Posted by WARREN MOSLER on March 27th, 2009
> Sounds like Krugman has been reading your blog:
by Paul Krugman
Mar 26 (NY Times) — But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.
The market mystique didnÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.
And the financial system wasnÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢t just boring. It was also, by todayÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s standards, small. Even during the ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œgo-go years,ÃƒÂ¢Ã¢â€šÂ¬Ã‚Â the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P. The relative unimportance of finance was reflected in the list of stocks making up the Dow Jones Industrial Average, which until 1982 contained not a single financial company.
It all sounds primitive by todayÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s standards. Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation.