Krugman: Why Does Trump Want to Debase the Fed? [feedly]

Why Does Trump Want to Debase the Fed?
https://www.nytimes.com/2019/04/08/opinion/fed-herman-cain-stephen-moore.html

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Why Does Trump Want to Debase the Fed?

The tax cut fizzled; send in the clowns!

Paul Krugman

As far as I know, the Federal Reserve — the world's most important economic policy institution — doesn't have an anthem. But if it were to adopt one now, the choice would be obvious: "Send In the Clowns."

You see, the Fed's governing board currently has two vacancies, and Donald Trump has proposed filling those vacancies with ludicrous hacks. If he succeeds, one of our few remaining havens of serious, nonpartisan policymaking will be on its way toward becoming as corrupt and dysfunctional as the rest of the Trump administration.

Stephen Moore and Herman Cain are, of course, completely unqualified — I say "of course" because their lack of qualifications is, paradoxically, a key qualification not just for Trump but for the G.O.P. in general.

There are plenty of genuine monetary experts with conservative political leanings, some of them quite partisan. But modern Republicans have shown consistent disdain for such experts, perhaps because of a sense that anyone with real expertise or an independent reputation might occasionally be tempted to take a stand on principle.

There's no risk that either Moore or Cain will ever take such a stand. In fact, what seems to have recommended both men to Trump was their evident willingness to completely reverse their policy views when politically expedient.

Both were hard-money men during the Obama years, demanding higher interest rates despite very high unemployment. Both have now taken to berating the Fed for failing to print more money in the face of low unemployment — because that's what Trump wants.

That said, there's a difference between the two men.

I wrote about Moore a couple of weeks ago, noting that he has long been a prominent fixture in the conservative movement; he is, basically, a classic right-wing hack who tries (incompetently) to impersonate an economic expert. Cain, on the other hand, is a spam king whose business model involves making his email list available to direct marketers.

Put it this way: In recent years Moore has been out there predicting magical results from tax cuts, putting out fake economic numbers, and giving speeches to FreedomFest. At the same time, Cain has been offering a platform for peddlers of get-rich schemes and cures for erectile dysfunction. So it says something about what Trump wants that he apparently sees the two men as equally valuable allies.

What does Trump want? His attempted beclowning of the Fed follows, I'd argue, from the fact that his one major legislative success, the 2017 tax cut — which he predicted would be "rocket fuel" for the economy — has turned out to be a big fizzle, economically and, especially, politically.


It's true that U.S. economic growth got a bump for two quarters last year, and Trumpists are still pretending to believe that we'll have great growth for a decade. But at this point last year's growth is looking like a brief and rapidly fading sugar high.

Meanwhile, the tax cut remains unpopular, partly because few people perceived personal benefits, partly because voters appear to be less concerned about paying too much than with the sense that the rich — the prime beneficiaries of the Trump cut — are paying too little.

Some leaders might see such disappointments as reasons to make a course correction. But this is Trump: When the going gets tough, he blames someone else. Everything would have been great, he insists, if the Fed hadn't thwarted his plans.

There's a good argument to be made that the Fed misjudged the economy's strength, that it raised interest rates too fast and that the economy would be doing somewhat better if it hadn't. In fact, it's an argument I agree with.

But that's not what Trump is saying. He wants the Fed to act as if we were still in a deep depression; he wants it both to cut rates and to resume the emergency policies it pursued — and he denounced — when we had more than twice as much unemployment as we do today. This would, he insists, turn the economy into the "rocket ship" he originally promised.

You don't have to be a gold bug or even an inflation hawk to see these demands as deeply irresponsible. Indeed, they sound a lot like the "macroeconomic populism" that has repeatedly led to economic disaster in Latin America, with Venezuela the latest example.

Running the printing presses to fight a depression, as the Fed did after the financial crisis, is prudent and sensible; running them because you refuse to accept the reality that your policies aren't delivering an economic miracle is different, and always ends badly.

Proposals to Couple Medicaid Expansion With Work Requirements: Frequently Asked Questions [feedly]

Proposals to Couple Medicaid Expansion With Work Requirements: Frequently Asked Questions
https://www.cbpp.org/research/health/proposals-to-couple-medicaid-expansion-with-work-requirements-frequently-asked

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Triple Crisis: New Pan-Agency Development Financing Report Suggests Major Economic Crisis Brewing [feedly]

New Pan-Agency Development Financing Report Suggests Major Economic Crisis Brewing
http://triplecrisis.com/new-pan-agency-development-financing-report-suggests-major-economic-crisis-brewing/

By Jesse Griffiths

Cross-posted at ODI.

