1 Boring Old Man

My favorite President [Barack Obama] and my favorite New York Times Columnist Nobel Prize winning economist [Paul Krugman] seem to be having something of a tiff. There’s no need to link to the articles, just put "krugman" in "the google." They’re everywhere. Krugman’s position is clear. Take over the Banks [Nationalize], and throw in an even newer New Deal, one where the bigger the intervention, the better. There are many specific things he thinks that have to do with the merits of various ways to spend the money [we don’t have] that have to do with economics, about which I won’t comment because my understanding is, at best embryonal. But his most recent column [Voodoo Wall Street] is about something I do agree with. Working with the Banks as they’re currently structured is a dangerous "black hole." I think that for two reasons. First, Hoover tried to work with existing institutions instead of taking charge, and it didn’t work. But second, they’re part of the cause of the problem. Reagan set them free in his solution to the crisis [crisis-let] of the early 1980’s [I personally think Carter’s solution, tighten our belts and change directions, was a better choice back then]. But the megabanks have become monsters, and one doesn’t "work with" monsters. You slay them. But that’s not the whole thrust of Krugman’s objection. He thinks we need to pull out the stops and outdo F.D.R. with our newer New Deal spending.

What I think has nothing to do with economics or, for that matter, community organization. It has to do with the behavior of human beings in crisis states. In World War II, the Army developed a way of dealing with soldiers who had psychological breakdowns in battle. Get them out of the combat zone. Let the sleep, take a bath, talk to someone about how they felt. After a short time, put them back in combat. It was an alternative to evacuationg them and letting their illnesses fester becoming part of the rest of their lives. It was a raging success in that the soldiers, for the most part, became soldiers again and mastered their fears. After the War, it became a mental health principle – Crisis Intervention. In a person with an emotional crisis, intervene early and vigorously. If you wait, the crisis will become chronic and turn into a long term problem. The theory was that in a crisis state, people feel overwhelmed and often do very dysfunctional things, often with disastrous consequences. The classic example was that people trapped atop a burning building often jumped to their deaths even as they saw the ladder being cranked up to save them. In a state of panic, they felt like they had to "do something." Crisis Intervention theory said, get the person thinking clearly to prevent panic decisions that might effect the rest of their lives. Good idea. Like F.D.R. said, "We have nothing to fear, but fear itself."

1. Get the soldier thinking clearly again.
2. Help the soldier talk through the situation that lead to the panic.
3. Get the soldier back into life quickly before an acute fear becomes chronic.

How would I apply this thinking to the financial crisis? I think that Reagan applied Crisis Intervention to a financial crisis in 1980 and perpetuated the problem and made things a lot worse. He deregulated banks and thrifts to get credit flowing, and he ran up the debt like we were in World War II. What we’re living with now is the result – the law of "unintended consequences." Instead of shepherding us through a recession where we learned something, he bandaided us up like he was F.D.R. but he didn’t reform anything in the process like F.D.R. did. I don’t disagree with Krugman, but I don’t think the country hurts enough yet to allow what he suggests, and Obama has to deal with Congress [and us]. We need a little more pain before we’ll live with a Krugman solution. But I also think that the Financial sector is sick as a goat, and may need to collapse. We don’t need Hedge Funds. We don’t need Derivatives. We don’t need any unregulated markets anywhere. So, I’m worried that Krugman-izing at the outset will allow some of these things to persist, including mega-banking, which I think might need to go away too. I’m worried that Krugman-izing might be another Bandaide. When things fall apart, run to the government.