Sixteen years ago, a young Democratic President with control of both houses of Congress, proposed a stimulus package of a mere $19 billion - and was stymied by intractable GOP opposition. Today, a new Democrat President, with the support of a mere three Republicans, is about to pass an $820 billion stimulus plan that represents the most radical transformation of government in 30 years, potentially even 75. Times have most certainly changed. It's about time both left and right woke up to this new political reality.
Two things: First, yes we are in a completely different reality economically and poltically. Second, that's why this stimulus bill probably isn't going to work. Does anybody deep down believe that this stimulus package will? Does anybody believe that we have people in place who understand this new reality and know what they are doing? I don't because nobody understands it. My sense is that if it does work, it will be pure dumb luck.
I think this stimulus bill or something like it had to be passed, but it's just the first step in learning what isn't going to work. I'm glad that Obama is at the helm, because I suspect among all major political figures on the scene, he is the one who has the intelligence and flexibility of mind to learn from mistakes and to adapt, to recognize what doesn't work and to move on.
For better or for worse, we're going into uncharted territory and we will be gradually learning that what may have worked in the past no longer works now. This stimulus package is an attempt to try something that worked in the old reality for want of knowing what to do in the new. So would it be better to do nothing? I hear the arguments of those who think that all we're doing is postponing the pain and that it would be better to bite the bullet, let the whole thing collapse and start over. But that isn't going to happen; it's politically impossible to do nothing, so better to have have an experimental attitude rather than a rigid orthodox one. Passivity is the enemy in times like these; we have to be mentally active, alert, open to new possibilities, willing to find new ways to do things. And the idea that innovation and effective solutions will come from the private sector is nonsense so long as that sector is dominated by the John Thains of the world.
The thought of a country-club fossil like John McCain as president now just sends shivers down my spine. Apart from his world-historical cluelessness, had he won, the John Thains of the world would be in control of both the private and public sectors. You could argue that the Geithners and Summers aren't much different, but the political reality is that Obama has to start with the establishment types until they are proven wrong, and then he'll have the freedom to move forward with people who are savvier about the new reality. I think he is capable of firing these guys and moving on, but we'll see. It's not going to be pretty in the short run, but that's just the way it is.
UPDATE: Simon Johnson, also at TPM Cafe, talks about the kind of thing that probably needs to be done, but won't be done until banking establishment types like Geithner are proved wrong:
What they [IMF personnel] say is this. The right thing to do is reboot the financial system. Find out immediately which banks are insolvent, using market prices. Allow private owners to fully recapitalize, if they can. Have the FDIC take over all banks that cannot raise enough private capital. Try to re-privatize those banks quickly, while making sure the taxpayer has strong partcipation in the upside. The difficulty with this approach is not, in the US or elsewhere, anything technical - it is really quite straightforward. The problem here and everywhere else that has faced a serious financial crisis is: the power of the banking lobby.
If the IMF experts are right and Treasury is wrong, does that help resolve the dilemma?
But who knows if that would work? We're all flying by the seat of our pants.