|David Frum Awakens and Rejects the Tea Party Implants|
In a pair of blog posts, "Time to Downgrade the Journal’s Editorial Page" and "The Journal’s Memory Hole" he takes the editors of the Wall Street Journal to task for their disingenuous financial analysis and failure to recognize the causes of the current crisis. Frum is no liberal, but he recognizes the futility of partisan hackery in the face of the worst financial crisis since 1930.
Taking on the WSJ straw-man that the fed simply wants to crank up the printing presses to solve the financial crisis, Frum writes
Clearly no liberal he, but sensible monetary policy is more important that Koch-fueled hackery.Nobody – literally nobody – suggests that prosperity can be conjured from printing presses. The question before us is: what to do in the face of the worst economic collapse since the 1930s? Of course long-term growth comes from savings, innovation, and raising society’s skill level. (The Journal, with its indifference to deficits and its advocacy of open borders, is on the wrong side of at least two of those issues.) But when a crisis comes, what do you do then? In 1934 as in 2009, an accommodating monetary policy can mitigate the crisis and open the way for the drivers of longer-term growth to resume operation. Milton Friedman got that two generations ago. Almost every working business economist on the planet gets it today.
Further on, the Journal's hack editors imply that the entire financial crisis can be attributed to the mortgage market and Fed "loose money policy" in the early 2000s. Frum counters
Guilty consciences all around at the Journal. And serious analytical problems abound.The insinuation here is that the Fed’s (non-existent) loose money policy, having first created the bubble, must bear responsibility for the crash.
This is an especially important insinuation for the Journal, because the page has its own guilty conscience on the subject to quell. The financial crisis of 2008-2009 destroyed trillions of dollars in real-estate and financial wealth. As has been pointed out by every expert to study the question, from the Financial Crisis Inquiry Commission on down, there is just no way that the US housing bubble alone could have triggered such a global cataclysm. The cataclysm was too big relative to the size of the mortgage market.
We have a real-world example of the point: the failure of the Savings & Loan industry in the late 1980s. The collapse of this entire banking sector, then about a $200 billion industry, pushed the US into a mild recession that lasted for less than a year. Four years after the recession’s end, the US shifted into one of the most roaring expansions of the post-World War II period.
If the US could so easily shake off a $200 billion financial loss in 1990, how is it that the collapse of the not-very-much-bigger subprime market–$1 trillion at its peak–could threaten to wreck the entire financial system of the western world in 2008? How could it cause a market plunge that wiped away at least $13 trillion in wealth? How could it trigger the biggest and steepest plunge in economic activity since the 1930s, extending into a mini-depression that has lasted now almost three years and looks likely to last for at least three more?
The story as told by the Journal makes no sense.