Exposing the Big Lie---Lila Rajiva Edition

Of late, there is some great work being done exposing the Big Lies.

First, we had Bob Murphy catching Brad DeLong in a whopper about Hoover's supposed hands off policy while he was president.

Now comes Lila Rajiva. Using a report recently completed by Anders Aslund, a Swedish economist at the Peterson Institute, Rajiva takes to task those like Paul Krugman who have been calling for a bank nationalization a la the "Swedish model". As she writes the big problem with Krugman's advice is that there never was a Swedish bank nationalization:

To hear Paul Krugman tell it...bogus number-crunching didn't cause our problems. He thinks we need more of it. In fact, we need the Swedish model, he says. And no, he doesn't mean some Britt Ekland look-alike. What he has in mind is Sweden's bank bail-out model in the 90s, which he claims was nationalization.

Only it wasn't.

Anders Aslund, a Swedish economist at the Peterson Institute recently set the record straight:"Sweden did not nationalize its banks. ........

There is no reason to merge bad banks, because asset sales require plenty of management capacity.

A major concentration of assets in an aggregator bank would only aggravate the functioning of asset markets....

In sum, in Sweden bad debts were not taken over by the state or transferred to any aggregator state bank; but each bank, private or state-owned, established its own bad bank. The Swedish model avoided the trading of depressed assets in the midst of the crisis, while they were internally valued at their low market value. If nobody can assess the value of an asset, it is probably not worth much. Only one bankrupt bank was nationalized."

("Lessons for the US from the Swedish Bank Crisis," Anders Aslund, Peter G. Peterson Institute for International Economics, February 24th, 2009)

Now go back to what Paul Krugman says.

"What we want is a system in which banks own the downs as well as the ups. And the road to that system runs through nationalization."

(Paul Krugman: Nationalize the Banks, The New York Times, February 24, 2009)

Someone should remind Dr. Krugman that the system in which banks "own the downs as well as the ups" is called private enterprise. It's what you have when you let failing private banks and firms fail.

And someone should also tell him that Sweden just demonstrated how it works when its government refused to step in and rescue Saab, the Swedish subsidiary of General Motors. After years of masquerading as a socialist haven, Sweden is more free market than America, it turns out.

"If the company couldn't produce cars anymore profitably, it should try wind," said
the Minister of Trade sensibly.

("Sweden to Saab: Merge to Wind Power or Shut Down," Fredrik Wass, Greentech Media, March 4, 2009).

This is great stuff. They are show stopper arguments. The next time someone says that that Hoover was hands off during the depression, the automatic response should be, "That was just an economist by the name of Brad DeLong quoting Hoover out of context. What Hoover real wrote in his autobiography was the opposite. He said....".

When someone states we need to nationalize the banks, like the Swedish banks were, the immediate response should be,"That's just this New York Times economist by the name of Paul Krugman, who tends to avoid facts whenever necessary, outside of one bank, the other Swedish banks weren't nationalized.".

When you have the facts on your side and can expose the Big Lies, that's when you start others to begin thinking and break them from the mass falsehoods about how the economy really works. It's a big step. We need to find more of the Big Lies and destroy them with the facts