Paul Krugman: “Ugly Financial Crisis Will Soon Create Ugly Politics”

Paul Krugman in a column in the New York Times says, “The Fed’s attempt to avert a recession has almost certainly failed, ” and that a failing economy will be a bigger problem for the next president to deal with than Iraq.   He writes, “I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.”  Excerpts from the article:

  • Each new piece of economic data — like the news that retail sales fell last month — adds to fears that the recession will be both deep and long…Today, the Fed is indeed desperate….Unfortunately,  the Bernanke Fed’s actions — even though they’re unprecedented in their scope — probably won’t be enough to halt the economy’s downward spiral.  And if I’m right about that, there’s another implication: the ugly economics of the financial crisis will soon create some ugly politics, too.
  • To understand what’s going on, you have to know a bit about how monetary policy usually operates. The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed and can convert into green paper at will.
  • When the Fed is worried about the state of the economy, it basically responds by printing more of that green paper, and using it to buy bonds from banks. The banks then use the green paper to make more loans, which causes businesses and households to spend more, and the economy expands.
  • This process can be almost magical in its effects….But sometimes the magic doesn’t work. And this is one of those times.  These days, it’s rare to get through a week without hearing about another financial disaster. Some of this is unavoidable: there’s nothing Mr. Bernanke can or should do to prevent people who bet on ever-rising house prices from losing money. But the Fed is trying to contain the damage from the collapse of the housing bubble, keeping it from causing a deep recession or wrecking financial markets that had nothing to do with housing.
  • So Mr. Bernanke and his colleagues have been doing the usual thing: printing up green paper and using it to buy bonds. Unfortunately, the policy isn’t having much effect on the things that matter. Interest rates on government bonds are down — but financial chaos has made banks unwilling to take risks, and it’s getting harder, not easier, for businesses to borrow money.
  • So now the Fed is following one of the options suggested in that 2004 paper, which was about things to do when conventional monetary policy isn’t getting any traction. Instead of following its usual practice of buying only safe U.S. government debt, the Fed announced this week that it would put $400 billion — almost half its available funds — into other stuff, including bonds backed by, yes, home mortgages. The hope is that this will stabilize markets and end the panic.
  • Officially, the Fed won’t be buying mortgage-backed securities outright: it’s only accepting them as collateral in return for loans. But it’s definitely taking on some mortgage risk. Is this, to some extent, a bailout for banks? Yes.  Still, that’s not what has me worried. I’m more concerned that despite the extraordinary scale of Mr. Bernanke’s action — to my knowledge, no advanced-country’s central bank has ever exposed itself to this much market risk — the Fed still won’t manage to get a grip on the economy. You see, $400 billion sounds like a lot, but it’s still small compared with the problem.
  • Indeed, early returns from the credit markets have been disappointing. … What if this initiative fails? I’m sure that Mr. Bernanke and his colleagues are frantically considering other actions that they can take, but there’s only so much the Fed — whose resources are limited, and whose mandate doesn’t extend to rescuing the whole financial system — can do when faced with what looks increasingly like one of history’s great financial crises. The next steps will be up to the politicians.

From the New York Times, “Betting the Bank,” written by Paul Krugman

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Did Sheriff Vore Delay His Retirement Announcement To Help Montgomery County Republican Party Insiders?

Sheriff Dave VoreJust read this morning’s Dayton Daily News that Dave Vore (pictured) has announced his retirement as Montgomery County Sheriff. According to the DDN , “Vore said that he and his wife, Teresa, have been talking for two months about his retirement, and she urged him that the time was right to retire.”

It seems to me that, most likely, Vore made his decision to retire sometime before the January 4 filing deadline for the March Primary — but delayed until now the announcement of that decision to the general public. If Vore had announced his resignation before January 4, both Republican and Democratic candidates, no doubt, would have filed to seek their party’s nomination for sheriff. There could have been primary competition. As it was, in the primary, Vore was the only Republican candidate for Sheriff, and there were no Democratic candidates for sheriff. The timing of Vore’s retirement announcement gives the GOP a big general election advantage — it seems unlikely, to me, that the timing of Vore’s retirement announcement was accidental.

The DDN article reminded me of how Vore got the Sheriff’s position in the first place. The paper says, “Vore joined the sheriff’s office in 1980. He became sheriff in 2000 after the death of Sheriff Gary Haines. The day after Haines’ funeral, Haines’ widow and command staff announced that Vore, then a captain, was Haines’ choice. The Montgomery County Republican Party appointed him sheriff two days later. Vore went on to defeat Democrat George Brown, then an investigator with the Montgomery County Prosecutor’s Office, in the November election. Vore received nearly 62 percent of the vote. He ran unopposed in 2004.”

