Economic Renewal, Energy, and Blame for the Housing Bubble (Book Reviews)

The October 27 issue of The New York Review of Books is on newsstands, with three in-depth review-articles on the economy by Stanley Hoffmann, by William D. Nordhaus, and by Jeff Madrick and Frank Portnoy (full access to some articles is blocked by a subscribers-only paywall).

Stanley Hoffmann reviews:

That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back by Thomas L. Friedman and Michael Mandelbaum (Farrar, Straus and Giroux).

Hoffmann generally likes the book and its argument for economic renewal, but he finds its analysis of the political obstacles we face to be incomplete. A European historian, he makes a telling comparison between Europe’s parliamentary democracies and the American system:

The one invaluable merit of the French Constitution, shaped by General de Gaulle in 1958 in a country that had a history of deep and multiple divisions, is that it made governing possible. It is not at all evident that the American Constitution does so: it was largely aimed at preventing the newly independent US from falling back into monarchical or quasi-monarchical modes of governance. Hence the complete separation between Congress and the executive, unlike in parliamentary systems.

As a corollary in recent decades, there is the awkward contradiction of presidential candidates boasting of no past experience in Washington and running against the government they seek to lead. It’s a practice that guarantees the “complete separation” Hoffmann speaks of. Hoffman doesn’t say how we might overcome the contradiction, but it is good to be reminded that others have succeeded in governing democracies without such a self-inflicted impairment.

William D. Nordhaus reviews two books:

The End of Energy: The Unmaking of America’s Environment, Security, and Independence, by Michael J. Graetz (MIT Press)..

Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use, a report by the National Research Council’s Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and Consumption (National Academies Press).

Nordhaus pulls together the two analyses—by Graetz, a tax specialist, and by the National Research Council—to consider the “external” costs (i.e., unpaid costs external to the market price) of our energy use and our efforts to come to terms with them. Coal is the leading polluter, its unpaid external costs amounting to 70% of its market price:

In the aggregate, the emissions of CO2 from coal-fired electricity-generating facilities are the largest single industrial source of greenhouse gas emissions in the United States. They make up one third of all emissions in an industry that constitutes only about one half of one percent of the US economy! Moreover, studies indicate that reducing coal-fired generation is the least expensive way for the US to reduce its carbon emissions in the near term.

Nordhaus, an economist, reviews how the federal government has tried to design an energy policy that deals adequately with the full costs of coal, oil, and natural gas. He makes an important point about the integrated world market for oil, in which a drop in supply from one producer is quickly made up by added supply from another producer with little or no effect on prices. Government thinking has not adequately reflected this situation, resulting in confused oil policies. For instance, the integrated market “means that virtually no important oil issue involves US dependency on foreign oil”—and yet the question comes up repeatedly, with one party or the other declaring it as a critical national goal to achieve oil independence.

Jeff Madrick and Frank Portnoy review:

Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon by Gretchen Morgenson and Joshua Rosner (Times Books).

Madrick and Portnoy find a lot to like but single out for criticism the book’s thesis that the housing boom was fueled by Fannie Mae and Freddie Mac lowering their loan standards and driving up home sales in response to the federal government’s push to expand home ownership.

[Their] claim…is not substantiated by persuasive analysis or by any hard evidence in the book. The GSEs [Government Sponsored Enterprises, i.e., Fannie and Freddie] did generate large losses, but their bad investments in housing loans followed rather than led the crisis; most of those investments involved purchases or guarantees made well after the subprime and housing bubbles had been expanded by private loans and were almost about to burst.

The book’s claim is a canard repeated ad nauseum in the Republican echo-chamber. Both Michele Bachmann and Ron Paul emphasized it in the October 11 presidential candidates debate, blaming the housing bubble on the federal government—Fannie and Freddie, the Fed, Bill Clinton, and the Community Reinvestment Act—anything but the under-regulated private sector.

Madrick also has a piece on Occupy Wall Street on the New York Review blog, “A Zuccotti Park Education,” in which he praises the demonstrators and provides historical context:

 What struck me immediately is how thoughtful they are. They want to make a different kind of protest. Time and again, they make clear their devotion to this principle of inclusiveness and horizontal organization. And they are right now gathering strength around the world. There is no pressing reason for them to come up with a formal agenda. They have voice. Even Washington has to listen.


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