Monday, March 30, 2009


Economic policy debate as I read it:

1. Obama administration. Geitner, Obama, Summers, seem to be saying that we need to re-capitalize and restore the existing banking and investing system by writing off the bad bets on mortgage backed securities and all the other "toxic" losses coming out of the era of credit default swaps, but with better regulation. This is the do-over approach. We screwed up the last 15 years or so, completely intertwined banking, investment banking, insurance, real estate, and leveraged the system into total collapse. All we need is to re fund it, be more diligent and less greedy, and we can move on. At the same time, we need to grease the wheels by stimulating the economy with massive spending.

2. Republican Response: The Republican response seems to be that we don't need to stimulate the economy with spending, and we don't need to bail out anybody. If we give corporations and rich people tax cuts they will be so happy, they will create jobs, and spend us back to prosperity. It is not very technical, but it is simple.

3. Krugman: Krugman, representing the “left” or statist critique of Obama, seems to be saying that we need a much bigger program of spending and, at the same time we need to nationalize the banks. If we are going to try to federally intervene on this scale to re-start the economy, let's do it without the bankers and investment companies that got us here. Let's just do it as a public enterprise.

Is there another way? Can any massive intervention work without major unforeseen side effects?

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