The 2019 Financing for Sustainable Development report from the Inter-Agency Task Force (IATF) on Financing for Development was launched today.

For those – like me – who worry that the world is sleepwalking into another crisis, it's not reassuring. It confirms that global debt is at record levels and 'financial fragilities' have built up across the globe. It's also disappointingly light on solutions that could reverse these trends.

What is the IATF report?

The IATF is a group of fifty major international institutions that work on finance issues, including various United Nations bodies, the International Monetary Fund, World Bank and World Trade Organization.

This report is its annual stocktake on progress towards meeting commitments to finance the Sustainable Development Goals (SDGs). It's an impressive undertaking, covering all major financing sources, with a mandate to look at the global financial and economic system as a whole.

Three things stood out to me:

1. Debt risks continue to grow

First, both public and private debt continue to grow in all country categories. As the graph shows, emerging economies should be particularly worried about corporate debt, which is close to 100% of GDP. This high level of debt makes these economies highly vulnerable – changes in the internal or external environment could trigger bankruptcies that could lead to a full-blown financial crisis.

Meanwhile, more than a decade after the global crisis, developed countries continue to have record levels of government debt. Clearly public finances in this group would be badly placed to weather any future crisis.

2. The financial sector is on shaky ground

Second, global financial sector risks are very worrying. The graph shows how the financial sector has 'deepened' – grown relative to the size of the economy – in all categories of countries since the turn of century.

This can be a good thing for developing countries, but it depends on the way that the financial sector has developed. The report highlights that developing countries' financial sectors have internationalised, with international banks now making up 40% of their banking sector – a share which has doubled since mid-1990s.

This can bring advantages, but it also makes them more vulnerable to the international financial system, where risks have continued to grow despite reforms taken after the global crash. For example, the report notes that 'th­e global stock of high yield bonds and leveraged loans has doubled in size since the global financial crisis, driven by low borrowing costs, high risk appetite, and looser lending standards.'

Reports like this are prone to understatement. One conclusion it draws is that 'In the current uncertain environment, financial markets are highly susceptible to a sudden shift in investors' perception of market risk, which could result in a sharp and disorderly tightening of global financial conditions.'

In other words, it wouldn't take much to precipitate a crash. Add to this the fact that three quarters of countries are found not to have a financial sector strategy, and it's beginning to look like a warning cry.

3. Solutions are lacking

Third, as might be expected from a report that is essentially a compromise between the differing perspectives of a wide range of institutions, recommendations on what to do to prevent another major crisis hitting the global economy are thin on the ground.

One key area I've highlighted before is what to do about the increasing risk of a widespread public or 'sovereign' debt crisis.

The report devotes a chapter to debt, and does mention some potential solutions. It has a section on the idea of making debt contracts dependent upon the ability of the debtor government to pay – known in the trade as 'state contingent debt instruments.' The idea of reducing the repayment burden when, for example, states face recessions or natural catastrophes is a good one, as a recent ODI report explores.

However, on the central issue of how to rapidly and fairly resolve debt crises that do occur – to prevent the lost years (and often decades) that can result – the report is spectacularly unambitious, saying only that it might be time to revisit this issue.

Perhaps I am expecting too much of a report produced by major international bureaucracies: the internal wrangling over each issue is likely to stymie creative, solution-oriented thinking.

The time is therefore ripe for others to pick up this baton and produce the companion set of solutions to help prevent or resolve the problems highlighted by the report, and ensure that the world can meet the ambition of the SDGs without suffering another major crisis.

Jesse Griffiths is Head of Programme at ODI and a specialist in development finance and the international development finance architecture. He has done work for a range of national governments, international organisations, non–governmental organisations and think–tanks, and has published widely on these topics.

Triple Crisis welcomes your comments. Please share your thoughts below.

