You know something is happening when an NYU economist writes a credit report that says, "The United States banking system is effectively insolvent."
If you add up the numbers in Krugman's good column today you get this:
Bush's tax cuts: $2 trillion
Bush's Iraq war: $1 trillion (Joseph Stiglitz's estimate is closer to $3 trillion, most still ahead)
Bank bailout: $2 trillion (dismal but plausible estimate)
Lost GDP 08-11:$4 trillion
That's $9 trillion down (on a 14.5 trillion annual gross domestic product). This is a crude way of explaining why many economists think a stimulus of 1/10th of "lost" public revenues is too small.
Then we have the shrunken stimulus plan. What does it mean?
Here is Scenario 1: Obama is Good Cop. Republicans are Bad Cop. Obama wanted more for the people. He mostly won, but had to give up a few suckers to Bad Cop.
No one is better on Scenario 1 than Krugman. He couldn't help mention the utterly unrepentant Republicans: "In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration’s tax cuts is more Bush-style tax cuts."
Krugman traced this boneheaded intransigence to the GOP's enforcers, ready to shoot their heretics. These are the same folks that would rather the party lose with a hardcore right-winger like Sarah Palin than lose the party to a moderate who could have won. The zero Republican votes for the stimulus in the House was in part a sign of the ongoing frantic activism of the party's right wing, which is still in charge. These are the people whose power both ideologically and economically has rested on anti-egalitarian Reaganomics, so they will die hard.
But there's Scenario 2. The Republicans are Bad Cop. Obama is Bad Cop. There is no Good Cop.
This scenario takes off from the observation that Obama was Wall Street's candidate. Politico's summary is that "The list of top donors to the trio’s campaigns includes many firms at the heart of the financial meltdown — including taxpayer-funded bailout beneficiaries Citigroup, JPMorgan Chase and Bank of America — and a host of other troubled investment houses that may find themselves seeking money from the new Obama administration, which has also pledged tougher regulations." There's also this nice list of "Obama's Sub-Prime Buddies."
The scenario continues with the failure to refund failed mortgages directly, the woeful shortfall of money to the states (Bob Kuttner says they got $140 billion of the $500 billion of estimated need -the "Stabilization Fund" for states is $54 billion). It winds through the odd vagueness of Treasury's new bank plan (when bankers start pondering history, we are screwed). It continues with the reporters at the NYT politely hinting that the needs of the banks may have no end. It gets truly noir with Michael Hudson's argument that the government will have taken $12 trillion of public money and given it to banks. As he puts it, "the debt is going to continue to grow exponentially, and it’s way beyond the ability of the economy to pay. If people have to pay the amount of debt that they have now, there won’t be any money to buy goods and services, companies will not sell as much, they’ll invest less, they’ll hire less, and they’ll continue to downsize." The scenario culminates with Hudson's claim that the bad debts are concentrated in a handful of gigantic banks, who are using the bailout money to buy and thereby "infec[t] the small healthy banks."
What if we are saving the banks by killing the economy?
It's zombie perfection. What if the whole plan is to take general wealth and move even more of it up to the very top of the financial pyramid? What better way than to have cut bank and corporate tax rates for decades, let them sell houses to people via unafforable mortgages that allow them to take the houses back, turn mortgages into toxic securities that blow the legs off pension funds, and then go so bust that they need all of the country's money for their bailout. The banks get the houses, the mortgages, the securities, and the tax dollars, which they use to launder the securities and sell them back later to the crippled pension funds.
What if Obama is Reagan come back to life?
Now that's noir.
After all this, there's always a little comic relief. David "Schoolboy" Brooks has always been silly, but now he literally makes no sense. He throws some numbers out, quotes Tocqueville, mentions cognitive scientists and says we've lost our high-trust society, has no ending at all, and writes as though he were living in 2017. If W was our worse president, Schoolboy is our dumbest scholar. He should be on the list of People that Won't Be Having Sex in 2009.