from Independent

This (below) is a good summary of our political economy in my opinion. I have a few relative nitpicks.

Demographic trends as the echo generation attempts to support the larger retiring baby boom generation has greatly aggravated the entitlement financing problem. The solution will inevitably involve means=testing these programs on both the revenue and expenditure sides as with Greenspan’s Social Security commission in the 1980’s. Incremental adjustments to actuarial assumptions compound over time to create large savings.

The “green revolution” in American agriculture was spawned by government research that responded to the terrible climactic conditions (”Dust Bowl”) as well as the financial crisis in the agricultural industry. In the words of one defender of these programs “When Roosevelt took office, our country could not feed itself; by the end of his administration we were feeding the world”. However, with the green revolution spreading globally, the rest of the world is now largely feeding itself, and so it is long past time to adapt to the new realities of the agricultural economy.

It was Jimmy Carter who replaced Arthur Burns at the Federal Reserve with the intention of getting the money supply under control, as the rapid expansion of the consumer credit system (sound familiar?) in the 1970’s had expanded credit beyond the traditional definition of M-1 (i.e., cash) in the economy and, along with the financing of entitlement and military expenditures, created the persistent, stubborn inflation pattern of the 1970’s, accompanied by structural shifts in the economy (i.e., decline of manufacturing) that created a co-incidental persistent unemployment problem.

Anonymous is correct that economists agree on most of the basics. And Reagan impressed a couple of beliefs on the public that I have always thought were very damaging to our political discussion. One was the general vilification of the public service, which, a generation later, has crippled much of the discussion. And the other is the worship of the theoretical notion of the “free market” as the solution to all societal problems. There really is no “free market” - that would be chaos - anarchy. What there really is is a “competitive market system” operating within a construct of laws.

The comments on health care reform are dead-on, and the loss of the non-profit health care model is almost completely overlooked in the discussion. The role of the insurance and pharmaceutical industries in the shaping of this discussion is not even a source of embarrassment to its political sponsors.

I was amazed at the lack of economic literacy on the part of our representatives last year - I just assumed they had some idea what was going on. But two primary points are showing through. First, the concept of financing a counter-cyclical effort in a collapsing economy is valid, despite the all the ideological background noise. And second, given the inherent instability of the financial markets, special care must be taken in the regulation of this sector as the source of liquidity for the economy, and the caretakers of the nation’s wealth.

While there is plenty of blame to go around, the affordable housing programs of FNMA were not large enough in scale to create this problem - it took the credit-inspired inflation of the entire U.S. housing market to create this mess.

And, yes, Brooksley Born predicted it. And she is predicting it again. And this will keep happening as the derivatives market “whips” the financial markets again and again, with the same results on Main Street. Until of course, we get the system under control through proper regulation. Ironic that Chris Dodd will be the one to do it.