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NYTimes.com: Donald Trump Is Trying to Kill You

From The New York Times:

Donald Trump Is Trying to Kill You

Trust the pork producers; fear the wind turbines.

https://www.nytimes.com/2019/04/04/opinion/trump-deadly-deregulation.html

There's a lot we don't know about the legacy Donald Trump will leave behind. And it is, of course, hugely important what happens in the 2020 election. But one thing seems sure: Even if he's a one-term president, Trump will have caused, directly or indirectly, the premature deaths of a large number of Americans.

Some of those deaths will come at the hands of right-wing, white nationalist extremists, who are a rapidly growing threat, partly because they feel empowered by a president who calls them "very fine people."

Some will come from failures of governance, like the inadequate response to Hurricane Maria, which surely contributed to the high death toll in Puerto Rico. (Reminder: Puerto Ricans are U.S. citizens.)

Some will come from the administration's continuing efforts to sabotage Obamacare, which have failed to kill health reform but have stalled the decline in the number of uninsured, meaning that many people still aren't getting the health care they need. Of course, if Trump gets his way and eliminates Obamacare altogether, things on this front will get much, much worse.

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But the biggest death toll is likely to come from Trump's agenda of deregulation — or maybe we should call it "deregulation," because his administration is curiously selective about which industries it wants to leave alone.

Consider two recent events that help capture the deadly strangeness of what's going on.

One is the administration's plan for hog plants to take over much of the federal responsibility for food safety inspections. And why not? It's not as if we've seen safety problems arise from self-regulation in, say, the aircraft industry, have we? Or as if we ever experience major outbreaks of food-borneillness? Or as if there was a reason the U.S. government stepped in to regulate meatpacking in the first place?

Now, you could see the Trump administration's willingness to trust the meat industry to keep our meat safe as part of an overall attack on government regulation, a willingness to trust profit-making businesses to do the right thing and let the market rule. And there's something to that, but it's not the whole story, as illustrated by another event: Trump's declaration the other day that wind turbines cause cancer.

Now, you could put this down to personal derangement: Trump has had an irrational hatred for wind power ever since he failed to prevent construction of a wind farm near his Scottish golf course. And Trump seems deranged and irrational on so many issues that one more bizarre claim hardly seems to matter.

But there's more to this than just another Trumpism. After all, we normally think of Republicans in general, and Trump in particular, as people who minimize or deny the "negative externalities" imposed by some business activities — the uncompensated costs they impose on other people or businesses.


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For example, the Trump administration wants to roll back rules that limit emissions of mercury from power plants. And in pursuit of that goal, it wants to prevent the Environmental Protection Agency from taking account of many of the benefits from reduced mercury emissions, such as an associated reduction in nitrogen oxide.

But when it comes to renewable energy, Trump and company are suddenly very worried about supposed negative side effects, which generally exist only in their imagination. Last year the administration floated a proposal that would have forced the operators of electricity grids to subsidize coal and nuclear energy. The supposed rationale was that new sources were threatening to destabilize those grids — but the grid operators themselves denied that this was the case.

So it's deregulation for some, but dire warnings about imaginary threats for others. What's going on?

Part of the answer is, follow the money. Political contributions from the meat-processing industry overwhelmingly favorRepublicans. Coal mining supports the G.O.P. almost exclusively. Alternative energy, on the other hand, generally favors Democrats.

There are probably other things, too. If you're a party that wishes we could go back to the 1950s (but without the 91 percent top tax rate), you're going to have a hard time accepting the reality that hippie-dippy, unmanly things like wind and solar power are becoming ever more cost-competitive.

Whatever the drivers of Trump policy, the fact, as I said, is that it will kill people. Wind turbines don't cause cancer, but coal-burning power plants do — along with many other ailments. The Trump administration's own estimates indicate that its relaxation of coal pollution rules will kill more than 1,000 Americans every year. If the administration gets to implement its full agenda — not just deregulation of many industries, but discrimination against industries it doesn't like, such as renewable energy — the toll will be much higher.

So if you eat meat — or, for that matter, drink water or breathe air — there's a real sense in which Donald Trump is trying to kill you. And even if he's turned out of office next year, for many Americans it will be too late.

what is democratic socialism?

jcase
'
Two important articles these past 2 weeks have highlighted liberal critiques of the "democratic socialists" programs on Medicare for All. The articles are: 1) Paul Krugman's critique of Medicare For All as a litmus test; 2) Natasha Sarin's and Larry Summers alternatives to tax proposals by Senator Elizabeth Warren and Alexandria Ocasio-Cortez. In each case, the author(s) is taking issue with "too much socialism" in the Democratic Socialist agenda, notably expressed in the presidential campaign of Bernie Sanders, and  from newly elected Congresswoman from the Bronx, NY, Alexandria Ocasio-Cortez.

