Krugman’s blog, 11/23/15

There were two posts yesterday.  The first was “Shorts Subject:”

Last night I was invited to a screening of The Big Short, which I thought was terrific; who knew that CDOs and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that’s not quite right.

It’s true that Greenspan and others were busy denying the very possibility of a housing bubble. And it’s also true that anyone suggesting that such a bubble existed was attacked furiously — “You’re only saying that because you hate Bush!” Still, there were a number of economic analysts making the case for a massive bubble. Here’s Dean Baker in 2002. Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, that is, if anything a bit earlier than most of the events in the film. I’m still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

So the bubble itself was something number crunchers could see without delving into the details of MBS, traveling around Florida, or any of the other drama shown in the film. In fact, I’d say that the housing bubble of the mid-2000s was the most obvious thing I’ve ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

The financial superstructure built on the bubble was something else; I was clueless about that, and didn’t see the financial crisis coming at all.

Yesterday’s second post was “Terror Politics:”

Conventional wisdom on the politics of terror seems to be faring just as badly as conventional wisdom on the politics of everything. Donald Trump went up, not down, in the polls after Paris — Republican voters somehow didn’t decide to rally around “serious” candidates. And as Greg Sargent notes, polls suggest that the public trusts Hillary Clinton as much if not more than Republicans to fight terror.

May I suggest that these are related?

After all, where did the notion that Republicans are effective on terror come from? Mainly from a rally-around-the-flag effect after 9/11. But if you think about it, Bush became America’s champion against terror because, um, the nation suffered from a big terrorist attack on his watch. It never made much sense.

What Bush did do was talk tough, boasting that he would get Osama bin Laden dead or alive. But, you know, he didn’t. And guess who did?

So people who trust Republicans on terror — which presumably includes the GOP base — are going to be the kind of people who value big talk and bluster over actual evidence of effectiveness. Why on earth would you expect such people to turn against Trump after an attack?

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One Response to “Krugman’s blog, 11/23/15”

  1. Oregondave Says:

    Anyone else notice the white cat in the middle of the room?

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