The fact that a political party has the power to appoint a County Sheriff, I find surprising. But the fact that the Montgomery County Republican Party was empowered to simply name Vore as sheriff as a replacement for Haines, may shed some light on why Vore got around to resigning now, rather than, say, three months ago.

Knowing that the resignation of Vore, evidently, will once again empower the Montgomery County Republican Party to simply name the next Montgomery County Sheriff, gives a pretty clear indication of why the GOP probably asked Vore to wait until now to resign. After Vore resigns, the insiders in the Montgomery County GOP can fill the Sheriff’s position, with their own insider’s pick, and by election day this new sheriff in town will be an established incumbent.

By law, when Vore officially resigns, the Montgomery County Democratic Party is entitled to name a candidate for County Sheriff in the general election. Vore’s decision to resign evidently upsets the arrangement, reported here, between the Montgomery County Republican and Democratic Parties to trade off several offices in the general election. County Commissioner Democrat Debbie Lieberman has no Republican opponent in the general election; Republican Sheriff Dave Vore had no Democratic opponent and Democratic Coroner, James Davis, has no Democratic opponent.

The DDN article is entitled, “Vore finds ‘right time’ to step down, move west.” How the “right time” is defined is interesting. The timing of Vore’s announcement quashed primary competition and, coming after March 3, the Independent filing deadline, it also quashed any potential Independent candidate activity. It is depressing to conclude that a respected public servant, like Vore, would not think that the right time to announce his retirement would be the time that, by encouraging primary participation, would best show respect to democracy and to County voters. It is depressing to think that Vore defined the “right time” for his retirement announcement as the time that would best empower the insiders in the Montgomery County Republican Party to have unfair influence on the next County Sheriff’s selection. Depressing, but, is any other conclusion reasonable?

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Public Schools Need Radical Reform, Educational Leaders Must Answer the Question: BY WHAT METHOD?

Dr. Wood, Thanks for your continuing efforts to improve American education. I am responding to your invitation to readers of February’s issue of the Forum For Education and Democracy newsletter to analyze a first draft of an article written by Carl Glickman: “Closing the Participation Gap: A Thought Piece.”

To introduce myself, you will remember me from 1999 when, through the initiative of the West Carrollton Teachers Association, you made a public address in West Carrollton about ideas in your book, Schools That Work. I met you at the South Dayton Airport and took you to the meeting. I later visited, along with two other teachers, the school where you were principal, Federal Hocking High School, and interviewed you for a well received and extensive article that was printed in our teachers’ association newsletter, WCEA News.

Mr. Glickman’s article prefaces the development of five points by saying that their purpose is to show, “how to educate students successfully for valued and valuable citizenship.”

Mr. Glickman’s points:

  1. Education should build upon student interest.
  2. Schools and school programming should reflect the fact that students need to examine, challenge and improve upon conventional assumptions.
  3. Education should enable students the capacity and choice to work and participate in communities different from the community of one’s birth.
  4. Schools should be intellectually challenging places and involve students, faculty, parents and community members in significant decision making.
  5. Schools need to use a pedagogy of democracy throughout classrooms.

Stating goals in education has been proven to be much easier than actually accomplishing goals. We all remember George H. Bush’s program, developed with the nation’s governors, called “Goals 2000.” These goals outlined what public education should seek to accomplish by the year 2000. But, as it turned out, the year 2000 came and went and little progress was made in reaching those goals.

Setting goals is easy, the question is: how shall standards / goals be accomplished? Mr. Glickman’s first point is a wonderful goal, “Education should build upon student interest.” Haven’t educational thinkers perennially articulated this goal? But, the accomplishment of this goal has been elusive.

In 1991, I had the opportunity to attend a W. Edwards Deming four day seminar in Miami, Florida. Deming, known as a “quality guru” for his work in transforming Japan industry after WW2 and for his later work with American industry, notably Ford, was well into his nineties when I had the chance to meet him. Deming was somewhat enfeebled but he could still speak with a loud voice to emphasize a point. He particularly liked to roar, “By What Method?”

Deming said goals and quotas mean nothing unless there is a method or plan to bring those goals to reality. He ridiculed “Goals 2000.” He would read a goal and would say, “What a great goal, but, BY WHAT METHOD?”

