James K. Galbraith on Obamanomics

I found the link to the Realnews site at EconoSpeak.

James Galbraith advocates radical reform

Writing for the Washington Independent, economist James Galbraith asserts that the United States has reached the end of its economic rope, so to speak. The future looks bleak since past practices have not worked.

And Tuesday's cut in interest rates to zero won't work either. We are in a full-fledged debt deflation, a credit collapse. It is not just an unwillingness to lend. It is also an unwillingness to borrow, and a collapse of the collateral — of home values and secure incomes — which people need in order to borrow. This is a failure at the very heart of the system, and if left untended it could both continue spiraling downward and go on for many years.

This is not a shock, like oil prices hikes or high interest rates, to a healthy system. It is not just worse than previous recessions. It's qualitatively different. There is no source of growth in sight. Consumption and investment are being hit hard. And with the flight to the dollar, exports, which have been the one bright spot this past year, are set to suffer a sharp blow. We now have to address the economic crisis, recognizing that we have just one shovel left in the shed, and that is public spending.

Some call it "stimulus," but that's a term to resist because it suggests an exercise that adds energy to a viable private economy, which will come back in a short period of time. We must not count on this. The first task is, instead, to fill the sinkholes that are everywhere opening up.

The easiest way to do this is to build on an historical experience and also the surviving institutions from the New Deal and the Great Society.

It surely must gall the market fundamentalists that the only available, feasible and generally acceptable solution to the mess they have made of it includes implementing a state-led system-wide restructuring of the American economy. Hubris here meets nemesis.

McCain advisor: The economy is fine

Donald Luskin delivers the good news this time around. The economy is not in a recession, he advises. Armed with this insight, Luskin then seeks to rehabilitate a fallen McCain advisor:

McCain campaign adviser and former U.S. senator Phil Gramm was right in July when he said that our current state "is a mental recession." Maybe he was out of line when he added that the United States has become "a nation of whiners." But when it comes to the economy, we have surely become a nation of exaggerators.

Update:

Secretary Paulson concurs:

In a briefing in Washington, the Treasury secretary, Henry M. Paulson Jr., said the financial markets were going through a tough time "as we work off some of the past excesses," but that Americans could "remain confident in the soundness and the resilience of our financial system."

Update II:

The Obama camp issues a retort:

The video can be found at TPM Election Central.

Update III:

Rick Perlstein passes along James Galbraith's brief assessment of the crisis:

The collapse of Wall Street will hit Main Street like Ike hit Houston.