THE BLACKLISTED JOURNALIST,EMAIL,THE BIG LIE AGAIN,BY PAUL KRUGMAN,AMERICA'S MAN ON A HORSEBACK,venire,THE CHINA SYNDROME, THE LIQUIDITY TRAP

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COLUMN NINETY-FOUR, JULY 1, 2003
(Copyright © 2003 The Blacklisted Journalist)

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BY PAUL KRUGMAN

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1. 'THE BIG LIE' AGAIN

Subject: NYTimes.com Article: Matters of Emphasis
Date: Tue, 29 Apr 2003 09:24:15 -0500 (EST)
From: "venire" venire@znet.com
To: info@blacklistedjournalist.com

April 29, 2003

Matters of Emphasis

By PAUL KRUGMAN

We were not lying," a Bush administration official told ABC News. "But it was just a matter of emphasis." The official was referring to the way the administration hyped the threat that Saddam Hussein posed to the United States. According to the ABC report, the real reason for the war was that the administration "wanted to make a statement." And why Iraq? "Officials acknowledge that Saddam had all the requirements to make him, from their standpoint, the perfect target."

A British newspaper, The Independent, reports that "intelligence agencies on both sides of the Atlantic were furious that briefings they gave political leaders were distorted in the rush to war." One "high-level source" told the paper that "they ignored intelligence assessments which said Iraq was not a threat."

Sure enough, we have yet to find any weapons of mass destruction. It's hard to believe that we won't eventually find some poison gas or crude biological weapons. But those aren't true W.M.D.'s, the sort of weapons that can make a small, poor country a threat to the greatest power the world has ever known. Remember that President Bush made his case for war by warning of a "mushroom cloud." Clearly, Iraq didn't have anything like that " and Mr. Bush must have known that it didn't.

Does it matter that we were misled into war? Some people say that it doesn't: we won, and the Iraqi people have been freed. But we ought to ask some hard questions " not just about Iraq, but about ourselves.

First, why is our compassion so selective? In 2001 the World Health Organization " the same organization we now count on to protect us from SARS " called for a program to fight infectious diseases in poor countries, arguing that it would save the lives of millions of people every year. The U.S. share of the expenses would have been about $10 billion per year " a small fraction of what we will spend on war and occupation. Yet the Bush administration contemptuously dismissed the proposal.

Or consider one of America's first major postwar acts of diplomacy: blocking a plan to send U.N. peacekeepers to Ivory Coast (a former French colony) to enforce a truce in a vicious civil war. The U.S. complains that it will cost too much. And that must be true " we wouldn't let innocent people die just to spite the French, would we?

So it seems that our deep concern for the Iraqi people doesn't extend to suffering people elsewhere. I guess it's just a matter of emphasis. A cynic might point out, however, that saving lives peacefully doesn't offer any occasion to stage a victory parade.

Meanwhile, aren't the leaders of a democratic nation supposed to tell their citizens the truth?

One wonders whether most of the public will ever learn that the original case for war has turned out to be false. In fact, my guess is that most Americans believe that we have found W.M.D.'s. Each potential find gets blaring coverage on TV; how many people catch the later announcement " if it is ever announced " that it was a false alarm? It's a pattern of misinformation that recapitulates the way the war was sold in the first place. Each administration charge against Iraq received prominent coverage; the subsequent debunking did not.

Did the news media feel that it was unpatriotic to question the administration's credibility? Some strange things certainly happened. For example, in September Mr. Bush cited an International Atomic Energy Agency report that he said showed that Saddam was only months from having nuclear weapons. "I don't know what more evidence we need," he said. In fact, the report said no such thing " and for a few hours the lead story on MSNBC's Web site bore the headline "White House: Bush Misstated Report on Iraq." Then the story vanished " not just from the top of the page, but from the site.

Thanks to this pattern of loud assertions and muted or suppressed retractions, the American public probably believes that we went to war to avert an immediate threat " just as it believes that Saddam had something to do with Sept. 11.

Now it's true that the war removed an evil tyrant. But a democracy's decisions, right or wrong, are supposed to take place with the informed consent of its citizens. That didn't happen this time. And we are a democracy " aren't we?

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2. AMERICA'S 'MAN ON A HORSEBACK'

Subject: NYTimes.com Article: Man on Horseback
Date: Tue, 06 May 2003 09:24:15 -0500 (EST)
From: "venire" venire@znet.com
To: info@blacklistedjournalist.com

May 6, 2003

Man on Horseback

By PAUL KRUGMAN

Gen. Georges Boulanger cut a fine figure; he looked splendid in uniform, and magnificent on horseback. So his handlers made sure that he appeared in uniform, astride a horse, as often as possible.

It worked: Boulanger became immensely popular. If he hadn't lost his nerve on the night of the attempted putsch, French democracy might have ended in 1889.

