The crisis of the euro currency zone is an excellent example of how flagrant lies can successfully be converted into accepted wisdom. Almost every generalization about the crisis found in the mainstream media is false. As a result, the mainstream punditries on the crisis are ideological polemics masquerading as analysis. Further, often progressive critiques of the reactionary “austerity” policies by the euro zone governments accepts the mainstream faux-facts about the crisis, fuelling the There-Is-No-Alternative (TINA) syndrome.
It is hard to imagine getting this more exactly backward than Ron Paul does in this video. Deregulation and tax cuts for the ultra-wealthy are some of the causes of the problem. They are not the cures. Deficit spending at the wrong part of the economic cycle is a huge cause of the problem. Reducing deficit spending in the exquisitely timed wrong part of the economic cycle would spell disaster.
Just because Ron Paul talks about arcane economic topics doesn’t mean he knows his donkey from his elbow when he speaks. Somebody needs to counter this horrible mis-education of the voter by this dangerous man.
The housing bubble could have happened in a higher interest rate environment just as easily. If the repeal of the Glass-Steagall act deregulating the banks had not happened, it is much less likely that the bubble would have occurred. Had George W. Bush not stimulated the economy with his huge deficits at a time when the economy was already humming along, there would have been less investment money to chase the mere pushing financial derivatives around in the absence of any more productive investment possibilities.
Taxing away some of that ill spent money of the super wealthy would also have helped rein in the bubble. Instead George W. Bush instituted tax cuts. This is just one more reason why the tax cuts in the middle of two wars, an already overstimulated economy, and an unbalanced budget were totally insane.
Admittedly, the Federal Reserve could have stepped in and raised bank reserve requirements when they saw the bubble forming under Alan Greenspan’s tenure as head of the Fed. Instead of wondering over the irrational exuberance of the market, Greenspan could have figured out the problem and done something.
The non-ideological economists were pleading with Greenspan to get up off his donkey and take action. Ron Paul may be half-donkey right about Greenspan’s idiotic policy of low interest when the economic cycle required higher interest. This just added more fuel to the fire that George W. Bush was fiscally promoting with his deficits and tax cuts. Raising the interest rates during the current phase of the economic cycle would also be almost perfectly mis-timed.
Would an automotive analogy help any? When faced with a car whose engine is revving out of control past the red line and whose gas tank is full, you do not pour gasoline anywhere near it. That will just set it on fire. However, when the engine has stalled because the gas tank is empty, that is exactly when you need to pour gasoline in the tank. (For my British readers, for gas and gasoline, put in the word petrol.)