Wednesday, September 17, 2008

McCain and Hoover

Paul Krugman's blog has been very active lately. One of the things he's posted is this article from the American Prospect on the similarities between John McCain's statements about the economy being "fundamentally strong", and Herbert Hoover's similar pronouncements before the Great Depression.

An interesting thought - and I think the parallel is worth noting. McCain does sound quite out of touch on the economy these days, even when you disregard the comments of some of his staffers and just focus on what he says (i.e., "the nation of whiners" fiasco).

But at the same time, I have to give John McCain some credit here. I think the point is that most of the fundamentals of our economy are strong. We have strong, flexible labor markets, a great education system that provides one of the highest and broadest-based levels of human capital in the world, a reliable currency, a stable government, a wide consumer market, and a mobile population. We have a LOT going for us that will allow us to weather this current financial typhoon.

But one fundamental that is not strong is the stability of the investment banking industry. Robert Samuelson, as usual, provides some great insights in to these issues in this morning's Post. He describes how freely available capital, and poor regulation of the measurement of the amount of risk involved in these new securities has allowed investment banks to take unprecedentedly risky bets. That is one fundamental that is NOT strong... and even worse - not only is it not strong, but for years it has given the impression of strength where there was none.

So overall I'd say yes - McCain is the wrong choice if you're worried about the economy. But Krugman shouldn't overplay his cards. McCain is right that most of our economy is fundamentally strong, but wrong about it in the one instance that really matters this time - and is costing us hundreds of billions of dollars.

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