Blame it on Reganomics

Paul Krugman had an interesting op-ed piece today in the NYT blaming the Regan-era deregulations for the problems we are facing today. I have never really been impressed by anything Paul Krugman has written (books or op-eds), but this piece does mention some obvious, but yet important trends that began in the early 1980s. From the NYT:

The increase in public debt was, however, dwarfed by the rise in private debt, made possible by financial deregulation. The change in America’s financial rules was Reagan’s biggest legacy. And it’s the gift that keeps on taking.

...

But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.

These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.

Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.

We weren’t always a nation of big debts and low savings: in the 1970s Americans saved almost 10 percent of their income, slightly more than in the 1960s. It was only after the Reagan deregulation that thrift gradually disappeared from the American way of life, culminating in the near-zero savings rate that prevailed on the eve of the great crisis. Household debt was only 60 percent of income when Reagan took office, about the same as it was during the Kennedy administration. By 2007 it was up to 119 percent.

One of the reasons I dislike Krugman's editorials is for some reason, (and I havn't figure this out yet) he is a HUGE cheerleader of big government. There is no doubt in my mind, in the US, government IS the problem, and its NEVER the solution. The word "solution" can never be put into the same sentence as Harry Reid, Nancy Pelosi, or Barak Obama. We certainly have a lot of problems in this country, but partisan politics and trillion dollar deficits are not going to make them go away.

I think I may be underestimating Krugman's wealth. Very few smart people in the US that are mildy rich and successful (or aspire to be) would support this administration!