I call them "important" because these are among the best and most experienced minds in economics, with generally progressive values, combined with deep experience in implementing economic theory into policy, policy into politics,  and politics into law.

Further, none other than Barack Obama appears to have weighed in cautioning "progressives" in the Democratic party and presidential campaigns to "not create circular firing squads". Many justly criticize the Affordable Care Acts defects. Most of the defects, so far, are the product of Republican sabotage. No one knows better than Obama the character of the resistance to health care reform. Nonetheless, campaigns based on fixing Obamacare risk becoming victims of the maxim: "there is no education in the second kick of a mule."

This does not make the critics authoritative. I am not sure anyone can be called "authoritative" in this Brave New World. But socialists might be  well-advised to answer the challenges therein, including asking are they really substantive "challenges"? What is "too much socialism"? What is too little? The multi-layered crises confronting all nations are nearly  inseparable from  market economics, yet there are few solutions that do not rely upon the positive behavior of markets in many if not most areas for supplying the means of life, and for the emancipation and rise of labor. Even if such policies were called "socialism with American characteristics"/

To even more complicate matters a new book , OPEN -- The Progressive Case for Free Trade, Immigration, and Global Capital, by Kimberly Clausing, makes a compelling, progressive defense of globalization and openness, of managed capitalism, and for expanded, not restricted, trade relations.  This book runs counter to prevailing narratives and  intuition in Left literature. The book is having a strong impact among progressive economists. It supports justified populist demands for institutional reforms. That means making it legal, within certain restraints, to choose more or less "socialism" (or strong industrial policies like the Green New Deal) in development policy, and to attack both national and global inequality in the distribution of gains  from trade via global tax reform (a la Thomas Piketty). However it does so within a fundamentally market oriented, capitalist context. The book emphasizes workforce adaptation over resistance to globalization. and an enhanced Pay the Losers and Make them Winners infrastructure and programs.

I will not further summarize this material -- it deserves to be read and studied, since these are leading and serious social scientists and thinkers not given to phrasemongering. They too, like all of us, are finding their way in the ever stranger political, economic and cultural terrains.

Instead, keeping the above thinking in mind, I ask: What is democratic socialism? I have been tracking most, and participating in several, socialist trends in the US for many decades. This is good and bad. On the good side, I see patterns in "democratic socialism" seen many times before, although never with the range and scale of interest now. Never with the electoral power of today. Sanders has transformed the terrain of socialist politics. On the bad side,  the "been there done that" sensations are not all that reliable and can lead to underestimating the new and different.

Answers

1. I do not know.

Given the immense scale, wealth, complexity, and diversity -- on every dimension -- of US society, plus its equally vast global entanglements and responsibilities, my only honest answer is: I do not know.  Undoubtedly it involves economically a substantial expansion of the public sector, perhaps as large as Roosevelt, paid for by progressive taxation (either of the Warren/AOC mode, or some other). And also paid for, hopefully, by real efficiencies arising from rationalizing health care and energy and focused investments in productivity enhancing services (e.g. education, health care) and infrastructure.

But many areas of reform have potential powerful side effects and high risk, unknown consequences.  Climate change is a perfect example.  But so are interventions in global financial markets! There are major trial and error confrontations on both roads. The wise overall policy of democratic socialism -- beyond emergency course correction steps on inequality, climate change, and tax/budget fronts  -- would be to promote experimental, and more scientific, frameworks to test the best approaches to social, infrastructure and industrial engineering initiatives. Facts, Not Dogma (Deng Chou Peng) would be a good slogan to warm up. Dogma is a weakness to which socialists have frequently fallen prey. (I will confess).

I believe we carry little more of use on the road we are headed than a  roadmap of values, the broadest possible mastery of science, and a memory of capitalism's long and, in some ways, quite mysterious trajectories. Those trajectories surprised generations before us, and they appear to be doing it again.

The values are our destinations: peace, justice, a healthy environment, and a material and cultural standard of living that gives rise to our highest aspirations -- those that reveal our true destines. There will be more than one.

