Thursday, February 12, 2009

Economic Policy As Culture War

Krugman is right about this:
And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out.
If you polled the American electorate right now about whether it'd be better to nationalize failing banks or do another big bailout package, I'd put my money on nationalization being the more popular option. I've always thought the "You blew up the economy, Wall Street Guy, so we're taking your bank away from you" line would play pretty well in Ohio.

Of course, if you limited the poll to people from Geithner and Summers' culture, the results might come out the other way. I'd rather Obama take his political feasibility advice from Axelrod than from those two.


Tlazolteotl said...

Yeah, I would like to see the zombie banks put down, sooner rather than later.

ikl said...

I'd rather Obama take economic advise from people who are experts. Which he appears to be doing. Doesn't mean that his experts are right. But they are more likely to be right than you or me or David Axelrod.

Didn't you learn anything from the Bush administration? Your political advisor should not be making the call on technical matters of economic policy. That is the Bush / Rove way of doing business. It is a policy disaster. You might get lucky once or twice and hit on the right policy, but in general, it is asking for trouble.

This definately counts as a matter of technical economic policy. From the outside, it also appears to be a hard call. Details matter. We'll see what happens. I like David Axelrod, but I don't want him making the call here.

ikl said...

Also, I think that you misread the dynamic here. Geither and Summers, for what I understand, are worried that the government is not going to do a good job running the banks or that it will be hard for the government to recapitalize them even if it does manage them OK. Since they are likely to be overseeing this if it happens, I'd be inclined to take their opinions seriously (Summers is a complete jerk but he is a pretty smart economist). This is NOT a question of political culture - it is a question of the likely consequences of nationalization.

Neil Sinhababu said...

Your political advisor should not be making the call on technical matters of economic policy.

I agree. But the question of whether our culture is ready for nationalization -- one of the things that Obama brought up in his response to the Sweden question -- is not a matter of technical economic policy. That's a political question where somebody like Axelrod will have useful things to say. And I'd trust Axelrod more than Geithner or Summers to get it right.

drip said...

This may be completely obvious, but the problem with ikl's position is it depends upon Summers and Geitner being right. They are both in policy positions and both are pretty clearly neo-liberal, free traders. Economics at the level being discussed here is not technical. It is literally a political economy. Geithner's participation in BearStearns and Lehman isn't much comfort to me. Neither is Summer's participation in the Glass Steagall repeal. Summers is very bright, Geithner is called bright by people whose judgment I trust, but neither is a neutral technocrat and neither is a particularly good communicator. Both are Bob Rubin acolytes. My thought then is that their opinion on nationalization is not a technical one, and I would not trust them to enthusiastically support a nationalization, let alone implement one.

ikl said...

Whether or not "our culture is ready" for nationalization will may well get it anyway. It seems to me the question is whether we do this now or try to avoid it. Summers and Geithner prefer the later. I don't think that "political culture" is what is driving this point of view. And I don't think that one should take Obama's public musings on the subject as indicative of what is really driving policy. For example, Obama can't come out and say, we (my administration) really shouldn't be trying to run banks, 'cause we are not going to be good at it. Because things might come to that anyway.

If Obama doesn't want to listen to Geithner and Summers, he shouldn't have appointed them. I don't really have a point of view about whether they are the right people for the job. But Obama did. And they are his experts.

Neil Sinhababu said...

Okay, if the 'culture' stuff is all window dressing and it's all concern about whether we have the administrative capacity to run all these banks at once, fair enough. But I don't have a great deal of data on what's going on inside 1600 Pennsylvania.

ikl said...

I'm just going with what I see as the simpliest explanation. "Political culture" in the sense of what the public is comfortanble with seems a bit beside the point when there is a banking crisis of this magnitude. Because the public is going to be much more uncomfortable if the banking crisis gets worse regardless of how much it dislikes nationalization.

"Political culture" might also mean things like how well the public sector is likely to run banks or how investors will regard federally controlled banks. But these really are questions of economic policy.