Saturday, 4 April 2009

The Liberal Economist Who's Become Obama's Chief Critic

THE INDEPENDENT: Forget the Republicans, the biggest thorn in the President's side is Paul Krugman. Stephen Foley reports

Paul Krugman On the bank bailout: 'The plans are a classic exercise in 'lemon socialism': taxpayers bear the cost if things go wrong, stockholders and executives get the benefits if things go right. Photo courtesy of The Independent

His apocalyptic warnings have sent readers flocking to his blog. A viral video of a Californian man literally singing his praises is a hit on YouTube. Tickets to a lecture he was giving in California last night were going for $135 (£91). Newsweek magazine just put him on the cover and dubbed him the head of "the loyal opposition". Paul Krugman is the man of the moment. And Team Obama is rattled.

While the US leader has been entrancing foreign statesmen on a whirlwind tour of Europe and trying to craft an era of bipartisanship back home, his staunchest opponent has appeared from very close quarters – from the left – threatening a crisis of confidence that could capsize his infant presidency.

The Obama administration has been blindsided by the emergence of Mr Krugman – not even a politician, but an economist – as a focus for dissidents who believe it is not doing enough to repair the economy.

On both pillars of Mr Obama's economic strategy – the $800bn package to stimulate the economy and the $1 trillion bailout for the financial sector – the bearded Princeton university professor has been the President's most coruscating critic.

Mr Krugman has been doing his New York Times column for a decade. He has long been a staple on political talk shows and gained new respect last year when he won the Nobel prize for economics for his work on international trade. But in the past few months, he has tapped into the anxiety of a wider audience, which is asking the question of the moment: will the Obama recovery plan work?

His answer is no. The economic stimulus Bill was far smaller than required to combat soaring job losses, which yesterday passed five million since the start of the US recession. Worse, the plan to repair the banking system – lending private investors up to $1 trillion to buy toxic mortgage assets from the country's ailing banks, in the hope of freeing them up to start lending again – is doomed, because it is based on the flawed notion that the major US banks are fundamentally sound. >>> Stephen Foley | Saturday, April 4, 2009

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