One way to think about it is a great baseball game: A. Solve conflicts with games not guns; B. A good and impartial umpire to eject foul play from the game, a fair game is required; C. A good park. Advanced society requires support for leisure.  D. A chance at bat show your stuff; E. A chance in the Field -- to show you are A team. In other words, the pursuit of happiness.

2. Democratic socialism is managed capitalism in the current era. I cannot see how any other conclusion escapes complete fantasy for the United States.  The question is: managed by who?  Socialism has two meanings. One refers to the extent of public vs private property where a market oriented economic system is driving the division of labor and wealth. The other refers to the political and social values of the social classes, in a given country, that favor the former.

•  Note: Undemocratic socialism is ALSO managed capitalism, at least in this era.
• Note:  Democratic capitalisms have socialized sectors

Let me use Paul Krugman's stance on Medicare for All as an example of my difficulty in knowing What is Democratic Socialism? - other than Managed Capitalism for the foreseeable future.

All of Paul Krugman's questions about an inflexible, or dogmatic, approach to "medicare for all" are valid. And the alternatives he mentions -- mainly highly regulated mixed systems -- MIGHT be a better, less disruptive means of transforming and integrating a national system out of tens of thousands diverse institutions and services spread across thousands of state, county and municipal health care services that would be bigger and more complex than any health care system on earth.

This argument in effect says the insurance industry's entanglement with the US economy is so deep that nationalizing, permanently, this sector will result in "political chaos".

Bernie responds -- I will use my familiarity with him and his political/economic stance as a stand up example democratic socialist. The quotes are close, but not exact.

"You can't get there (universal coverage) from here if you do not take on the insurance industry and pharmaceutical corruption head on! They will sabotage any tinkering and raise the overall costs of the system while at the same time delivering less not more universal services. As they have done and are doing!"

So true. '

But Bernie too, should he become President, MUST OBTAIN MAJORITIES IN BOTH HOUSES, AND A REVAMPED SUPREME COURT, AND A NATIONAL MANDATE  powerful enough -- general strikes??-- to deal with the REDOUBLED resistance of overthrown or expropriated forces who will exploit every disrupted or reactionary constituency, who will threaten, as they did at the onset of the financial crisis negotiations with both the Bush and  Obama administrations, a serious capital strike and an unemployment rate over 30% if they are not "bailed out because they are too big to fail". There is the decision point, or a good recent metaphor for one. Do you avoid "chaos", again, even though here we are in the midst of President "chaos"? Do you bail out the insurance industry? -- and Wall Street too again since the insurance industry is like the liver AND blood of the financial system now. Or do you arrest the CEOs on the spot, and restart negotiations with what remains?

The real progress toward Medicare for All will be incremental and zig zag, no matter what.  But I think the political dragon lurking behind the demands for Medicare for All, and the more mixed systems, is the dragon of revolution, the potential violence inherent in displacing or reorganizing a significant sector of wealth.  Displaced, very powerful, economic blocs and factions to not leave the scene willingly.  Witness the slave owners or the King of England, or the Tsars of Russia. They do not fall on their swords. No vote that nationalizes insurance property will be viewed as legitimate or acceptable. Resistance to reform will be redoubled. Revolutionary means and approaches, however,  open Pandora's box. Everyone will lose some skin to move on historically. But if you fail to open it,  history may open it for you.

Both force and science will likely be required. The force part is a decisive, well organized majority. The science part will resolve the policy differences between liberal (less socialist) and democratic socialist approaches on health care.

The force part will probably be resolved by Republican reaction, as they remain determined to destroy ALL public options, reform or "socialist": Just like Fort Sumter resolved the differences between Abraham Lincoln and Frederick Douglas. Of course the era that follows may or may not be as democratic as hoped.  Democracy, certainly the formal kind, requires security. Revolutionary eras put that at risk too.

As Tom Joad remarked:

"They stood on the mountain
and looked to the west'
and it looked, like promised land.
A great green valley with a river running through,
there was work for every single hand, they thought.
there was work for every single hand."

Housing discrimination underpins the staggering wealth gap between blacks and whites [feedly]

Housing discrimination underpins the staggering wealth gap between blacks and whites
https://www.epi.org/blog/housing-discrimination-underpins-the-staggering-wealth-gap-between-blacks-and-whites/

Wealth is a crucially important measure of economic health—it allows families to transfer income earned in the past to meet spending demands in the future, such as by building up savings to finance a child's college education.

That's why it's so alarming to see that, today still, the median white American family has twelve times the wealth that their black counterparts have. And that only begins to tell the story of how deeply racism has defined American economic history.

Enter EPI Distinguished Fellow Richard Rothstein's widely praised book, "The Color of Law," which delves into the very tangible but underappreciated root of the problem: systemic, legalized housing discrimination over a period of three decades—starting in the 1940s—prevented black families from having a piece of the American Dream of homeownership.

Over the years, this disparity was compounded by not only ongoing discrimination but also the legacy of prior practices.

Figure A

"This enormous difference in (wealth) is almost entirely attributable to federal housing policy implemented through the 20th century," says Rothstein as the narrator in animated film about his book, entitled "Segregated by Design."

Director Mark Lopez uses innovative visual techniques to walk the viewer through Rothstein's story, and the results are moving and compelling.

"African American families that were prohibited from buying homes in the suburbs in the 1940s and 50s, and even into the 1960s, by the Federal Housing Administration gained none of the equity appreciation that whites gained," Rothstein says in the short film.

The discrimination happened on several levels—and often culminated in violence against black families trying to move into neighborhoods that had been effectively designated as white by government policy. Sometimes these designations took place quite literally as maps were divided up along racial lines with different colors on the maps. Black neighborhoods were painted red—hence the term "redlining"—which only became illegal after the Fair Housing Act of 1968.

In addition, "state sponsored violence was a means, along with many others, at which all levels of government maintained segregation."

Rothstein acknowledges that the problem runs so deep that it can never be completely untangled, but also argues that partial reversal are possible and can be encouraged by sound economic and housing policies. It starts with knowing how it happened.

"If we understand the accurate history—that racially segregated patterns in every metropolitan area like St. Louis were created by de jure segregation—racially explicit policy on the part of federal, state, and local governments designed to segregate metropolitan areas, then we can understand we have an unconstitutional residential landscape," Rothstein says.

"And if it's unconstitutional, then we have an obligation to remedy it," he adds. "We must build a national political consensus leading to legislation, a challenging but not impossible task, to develop policies that promote an integrated society."

Until then, the legacy of racist housing practices will remain a fact of life in most American cities.

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Summers: Ten Years Later: Reflections on the 2008–09 Financial Crisis [feedly]

An interesting defense -- and critique -- of Obama admin actions at the onset of the Great Recession. I think the  comparison of the UK's temp nationalization followed by irrational Brexitism to NO nationalization in the US followed by Trump is a weak defense of the latter, a little like constructing any two legged stool and watching it fall over. But, Summers has so much experience at the translation of theory into policy that its wrong to not take his review and critiques very seriously.

Ten Years Later: Reflections on the 2008–09 Financial Crisis
http://larrysummers.com/2019/04/01/ten-years-later-reflections-on-the-2008-09-financial-crisis/

The Brookings Institute

January 10, 2019

 

Did we do right thing?

No. Then yes. Then no.

If you looked at what was happening to the economy in 2007, at the runup to Bear Stearns failing and what happened to after Bear Stearns failed, there was obviously a gathering storm. Nobody did much except react. Banks were allowed to continue paying dividends. Nobody was forced to recapitalize. The situation drifted along. There should have been shock and awe of capital, a recognition that maintaining demand was the most important objective of macro-economic policy. Yet nobody did much. It was an obvious mistake, even at the time.

But in the crucial period of six months between the time Lehman Brothers fell and the period after the stress test, America rose to the occasion. The banks were substantially recapitalized; significant fiscal stimulus was delivered; substantial interventions to provide liquidity to the financial markets were engineered; and the sharpest "V" in the history of the major economies was recorded between the first and second quarters of 2009. On the precipice of a truly historic economic calamity, we acted decisively, appropriately, and effectively. And this was by far the most important period to get it right.

By the end of 2009, however, driven by misguided concern about budget deficits and a desire to get to long-run agendas, we declared that the green shoots of recovery were at hand and left the battlefield. Demand was still too weak to drive a robust recovery, and as a consequence, the expansion was substantially slower than it could have been, with less capital investment and more people unemployed for a longer period of time. The lost output certainly cast a shadow forward.

So at the most important moment, we acted. But we waited too long and declared victory prematurely.