We do things differently here " or we used to. Has "man on horseback" politics come to America?

Some background: the Constitution declares the president commander in chief of the armed forces to make it clear that civilians, not the military, hold ultimate authority. That's why American presidents traditionally make a point of avoiding military affectations. Dwight Eisenhower was a victorious general and John Kennedy a genuine war hero, but while in office neither wore anything that resembled military garb.

Given that history, George Bush's "Top Gun" act aboard the U.S.S. Abraham Lincoln " c'mon, guys, it wasn't about honoring the troops, it was about showing the president in a flight suit " was as scary as it was funny.

Mind you, it was funny. At first the White House claimed the dramatic tail-hook landing was necessary because the carrier was too far out to use a helicopter. In fact, the ship was so close to shore that, according to The Associated Press, administration officials "acknowledged positioning the massive ship to provide the best TV angle for Bush's speech, with the sea as his background instead of the San Diego coastline."

A U.S.-based British journalist told me that he and his colleagues had laughed through the whole scene. If Tony Blair had tried such a stunt, he said, the press would have demanded to know how many hospital beds could have been provided for the cost of the jet fuel.

But U.S. television coverage ranged from respectful to gushing. Nobody pointed out that Mr. Bush was breaking an important tradition. And nobody seemed bothered that Mr. Bush, who appears to have skipped more than a year of the National Guard service that kept him out of Vietnam, is now emphasizing his flying experience. (Spare me the hate mail. An exhaustive study by The Boston Globe found no evidence that Mr. Bush fulfilled any of his duties during that missing year. And since Mr. Bush has chosen to play up his National Guard career, this can't be shrugged off as old news.)

Anyway, it was quite a show. Luckily for Mr. Bush, the frustrating search for Osama bin Laden somehow morphed into a good old-fashioned war, the kind where you seize the enemy's capital and get to declare victory after a cheering crowd pulls down the tyrant's statue. (It wasn't much of a crowd, and American soldiers actually brought down the statue, but it looked great on TV.)

Let me be frank. Why is the failure to find any evidence of an active Iraqi nuclear weapons program, or vast quantities of chemical and biological weapons (a few drums don't qualify " though we haven't found even that) a big deal? Mainly because it feeds suspicions that the war wasn't waged to eliminate real threats. This suspicion is further fed by the administration's lackadaisical attitude toward those supposed threats once Baghdad fell. For example, Iraq's main nuclear waste dump wasn't secured until a few days ago, by which time it had been thoroughly looted. So was it all about the photo ops?

Well, Mr. Bush got to pose in his flight suit. And given the absence of awkward questions, his handlers surely feel empowered to make even more brazen use of the national security issue in future.

Next year " in early September " the Republican Party will hold its nominating convention in New York. The party will exploit the time and location to the fullest. How many people will dare question the propriety of the proceedings?

And who will ask why, if the administration is so proud of its response to Sept. 11, it has gone to such lengths to prevent a thorough, independent inquiry into what actually happened? (An independent study commission wasn't created until after the 2002 election, and it has been given little time and a ludicrously tiny budget.)

There was a time when patriotic Americans from both parties would have denounced any president who tried to take political advantage of his role as commander in chief. But that, it seems, was another country.

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3. THE CHINA SYNDROME

Subject: NYTimes.com Article: The China Syndrome
Date: Tue, 13 May 2003 09:24:15 -0500 (EST)
From: "venire" venire@znet.com
To: info@blacklistedjournalist.com

May 13, 2003

The China Syndrome

By PAUL KRUGMAN

A funny thing happened during the Iraq war: many Americans turned to the BBC for their TV news. They were looking for an alternative point of view " something they couldn't find on domestic networks, which, in the words of the BBC's director general, "wrapped themselves in the American flag and substituted patriotism for impartiality."

Leave aside the rights and wrongs of the war itself, and consider the paradox. The BBC is owned by the British government, and one might have expected it to support that government's policies. In fact, however, it tried hard " too hard, its critics say " to stay impartial. America's TV networks are privately owned, yet they behaved like state-run media.

What explains this paradox? It may have something to do with the China syndrome. No, not the one involving nuclear reactors " the one exhibited by Rupert Murdoch's News Corporation when dealing with the government of the People's Republic.

In the United States, Mr. Murdoch's media empire " which includes Fox News and The New York Post " is known for its flag-waving patriotism. But all that patriotism didn't stop him from, as a Fortune article put it, "pandering to China's repressive regime to get his programming into that vast market." The pandering included dropping the BBC's World Service " which reports news China's government doesn't want disseminated " from his satellite programming, and having his publishing company cancel the publication of a book critical of the Chinese regime.

Can something like that happen in this country? Of course it can. Through its policy decisions " especially, though not only, decisions involving media regulation " the U.S. government can reward media companies that please it, punish those that don't.

