out. And on that one, I'm afraid his track record is not so good! When he worked at the Fed under Alan Greenspan, he was absolutely in line with the Greenspan idea that you don't worry about bubbles or financial frenzies when they're building up, you just clean up afterwards. That's what we just done, the last 12 months. You really don't want to do that and you really don't want to do what we've been doing the past 12 months again. More importantly and more relevantly, in terms of what he's saying now about what he's planning to do...you know, he's been giving speeches -- he gave a speech at the Brookings Institution in Washington and he laid out his view of what the problem is and what reform [inaudible] is, and so on. It's all very technocratic, all very hollow-sounding. And it is hollow. He's not confronting or even speaking about the deeper, underlying political realities here and the power of the financial sector and how it's going out of control.