Deming’s most famous demonstration at these seminars was called the “red bead experiment,” which consisted of a large box of small balls, mostly white but maybe one-third red. He had a special paddle that would scoop ten or so of these balls up at once. Deming would call volunteers from the crowd, corporate executives, and would proceed to let each volunteer reach in the box and choose, without looking, a paddle full of balls. Red balls were considered errors or defects. The executive who produced few or no defects was highly praised, while the executive with many defects was sternly warned. Deming had a large chalk board where he kept track. When the same executives had a second chance, since it was all random, the results changed. The executive that previously had been praised, now was warned with something like, “After that last good performance report, you must have started goofing off.” Deming had a good comedic sense.

Deming’s point, that he belabored with his red beads, was that it is the system that determines quality, not people. His statistic was that 85% of quality issues are determined by the organization of the system — and only 15% of quality issues are determined by all other factors combined, including the quality of personnel. Deming’s point is that if you want to accomplish a goal, you better have a system built on sound theory, you better have a well thought organizational structure to accomplish it.

Certainly, if public education could implement Glickman’s first goal, that “education should be built on student interest,” our schools would be transformed. Our educational system, as it is, however, simply is not structured to empower personalized, individualized education that implementing this goal would require, and simply wishing the system to be so structured will not make it so.

Glickman writes, “Schools should avoid all students learning the same material at the same time, students should not be sitting and listening passively, and students should not be categorized, labeled, and placed in fixed ability groups and tracks.” But what Glickman says schools should avoid, is exactly what many schools every day strive to accomplish. Wow. Quiet students listening passively. Most middle school and high school principals would think that great. And the idea that students should not be graded and categorized or tracked is a notion that absolutely contradicts the operational reality evidenced every day in our bureaucratically organized school systems.

To implement Mr. Glickman’s five points, it seems to me, would require radically changing school structure as it presently exists. Tinkering with the system, by adding a program here, formulating new school policies there, can only result in marginal improvements. Deming’s assertion that quality overwhelmingly is determined by organizational structure is an idea, based upon my own experience, that rings true to me.

Mr. Glickman’s timid examples of improved instruction within the present system — geometry teachers having students build models, science teachers monitoring the local environment — are a big weakness in his presentation. He implies that through individual teacher effort schools can be transformed — if only everyone would try a little harder. But, anyone who has taught in a typically organized public school knows that the actions of a teacher in the school are sorely constrained by time, by curriculum, by contract, by ingrained past practices. A geometry teacher who used teaching time in activities designed to engage student interest would be severely criticized by his administration and by the parents of his students if, because of his efforts, his students “covered” only a fraction of the standard assigned geometry curriculum.

A central Deming idea is that a system must be focused on accomplishing a purpose. Right now school purpose is defined by academic tests. Mr. Glickman’s vision of school purpose transcends what is measured on academic tests and centers on, “how to educate students successfully for valued and valuable citizenship.” Sounds good, but if this phrase is to have a chance to impact school reform, it must be explained.

It seems to me that educational leaders should be spending a lot of effort in clarifying what it means to be educated and what it means to educate. The public needs to be shown a vision of authentic education, a vision of school purpose that transcends the purpose pursued by the present system. Authentic education is centered on the development of the individual. It is not indoctrination; it is not focused on creating worker capacity to serve the economy of the state. Authentic education is abhorrent to totalitarian governments.

The hope for our nation is that a vitalized system of public education can provide authentic education to its citizens. “To educate” certainly goes well beyond credentialling, well beyond meeting state standards, well beyond what we attempt to accomplish via state standards and state tests. To become educated is what wise parents want for their own selves and what they want for their own children. And, as John Dewey said, it should be what communities should seek to provide for all children in their community.

To proclaim a goal such as “Education should build upon student interest” is not helpful if such a goal does not answer the key question, “By what method?” Tinkering within the present system will not work. Mr. Glickman’s article makes me conclude that he fails to appreciate the intransigent nature of the present system.

My own conclusion is that the present system needs radical reform and that it is the task of educational leadership to envision a reformed system. Key questions: How should the purpose of schools be defined? What would a school look like that could accomplish that purpose? How would such a school be organized? How would it allocate resources. What theories of organization, motivation, learning should guide such a school? By what criteria should such a school be evaluated? What should the role of a teacher be in such a school? How can the vision of reformed schools and reformed school systems be brought to reality?

Previous posts that discuss improving public education: A Great Question: How Can We Tell If a School Is Excellent? and
Strickland Should Use Charter Schools To Help Fulfill His Promise: “Reform and Renew the System of Education Itself

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