Watching Geithner I recalled that the president had declined to take questions about the new financial stability plan at his press conference on Monday. He didn't want to steal the spotlight from the Treasury secretary on Tuesday, he said. He jokingly urged the press to turn up for that: "He will be terrific." Well, he wasn't, and I'm not just talking about the anxious hesitant delivery.
What Obama said on Monday struck me as a bit odd at the time, as though he was most concerned about the performance aspect. Now it seems odder. The president knew what we now know, that the next stability plan does not yet exist. The breathless build-up for today's announcement had led everybody to expect an actual plan. When the Treasury said, "We're still working on it," Wall Street recoiled, and the White House should not be surprised.
On the substance I agree with most of what Martin Wolf says--though I think he greatly underestimates Obama's difficulties. Martin finds it astonishing that Obama failed to dictate the terms of the fiscal stimulus to Congress, or that his team is looking for a way forward that avoids (at some cost in added timidity) the need for new Congressional approvals. I recommend a reading of the constitution. It is very short and very clear. Obama simply cannot do what Martin wants him to. This is not the UK. Obama cannot dictate the law as though Congress were not there.
Public opinion is a big problem too. US politicians have a terrible habit of paying attention to it. If the country is set against Obama's remedies, getting those policies enacted will be extremely difficult. This is why nationalising insolvent banks, and acknowledging the costs upfront, is a nettle the administration is not yet willing to grasp. On the other hand, if Obama can get the country behind the bolder measures that Martin and I think are necessary, Congress would go along. But this step of persuading the public cannot be skipped. If Obama stakes it all and projects the uncontained sense of alarm that Martin feels (as do I), and the public chooses not to go there, he has lost them and his presidency is over--and we still won't have the right policies.
It is true that the biggest mistake the administration can make is to do too little. The point is, it may have no choice but to do too little.
Which brings me back to reservations I have already expressed about the economics line-up in the administration. Obama is not at home with financial and economic policy. On these issues, for all his talents, he does not speak authoritatively. His posture is, "I rely on my experts." I don't think that's going to work. There are too many of them, and nobody has so far emerged as the principal spokesman. Geithner was up for that part, of course. His troubled confirmation set him back, though. While he is an exceptionally able guy, this morning he did not look as though he has the necessary salesmanship. Meanwhile, the man regarded as the dominating intellect--Larry Summers--has been keeping a lowish profile.
If economists outside the administration weren't so busy squabbling among themselves, perhaps they could help. I watched Paul Krugman and Ken Rogoff on the PBS News tonight. They were excellent; they were clear; they made the same criticisms of the plan that I just did: that Geithner forgot to bring it. Consensus! More of that could do some good. (There, Paul, my hysteria has subsided.)
I, as well as a significant number of constitutionalists and economists disagree with the entire premise that the economy can be somehow "guided" by a more imperial and powerful president. The premise is riddled with inconsistencies. If the president is admittedly "not at home with fiscal and economic* [sic] policy," how is it that the executive branch will somehow miraculously develop a plan to guide a $12 trillion economy into some more optimum state?
Many economists and regular Americans may find your statement reassuring: "[The administration] may have no choice but to do too little." It is purely the policy of government and the Fed that has produced easy credit for the past 10 years that is finally coming to a painful end. If one still believes politicians and government (through printing money) will be more capable than entrepreneurs in creating true wealth, I suggest merely reading the *actual text* of the stimulus bill at http://www.rules.house.gov/111/LegText/111_hr1_text.pdf Proponents of the bill must explain how increasing government employees' salaries (a recurrent theme in the bill) will somehow generate true wealth for the average citizen.
For regular citizens have neither the time nor resources to lobby the government for a handout from the Fed's printing press. I think after reading the bill, most would contest your axiom, "the biggest mistake the administration can make is to do too little." But look at history and time again it shows that government intervention is, itself, the big mistake. Paul Krugman, who lately seems to spend more time writing columns and appearing on news shows every night than he does studying economic history is by no means spokesman for the aggregate of economic thought**. I would believe The Atlantic of all places would not confuse popularity with truth.
Sure, the government can expand the money supply and thus increase house (or dot com or radio stocks or tulip prices) but the policy will only result in the next "boom" of speculation, and a 1920's Germany-scale hyperinflation that could dwarf the current economic crisis**.
* As fiscal policy is a component of overall economic policy, most economists would use the combination of fiscal and "monetary" policy to represent overall government "economic" policy.
** For an excellent summary, see White, Lawrence H. and David C. Rose. "We Can't Spend Our Way out of This Quagmire." January 21, 2009. http://www.cato.org/pub_display.php?pub_id=9901 (accessed February 12, 2009).
Clive:
If you want to refer to a PBS appearence, put the web address in your column so we can see it.
Clive:
I think you are expecting too much of economists on this issue, because the problem is a financial one rather than economic one. The genesis of this quagmire is that far too many securitized mortgages are ruined. These securitized assets are made with little bricks of mortgages that have gone bad. Having the mortgages gone bad, the securtized asssets have gone bad. Given that these assets have gone bad impairing many bank balances. Bad balances, these banks are unwilling to lend money. As we all know the economic consequences given that our money supply is partly controlled by the banking industry. Hence, traditional interest changes have been to no avail.
Thus, I don't think that we will get out of this mess--even if the merits of the stimulus package are valid. Basically there should be a mechanism to get home owners and mortgage holders to repair these mortgages. If I knew how to do this I would be rich man.
At any rate, this problem is for finance PHDs, not economic PHDs.