Bailout redux

A continuation of my article one year ago on the bailout:

But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more “business-friendly.” Wall Street responded by flooding Washington with money, buying allies in both parties.
—Mark Taibbi for Rolling Stone

Paul Krugman and Obama never will see eye to eye on economics. Liberals are not the same, and Obama’s people comes from the Chicago school—the part that was the mess Clinton made, not other half of the Chicago school that made the mess than Bush and Reagan created. No matter which administration it was under, this school of thought has held the econo-political power for the last thirty years in this country.

Given that, I find that the fact that Krugman says “this budget looks very, very good” very positive. The other shoe finally dropped, and Paul Krugman continued articles against the bailout plan is now engendering attacks on the blogs from the right and left.

But I find some of the reactions truly atrocious. Here is one example:

Does Krugman, or any of these media monkeys jabbering their opinions on the administration’s plan to resolve the biggest crises facing our nation since the Great Depression, have access to the inner circles and behind doors meetings regarding what’s really happening in the financial industry?
passerby on Balloon Juice

Careful there. You’re starting to sound exactly like some administration official that assured us that if we didn’t invade Iraq, “the smoking gun would be a mushroom cloud.” and we didn’t have the information they had to argue that the all those brains in the Pentagon wasn’t preparing for the aftermath of that war.

Obama was supposed to (and I believe is honestly trying) to usher a new era of transparency. But the amount of transparency he’s given us here so far has told nearly every economist worth their salt that the bailout plan has a good chance of being a very costly ineffectiveness.

Why not address those valid criticism without resorting to “trust us”?

And then, just when I read people saying shit that we should ignore Krugman because he isn’t politically savvy:

[To the statement “you can’t say that Krugman is wrong on this issue.”]: Yes you can, Krugman has ALWAYS been completely politically tone deaf. He’s an economist, he doesn’t have a damn clue how to legislate any of his ideas.
Ash on Balloon Juice

Krugman will be the first person to agree with that statement. He certainly wasn’t politically savvy enough to see the hit job that Rahm Emanuel put in the New Yorker for the same reason he makes a great Chief of Staff: he’s a vindictive crybaby. Just go look up interviews with him when asked if he’ll have a role of labor secretary or something in the Obama administration—something along the lines of that he isn’t a politician and is left of Obama economically.

His article has never been about what is good politics, but what he believes is right. Heck his blog is even called “Conscience of a Liberal.” What sort of economist is going to use “the (political) L word” if they were thinking politically?

But arguing what is politically feasible is different than arguing with what is right. And looking at the latest populist outrage against the AIG bonuses, I’d have to say that Krugman’s plan probably accrues more long-term political capital than Geithner’s bailout.

Another approach is to say call him a Ivory Tower Academic™:

As for Krugman, he knows tons about the economy, but not much about business, financial markets and tax policy. He reminds me a bit of a math professor I heard being interviewed the other day who admitted that he is terrible at Algebra and lets his wife handle all their investments.
Brachiator on Balloon Juice

The biggest difference is that Krugman admits his limitations. Most of the people in this field of economics engage in voodoo and never admit any limitations (c.f. Greenspan, Alan).

There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.
Kung Fu Monkey

So fuck ’em.

At Caltech we had a dining-out rule: the youngest non-math major computes the bill. Just because mathematicians are notoriously terrible at arithmetic didn’t make them future Fields medal winners. So what? I bet almost none of the people I’d trust to save the economy at this point could balance their own checkbook. Why? Because they’d never need to…just as much as a mathematician needs arithmetic to do their job—they don’t, an applied mathematician might though.

This is a long way of saying that using “academic” labels to discount someone’s observations is just typical politically-pandering ad hominem. It’s bad when the Bush people were using it to lead us into war; it’s bad when Obama/Geither people are using it to lead us into spending money on the bailout. It’s bad because it shuts down intelligent debate.

I don’t know if the bailout is going to fail—I personally think it’s not going to be as bad as Krugman implies—but going in without argument with eyes-closed, blind-agreement is irresponsible.

There are serious problems with the bailout that requires serious debate. We have already spent just close to three trillion dollars(!) on this path on the advice of those who helped design the economic policy which created this mess giving money to those who blew up the bubble… we should be asking if the alternatives are so risky as they sounded back when we thought a billion was a big deal.

I don’t like the things Krugman is pointing out. I wish it wasn’t true and I’d probably put it differently given the Libertarian cheerleading. However, he’s the one with a Nobel Prize, a column in the New York Times, and no political aspirations. If he chooses to mention to me that the emperor has no clothes, I’ll be among the first to say that he has a point.

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2 thoughts on “Bailout redux”

  1. Geithner asks Congress to give government FDIC powers over funds and investment banks.

    I think this is a good idea…if we plan on using the power instead of leaving it to rot with the banks like we did (1994-2006).

    Krugman points out his thinking of Obama’s ec team thinking—the politics is the difference. I wonder though, simply because we used the same arguments about the Republicans when they were in power: “they never believe the bullshit they’re spewing. That’s just red meat for the masses. They know better.” But then we got Terri Shaivo and Sarah Palin. Here is a summary of Krugman’s argument of the Geithner plan, here is his (and others) proposed alternative, and here is the part about moral hazard, a topic I addressed in my first article. I’m curious what Krugman thinks of the latest development—if I had to guess, it’s putting the cart (regulation) before the horse (solving the problem at hand). After all, banks also failed, and they were regulated.

    Here’s another gem:

    A prominent East Coast newspaper, The New York Times, has been poaching from Slate, taking key writers and editors invaluable to our evolving franchise…In my seven years with Slate, I’ve seen the Times make off with no fewer than five Slatesters…It’s improbable we’ll be able to recoup our losses. But just in case, we’d like all of them back except for Paul Krugman.
    2003 memo from Slate Publisher Cyrus Krohn to Slate Owner Microsoft’s legal team.


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