There’s a lot to be said about the financial disaster of the last two years, but the short version is simple: politicians in the thrall of Reaganite ideology dismantled the New Deal regulations that had prevented banking crises for half a century, believing that financial markets could take care of themselves. The effect was to make the financial system vulnerable to a 1930s-style crisis — and the crisis came.Krugman may be overly pessimistic, particularly about health care. There are two events likely to happen in the fall that will almost certainly change the dynamic of the whole debate: one, which is talked about frequently, is the explosion of cases of swine flu, and the possibility that a deadly strain will develop that will necessitate governmental intervention; the other, which is discussed, if at all, sotto voce, is the likely death of Senator Edward Kennedy in the next few weeks from brain cancer, which will create a win-one-for-the-Gipper situation within the Party that will make it almost suicidal for even the most mossbacked of Blue Cross/Blue Dog Senate Democrat to join a Republican filibuster on the issue.
“We have always known that heedless self-interest was bad morals,” said Franklin Delano Roosevelt in 1937. “We know now that it is bad economics.” And last year we learned that lesson all over again.
Or did we? The astonishing thing about the current political scene is the extent to which nothing has changed.
The debate over the public option has, as I said, been depressing in its inanity. Opponents of the option — not just Republicans, but Democrats like Senator Kent Conrad and Senator Ben Nelson — have offered no coherent arguments against it. Mr. Nelson has warned ominously that if the option were available, Americans would choose it over private insurance — which he treats as a self-evidently bad thing, rather than as what should happen if the government plan was, in fact, better than what private insurers offer.
But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse, a collapse that was averted only with huge infusions of taxpayer funds.
So why won’t these zombie ideas die?
Part of the answer is that there’s a lot of money behind them. “It is difficult to get a man to understand something,” said Upton Sinclair, “when his salary” — or, I would add, his campaign contributions — “depend upon his not understanding it.” In particular, vast amounts of insurance industry money have been flowing to obstructionist Democrats like Mr. Nelson and Senator Max Baucus, whose Gang of Six negotiations have been a crucial roadblock to legislation.
But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism. That’s ironic, in a way, since a large part of what made Reagan so effective, for better or for worse, was the fact that he sought to change America’s thinking as well as its tax code.
How will this all work out? I don’t know. But it’s hard to avoid the sense that a crucial opportunity is being missed, that we’re at what should be a turning point but are failing to make the turn.
It's also useful to point out that Krugman was a vitriolic critic of then-candidate Obama when he sought the nomination against Hillary Clinton. One of the reasons that "Reaganism" isn't "dead", of course, is that it represents an historical, archetypal belief embedded in the American political system: the notion that government can be a potential menace, and that "big government" is to be feared. It is a notion that rests comfortably with an equally engrained view in American political culture, that the people, acting together, can accomplish anything. It's why people can go to health care rallies and demand that goverment not touch their Medicare, or why the public option does spectacularly well in polling, while "government intervention" in health care doesn't, even though both describe identical policies.