Paul Krugman, newly announced recipient of the Nobel Prize in Economics, has posted an essay commending British Prime Minister Gordon Brown for showing the world how to deal with the current economic crisis.
Krugman reveals that U.S. Secretary of Treasury Henry Paulson lost precious time and taxpayer money by failing to heed Federal Reserve Chairman Ben Bernanke's recommendation for an "equity injection" -- a sort of temporary part-nationalization of financial instititions. The reason why is that, as George Soros indicated on Bill Moyers Journal last week, Paulson is a "market fundamentalist" who believes in the perfect equilibrium of free markets. He does not believe in government intervention in the markets. Instead, Paulson devised a plan for the government to buy up an inexhaustible supply of bad speculative instruments from bankrupt private financial institutions.
Paulson should have known that those speculative instruments were all smoke and mirrors. Wall Street did. It reacted by trimming 2 trillion dollars worth of wealth off the market in one week.
In the meantime, British Prime Minister Gordon Brown took a path similar to the one that Bernanke had suggested. Over the weekend, other world leaders appear to be following Brown's lead as governments around the world are coordinating efforts to respond to the current economic crisis. Even Paulson, belatedly, seems to have seen the light. Today, stock markets around the world are up.
We desperately need to get rid of the economic fundamentalists that are running our economy under the current administration. We need some "economic realists" who know that blind faith in "the magic of free markets" is a fairy-tale made popular by a Hollywood actor who was elected president of the United States.
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