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Thursday, December 09, 2004

Friedman & Krugman

Two pieces that were on Times Op-ed pages in the past week. First, Friedman from a week ago (Thurs Dec 2):
The 9/11 Bubble
It is now clear to me that we have followed the dot-com
bubble with the 9/11 bubble.

The last few paragraphs of this:

The very reason Mr. Bush had the luxury of launching a war of necessity in Afghanistan and a war of choice in Iraq, without a second thought, was because of the surpluses built up by the previous administration and Congress. Since then, the Bush team has been slashing taxes in the middle of two wars, weakening the dollar and amassing a huge debt burden - on the implicit assumption that nothing will go wrong in the future.

But what if there is another 9/11 or war of necessity? We're cooked. The tax revenue won't be there, so the only option will be more borrowing and a weaker dollar. But what happens if the Chinese and other foreigners, who now hold over 40 percent of our Treasury securities, decide they don't want to hold these depreciating dollars anymore, let alone buy more?

It is now clear to me that we have followed the dot-com bubble with the 9/11 bubble. Both bubbles made us stupid. The first was financed by reckless investors, and the second by a reckless administration and Congress. In the first case, the public was misled by Wall Street stock analysts, who told them the old rules didn't apply - that elephants can fly. In the second case, the public was misled by White House economists, peddling similar nonsense. The first ended in tears, and so will the second. Because, as the dot-com bubble proved, elephants can fly - "provided it is not very long."

And from Krugman earlier this week:

Inventing a Crisis
Contrary to what the privatizers are saying, we don't have
to destroy Social Security in order to fix it.

As he wrote there, this column was a break from his break--presumably he's putting together another book. Which reminds me: my uncle, an economist himself, has highly recommended Krugman's books; a good one to start with, he said, was Peddling Prosperity.

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