Could we have avoided a populist backlash?

There are reasons rooted financial crises in general that serve as catalysts for populist uprisings: in particular the need to provide support to existing financial institutions, especially powerful ones, at the same time that masses of people suffer dislocation. But had we adopted more draconian policies towards the financial institutions, would it have somehow curbed the populist pressure? The best natural experiment says no. Britain nationalized two of their four major banks, yet they got "Brexited" at about the time that we got Trump.

Then there's the more extreme anti-establishment solution: the government simply stands back and lets businesses fail. The economic fires burn themselves out, the theory goes, without taxpayers putting any money in. We have a natural experiment for that, too, and it was what made the Great Depression great.

In fact, if you look at a graph of any interesting economic statistic from the beginning of the fall of 2008 to the beginning of 2009, it looks kind of just like the Great Depression did after 1929. And if you look at the subsequent five years, although our economy could've been better, it doesn't look anything like the Depression. Unemployment peaked at 10 percent, not 25. Had we decided against government action, we would have had something like the Great Depression. And even in terms of the federal budget alone, the government would lost 10 times as much revenue from the destruction of our economy as it would have gained from not having to spend money on bail outs—the vast majority of which came back to the government anyway.

Should we have nationalized banks?

When you nationalize an institution, the first question everyone asks is, "What happens next?" The situation is temporary, so how does it end?

Inside the bank, employees will generally make a fairly obvious calculation: If the government's going to own and liquidate it, people who can get other jobs usually do. Talent leaves.

On the consumer side, debtors owing money to a bank that will never give them a new loan feel less pressure to pay back the old one. New customers give their business to banks that aren't in liquidation and run by the government. For all these reasons our experience is that government intervention in banks is invariably a major destroyer of asset value. It would have been far more expensive for taxpayers had the government intervened in the banks. And those weaker banks would have been far less helpful in contributing to the recovery.

There were those who said at the time, "Well, what about the Swedish model?" But the Swedish government already owned 80 percent of the banks before the crisis started: The government putting additional capital into a bank that it already 80 percent owns really isn't analogous to the situation we were facing. As for comparing this crisis to a standard intervention by the FTC, there certainly wasn't anybody sitting around in the middle of the biggest financial crisis in 60 years ready to absorb a big bank as if it were a community bank.

Others simply say that banks didn't suffer enough compared to everybody else. But if you were a shareholder in the banks that people talked about nationalizing, after we've had a 10-year recovery your investment is worth about 10 percent of what it was before the crisis started. To enact a harsher penalty, you would have had to destroy an enormous amount of value.

Is capitalism itself in crisis?

Many of the problems of capitalism are actually a feature of its success. It is a truism that middle-class wages have been stagnating. But we should remember how dramatically more efficient our economy has become. It takes takes about a third as many working hours to purchase a refrigerator as it did in 1973. It takes half as many hours to buy a shirt; one-sixth to buy a television. If you take the goods produced by what we think of as capitalism, there has been a massive increase in purchasing power over the last 45 years.

The challenge is how do we adapt to that increased efficiency, which is very much like what happened to agriculture. Agriculture has become so efficient that now it's kind of irrelevant to the economy, less than two percent of our working population. And that what's happening to traditional capitalist—particularly manufacturing—activity. Today in America only a four-and-a-half percent of workers are doing production work in manufacturing. There are more 50-year-old men on disability than doing production work in manufacturing—precisely because it's become so productive. Fewer people are producing goods. More people are producing services.

What do we do in healthcare? What do we do in education? What do we do in housing? How do we handle social media? The difficulties and challenges come not from not the workings of capitalism but from the particular activities our workers move to as traditional capitalism succeeds. These are the economic policy challenges for the next generation. You can't think about healthcare the way you think about the market for shirts. You can't think about taking care of the aged the way you think about selling automobiles.

So is traditional capitalism enough? No. But rejecting traditional capitalism would not—if you look at places such as Venezuela, Cuba, and North Korea—seem to be the answer either.  As for China, anyone who looks at it thoughtfully has to say that, for the most part, the reason China has done phenomenally well over the last 40 years is that there are a lot more markets, a lot more property, and a lot more openness to the rest of the world than there used to be. A broad rejection of capitalism is a poor substitute for taking on the real economic challenges that face the United States today.

 -- via my feedly newsfeed