So-called economist Paul Krugman is at it again. Writing in the New York Times today, in the subtly-titled “Reagan Did It“, he says,
“For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.”
He then goes on to blame the Garn-St. Germain Depository Institutions Act for causing a rise in “private debt”, and thus leading to today’s crisis. AEI’s Pete Wallison explains the fallacy of this argument,
“The Garn-St. Germain Act was an effort to save the S&L industry from the consequences of government regulation. During the inflation of the late 1970s (note to Krugman: thanks in part to the policies of Ronald Reagan’s political opponents) interest rates rose above the 5.25 percent cap federal regulations placed on what S&Ls could pay for deposits. As a result, deposits poured out of S&Ls into investments that paid higher market-based rates. This was the genesis of money market mutual funds, which were able to offer shareholders higher rates on their money than banks and S&Ls, with virtually equivalent safety. The loss of deposits threatened the survival of S&Ls. The first step authorized by Congress was the Depository Institutions Deregulation Monetary Control Act of 1980 (another note to Krugman: this was a Democratic Congress, before Reagan took office), which authorized the cap on deposit interest rates be lifted gradually, and this was accomplished over the next three years by the Depository Institutions Deregulation Committee, consisting of the major bank and S&L regulators, chaired by the secretary of the treasury.”
Now, we realize that Krugman abhors all things conservative; but aren’t economists at least supposed to try and look at the facts?
We don’t expect you to take his columns too seriously, afterall, Krugman was the one who made the case just days after 9/11 that at least the tragedy would help the city economically, “…the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.”
Do they not teach the broken window fallacy at Princeton, professor?