The Republican Rabbit Hole

Paul Krugman marvels at the GOP's "adventures in Wonderland":

Reading the transcript of Tuesday’s Republican debate on the economy is, for anyone who has actually been following economic events these past few years, like falling down a rabbit hole. Suddenly, you find yourself in a fantasy world where nothing looks or behaves the way it does in real life.

And since economic policy has to deal with the world we live in, not the fantasy world of the G.O.P.’s imagination, the prospect that one of these people may well be our next president is, frankly, terrifying.

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

But down the rabbit hole, none of that happened.

We didn’t find ourselves in a crisis because of runaway private lenders like Countrywide Financial. We didn’t find ourselves in a crisis because Wall Street pretended that slicing, dicing and rearranging bad loans could somehow create AAA assets — and private rating agencies played along. We didn’t find ourselves in a crisis because “shadow banks” like Lehman Brothers exploited gaps in financial regulation to create bank-type threats to the financial system without being subject to bank-type limits on risk-taking...

(I)t’s now obviously orthodoxy on the Republican side that government caused the whole problem. So what you need to know is that this orthodoxy has hardened even as the supposed evidence for government as a major villain in the crisis has been discredited. The fact is that government rules didn’t force banks to make bad loans, and that government-sponsored lenders, while they behaved badly in many ways, accounted for few of the truly high-risk loans that fueled the housing bubble…

The Great Recession should have been a huge wake-up call. Nothing like this was supposed to be possible in the modern world. Everyone, and I mean everyone, should be engaged in serious soul-searching, asking how much of what he or she thought was true actually isn’t.

But the G.O.P. has responded to the crisis not by rethinking its dogma but by adopting an even cruder version of that dogma, becoming a caricature of itself...