. . . and if something, what?
In my effort to understand what's going o I've been paying attention to Simon Johnson, Jamie Galbraith, and Paul Krugman--all of whom think the Geithner plan doesn't go far enough. But I've also started reading Brad DeLong, a Berkeley econ professor and former Clinton Treasury official, who agrees that the Geithner plan as it stands now won't work, but is more positive about the Geithner approach because he sees it as the only politically feasible plan possible at the moment, and as such is a step in the right direction.
In another post, he talks about the three main groups who will play an obstructionist role toward the Obama administration in its attempts to find a way to avert a complete melt-down:
. . . there are three groups of people who are trying to handcuff us with today's equivalents of the golden fetters that constrained economic policy and made the Great Depression so great. Each group is doing so for its own reasons:
- Out of ignorance: the modern-day Chicago School of economists, which is arguing against effective use of policies to manage aggregate demand because they have never read Metzler or Friedman (or Keynes), and never thought at all seriously about the transmission mechanisms by which changes in monetary policy (and fiscal policy) affect the price level in the long run and affect output, employment and demand in the short run.
- Out of malevolence: the Republican members of congress and all their intelletual enablers who would have fallen in line behind what are now the policies of the Obama administration had McCain won the election and had they been the policies of the McCain administration instead--but who are right now opposed because they think making Obama's presidency a failure is the road to electoral success in 2010 and 2012.
- Out of justice: avoiding depression requires supporting asset prices--which means that for many financiers the wages of overspeculation will be not bankruptcy but fortunes. People rebel against the fact that in a financial crisis the banking sector has got the rest of us by the plums, and that there is no effective way to make sure they get their justice without creating prolonged mass unemployment for the rest of us.
In a September article DeLong wrote that there are basically three choices: Do nothing, which will bring a Great Depression-like system crash and all the suffering that will come with it. Bailout, which removes the negative consequences from the risktakers who got us in this mess, or nationalizaton, which has the most upside, but is politically radioactive.
I assume the first group of Ignorants are with the other two in supporting Do-Nothing (Friedman is excluded because he was not ignorant, and in the end he was an intelligent pragmatist who recognized government interventions were necessary in some circumstances.) The second group of Malevolents simply cannot be taken seriously, but the third should be because there is bedrock common sense in their attitude, which is well articulated by Purl Gurl, a responder to the DeLong article referenced above:
Yes, I am advocating economic collapse leading to loss of jobs, loss of homes, families ending up on welfare, maybe homeless and on the streets. This breaks my heart because of innocent children who will be victimized by adults who made bad decisions and gave over to greed.
If I could protect children of our world, I would financially nuke our world.
All in our family were born to poverty on a rural Oklahoma farm, many decades back. We were born ignorant, could not attend school, never enjoyed money, literally, then we set about working our fingers to the bone to attain financial security. Yes, this economic crisis has reduced our family wealth quite significantly. Nonetheless, we are very comfortable; we enjoyed sense enough over the decades to stash away cash for rainy days. We have no debt, no credit card debt, no mortgages on our home nor our income properties. No debt at all. Reason for this is our family made a point to do without, to sacrifice, to work hard, to move ahead in life by living well within our means and ways; we hold ourselves financially responsible.
Why should our family bailout Wall Street and Americans who are financially irresponsible?
Let the chips fall where they may. Our world needs culling.
Not sure how protecting the children follows from financially nuking the world, but I understand where she's coming from. There is something Babel-esque about the structure we have all participated in constructing to some degree. I understand the desire to send all the technology into the sun and return to a simpler more earth bound existence. (That's a BSG reference.) But whether the system deserves to be struck by a lightening bolt from the heavens, I leave to the heavens. In the meanwhile we have to do what we can to fix it. And that leaves the other two options: Bailout or Nationalization.
I'm convinced it will finally come down to Nationalization. And I think such a move can be justified in subsidiarist terms. The only arguments I've heard against it are from people in the three groups listed above. I think that in the long run the banks and whatever assets are worth saving should be sold back to the private sector in a new system that this strictly regulated in a neo-Glass Steagall like world in which these financial institutions will never be allowed to grow so large as to be not allowed to fail.
But I also agree with DeLong that it's not politically possible right now. And I hope that those who think that timing is of the essence are wrong, and that when it comes to nationalization, it won't be too late. But I'm feeling more open to the approach the Obama people are taking now than I was earlier in the week. I think in the end it's not about whether people know what to do but about the politics and the timing.