This gives private networks an incentive to curry favor with those in power. Yet because the networks aren't government-owned, they aren't subject to the kind of scrutiny faced by the BBC, which must take care not to seem like a tool of the ruling party. So we shouldn't be surprised if America's "independent" television is far more deferential to those in power than the state-run systems in Britain or " for another example " Israel.

A recent report by Stephen Labaton of The Times contained a nice illustration of the U.S. government's ability to reward media companies that do what it wants. The issue was a proposal by Michael Powell, chairman of the Federal Communications Commission, to relax regulations on media ownership. The proposal, formally presented yesterday, may be summarized as a plan to let the bigger fish eat more of the smaller fish. Big media companies will be allowed to have a larger share of the national market and own more TV stations in any given local market, and many restrictions on "cross-ownership" " owning radio stations, TV stations and newspapers in the same local market " will be lifted.

The plan's defects aside " it will further reduce the diversity of news available to most people " what struck me was the horse-trading involved. One media group wrote to Mr. Powell, dropping its opposition to part of his plan "in return for favorable commission action" on another matter. That was indiscreet, but you'd have to be very na've not to imagine that there are a lot of implicit quid pro quos out there.

And the implicit trading surely extends to news content. Imagine a TV news executive considering whether to run a major story that might damage the Bush administration " say, a follow-up on Senator Bob Graham's charge that a Congressional report on Sept. 11 has been kept classified because it would raise embarrassing questions about the administration's performance. Surely it would occur to that executive that the administration could punish any network running that story.

Meanwhile, both the formal rules and the codes of ethics that formerly prevented blatant partisanship are gone or ignored. Neil Cavuto of Fox News is an anchor, not a commentator. Yet after Baghdad's fall he told "those who opposed the liberation of Iraq" " a large minority " that "you were sickening then; you are sickening now." Fair and balanced.

We don't have censorship in this country; it's still possible to find different points of view. But we do have a system in which the major media companies have strong incentives to present the news in a way that pleases the party in power, and no incentive not to.

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4. THE LIQUIDITY TRAP

Subject: NYTimes.com Article: Fear of a Quagmire?
Date: Sat, 24 May 2003 09:24:15 -0500 (EST)
From: "venire" venire@znet.com
To: info@blacklistedjournalist.com

May 24, 2003

Fear of a Quagmire?

By PAUL KRUGMAN

Suddenly the d-word is on everyone's lips. Last weekend the International Monetary Fund released a rather ominous report titled "Deflation: determinants, risks and policy options." The report made headlines by suggesting that Germany is likely to join Japan in the falling-price club. Alan Greenspan hastened to reassure us that the U.S. isn't at imminent risk of deflation. But alert Greenspanologists pointed out that he seemed to hedge his bets, and the fact that he even felt obliged to discuss the issue showed that he was worried.

Though talk of deflation fills the air, most of that talk is subtly but significantly off point. The immediate danger isn't deflation per se; it's the risk that the world's major economies will find themselves trapped in an economic quagmire. Deflation can be both a symptom of an economy sinking into the muck, and a reason why it sinks even deeper, but it's usually a lagging indicator. The crucial question is whether we'll stumble into the swamp in the first place " and the risks look uncomfortably high.

The particular type of quagmire to worry about has a name: liquidity trap. As the I.M.F. report explains, the most important reason to fear deflation is that it can push an economy into a liquidity trap, or deepen the distress of an economy already caught in the trap.

Here's how it works, in theory. Ordinarily, deflation " a general fall in the level of prices " is easy to fight. All the central bank (in our case, the Federal Reserve) has to do is print more money, and put it in the hands of banks. With more cash in hand, banks make more loans, interest rates fall, the economy perks up and the price level stops falling.

But what if the economy is in such a deep malaise that pushing interest rates all the way to zero isn't enough to get the economy back to full employment? Then you're in a liquidity trap: additional cash pumped into the economy " added liquidity " sits idle, because there's no point in lending money out if you don't receive any reward. And monetary policy loses its effectiveness.

Once an economy is caught in such a trap, it's likely to slide into deflation " and nasty things (what the I.M.F. report calls "adverse dynamics") begin to happen. Falling prices induce people to postpone their purchases in the expectation that prices will fall further, depressing demand today.

Also, deflation usually means falling incomes as well as falling prices. In a deflationary economy, a family that borrows money to buy a house may well find itself having to pay fixed mortgage payments out of a shrinking paycheck; a business that borrows to finance investment may well find itself having to pay a fixed interest bill out of a shrinking cash flow.

In other words, deflation discourages borrowing and spending, the very things a depressed economy needs to get going. And when an economy is in a liquidity trap, the authorities can't offset the depressing effects of deflation by cutting interest rates. So a vicious circle develops. Deflation leads to rising unemployment and falling capacity utilization, which puts more downward pressure on prices and wages, which accelerates deflation, which makes the economy even more depressed. The prospect of such a "deflationary spiral," rather than the mere prospect of deflation, is what scares the I.M.F. " and it should.

A decade ago all of these fears might have been dismissed as mere theoretical speculation. But in Japan the whole nasty scenario is playing out, just as the theory predicts. And about five years ago I and other economists began writing academic papers pointing out that what can happen in Japan can happen elsewhere. (Part of the I.M.F. report draws on my work on the subject.)

So how seriously should we take the risk that something similar will happen in the world's other major economies? Neither the United States nor Europe, outside Germany, is likely to experience serious deflation in the next year or two. But that's the wrong question " and we should bear in mind that Japan's economic malaise took a long time to turn into all-out deflation.

In fact, it's striking how gradually Japan's catastrophe unfolded. When the stock bubble of the 1980's burst, Japan's economy didn't fall off a cliff. By and large the economy continued to grow, if slowly, and the nation didn't have a severe recession until 1998. But year after year, Japan underperformed, growing less than its potential. Though the Japanese government tried to stimulate the economy using the usual tools " deficit spending, interest rate cuts " it was never enough. By 1995 or so the economy had slid into a liquidity trap; by the late 1990's it had entered into a deflationary spiral.

Our own situation is strikingly similar in some ways to that of Japan a decade ago. Like Japan circa 1993 or 1994, the United States is now facing the aftermath of a huge stock market bubble " the Nikkei and the Standard and Poor's 500 both tripled in the five years before their respective peaks.

Also like Japan, we face a problem not of sharp downturn but of persistent underperformance " an economy that grows, but too slowly to prevent rising unemployment and falling capacity utilization.

What's different is that we have Japan as a cautionary example. Is forewarned forearmed?

Whatever reassurances Mr. Greenspan may offer, the staff at the Fed is very worried about a Japanese scenario for the United States " a concern reflected in their research agenda. In a major study of Japan's experience published last year, Fed economists reached two key conclusions. First, Japan could have avoided its current trap if policymakers had been aggressive enough, soon enough. But by the time they realized the danger, it was too late. Second, the Japanese weren't stupid: their relatively cautious policies in the first half of the 1990's made sense given not only their own forecasts, but also those of independent analysts. But the forecasts were wrong " and the Japanese had failed to take out enough insurance against the possibility that they might be wrong.

The Fed has taken these conclusions to heart. Once the U.S. economy began to falter, it cut rates early and often, trying to get ahead of the problem. Those cuts certainly helped moderate the slump; but at this point, with the overnight interest rate down to 1.25 percent, the Fed has almost run out of room to cut. (Fed officials believe, for technical reasons, that going below 0.75 would be counterproductive.) And the economy remains weak.

The Fed still has some tricks up its sleeve. Now would be a very good time to announce an inflation target. But it's also clear that the Fed could use some help, at home and abroad. Alas, it's not getting that help.

The Fed's European counterpart, the European Central Bank, has been far less aggressive in cutting rates. There are economic, institutional and psychological reasons for this passivity, but the central bank's immobility is one main reason why Germany seems set to follow in Japan's footsteps. European governments aren't much help, either. Bound by the "stability pact," which limits the size of the deficits they are allowed to run, they have been cutting expenditures and raising taxes even as their economies falter.

The Bush administration is, of course, notably unconcerned about deficits. Aren't the tax cuts in the pipeline exactly what the economy needs? Alas, no. Despite their huge size " if you ignore the gimmicks, the latest round will cost at least $800 billion over the next decade " they pump relatively little money into the economy now, when it needs it. Moreover, the tax cuts flow mainly to the very, very affluent " the people least likely to spend their windfall.

Meanwhile, state and local governments, which are not allowed to run deficits " we have our own version of the stability pact " are slashing spending and raising taxes. And both the spending cuts and the tax increases will fall mainly on the most vulnerable, people who cannot make up the difference by drawing on existing savings. The result is that the economic downdraft from state cutbacks (only slightly alleviated by the paltry aid contained in the new tax bill) will almost certainly be stronger than any boost from federal tax cuts.

In short, those of us who worry about a Japanese-style quagmire find the global picture pretty scary. Policymakers are preoccupied with their usual agendas; outside the Fed, none of them seem to understand what may be at stake.

Of course, it's possible, maybe even likely, that their nonchalance will be vindicated. Most analysts don't think we'll find ourselves caught in a liquidity trap. And even the Fed believes " or is that hopes? " that a surge in business investment will save the day.

But few analysts saw the Japanese quagmire coming either, and there is now a significant risk that we will find ourselves similarly trapped. Even so, we won't have deflation right away. But by the time we do, it will be very hard to reverse.

Like the Fed, I hope that doesn't happen. But hope is not a plan.

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