The release of former Treasury Secretary Tim Geithner's book Stress Test has allowed folks like economist Paul Krugman to take some time to reflect on how the Obama administration's efforts to deal with the Great Recession look in hindsight.
As we all know Geithner became the lightening rod for people who went on a rage about the bailout of the banks by the federal government. Krugman was part of the left's contingent on that front. His recommendation - along with many other liberals - was that rather than bail out the banks, they should be nationalized (bought out by the federal government).
In Krugman's review of Stress Test, he does a good job of laying out the financial panic and what the government's choices were at the time. And then he issues a mea culpa.
Finally, there was Geithner’s position, which was that despite its scale the financial crisis should be treated more or less as an ordinary lender-of-last-resort problem—that temporary nationalization would hurt confidence and was unnecessary, that once the panic subsided banks would be OK. A principal part of Geithner’s argument against nationalization was the belief that a “stress test” of banks would show them to be in fairly decent shape, and that publishing the results of such a test would, in conjunction with promises to shore up banks when necessary, end the crisis. And so it proved. He was right; I was wrong; and the triumph of the stress test gave him the title for his book.I always appreciate anyone who can admit they were wrong about something. So I congratulate Krugman in being able to say so in such an unequivocal way. As someone who has been one of President Obama's biggest critics from the left, Krugman seems to be changing his tune pretty regularly lately.
You should judge leaders by their achievements, not their press, and in terms of policy substance Mr. Obama is having a seriously good year. In fact, there’s a very good chance that 2014 will go down in the record books as one of those years when America took a major turn in the right direction.Of course, in his review of Geithner's book, Krugman goes on to critique the Obama administration's performance after the panic about the banks subsided. He still maintains that they didn't do enough to provide a stimulus to the economy or mortgage relief for those facing foreclosure. On the former, I've said before that - when it comes to politics - Krugman should keep his day job as an economist. Any fiscal stimulus would have required cooperation from Congress and once Democrats lost the House and their super-majority in the Senate, there is no way that was going to happen. I have three words for anyone who doesn't think that the Obama administration went all-in on trying for more stimulus...American Jobs Act.
Krugman probably has a point about the administration not doing enough on mortgage relief. I've heard both President Obama and Geithner say the same thing when they reflect on their record. But the issues was not one of avoiding the problem, it was in finding a way to do something effectively. On that front, I want to give a big shoutout to my twitter friend @Sherifffruitfly for pointing me to this article by Felix Salmon on the same topic from back in October 2009.
This doesn’t mean that all these decisions were necessarily exactly right. But in politics, the quality of the implementation is often at least as important as the quality of the original decision. And the way that the Obama administration has spent its $787 billion, or avoided nationalizing the banks, or bailed out the auto industry, has been extremely professional and effective...The critique that might be leveled at the Obama administration is that they were too risk-averse when it comes to playing around with the home mortgage market. In other words, if they were going to do something radical, they needed to know that it was going to work and limit collateral damages. Obviously they were never able to come up with a plan that fit that criteria.
The point here is that policy initiatives are sometimes good and sometimes bad. We all disagree with some of the Obama administration’s decisions... But once that decision was made, it was handled very well, and seems to have had very little in the way of negative knock-on consequences.
In many ways I'd suggest that Salmon has captured the essence of President Obama's pragmatism. On the things he chose not to do, we'll never know if the collateral damages might have outweighed the benefits. But on the things he has done, time has shown - over and over again - that they've worked because they have been so well thought-out. I suspect that as the years go by, more and more former critics will join Krugman in recognizing that.