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It's Not A Matter Of Trust

By Big Tent Democrat

Chris Bowers argues that Billy Joel got it right about politics - it's a matter of trust. I completely disagree - it is a matter of whether you agree or disagree with the announced policies of the Obama Administration and why. Trust has nothing to do with it. Chris writes:

[F]aith in the bailout plan really isn't a question of analytic and scholastic ability . . It is simply a matter of trust in the people executing the plan.

This is really really really the wrong approach to take on any policy issue. This abdicates the process of actually thinking about an issue and making up your own mind as best you can. Let me give you an example - health care reform. I never have written on the subject in detail because I have never taken the time to form my own opinion on the subject. I never advocated for or against mandates or single payer and the like because I was too lazy or too stupid to take the time to form an opinion on the subject. But whether I "trusted" the advocates of particular positions would certainly not be the decisive criteria of my views on any issue. If your position is guided solely by "who you trust," then there is no thinking being done by you. Some people treat issues this way. I can never accept that approach. Bowers advocates it here. And that is wrong. More . . .

Bowers cites Matt Yglesias for this proposition:

The more I’ve followed the back-and-forth on this, the less actual disagreement about the facts I think I’m hearing. What the critics are saying is that Geithner’s plan couldn’t possibly recapitalize the banks in an adequate way unless it was implemented as a horrible giveaways. What the defenders are saying is that if you implement the plan the correct way, it will be a helpful step toward resolving the situation at a time when it’s difficult to imagine the congress appropriating the volume of extra funds necessary to full resolve the issue.

Ultimately, these two points aren’t in conflict with one another. They’re different interpretations of the situation that are based on different assumptions about the competence and good will of the people involved. If you assume that the key policymakers are smart people doing their best, then you’re going to line up with Spence. You’ll predict a degree of success from the Geithner Plan followed by the need for additional action. And you’ll be concerned that over-the-top criticism of Geithner and the Treasury Team is going to undermine the political support that will be needed for further action. But if you assume that the key policymakers are inept, or unduly under the sway of big finance, you’ll see that a sound implementation of the Geithner Plan wouldn’t generate the needed volume of money, so the plan “must” be for a large giveaway. But either way, I think there’s actually agreement about both the nature of the financial situation and the fact that the implementation details matter a great deal here.

I take it Bowers agrees rather than "trusts" Yglesias' interpretation here. Assuming that is so, I disagree with BOTH Bowers and Yglesias. It does not come down to whether:

If you assume that the key policymakers are smart people doing their best, then . . . [y]ou’ll predict a degree of success from the Geithner Plan followed by the need for additional action. And you’ll be concerned that over-the-top criticism of Geithner and the Treasury Team is going to undermine the political support that will be needed for further action. But if you assume that the key policymakers are inept, or unduly under the sway of big finance, you’ll see that a sound implementation of the Geithner Plan wouldn’t generate the needed volume of money, so the plan “must” be for a large giveaway.

In fact, it strikes me as a ridiculous description. I think most everyone thinks President Obama, Secretary Geithner, Lawrence Summers, et al., are not only smart, but incredibly smart. I think most everyone thinks that President Obama, Secretary Geithner, Summers, et al, are not only doing their best and well intentioned, they have significant selfish motivations for wanting the best result - they want to look good in the end - in the history books.

Some of us think the policies they have rolled out are simply incredibly wrong headed on any number of levels.

Consider just Yglesias' short hand for how supporters and critics line up on the Geithner Plan. Yglesias writes that supporters of the plan "predict a degree of success from the Geithner Plan followed by the need for additional action [and are] be concerned that over-the-top criticism of Geithner and the Treasury Team is going to undermine the political support that will be needed for further action." Is that the best a supporter of the Geithner Plan can say? That it is inadequate? Is that what we think Obama and Geithner think?

Yglesias says critics of the Geithner Plan "see that a sound implementation of the Geithner Plan wouldn’t generate the needed volume of money, so the plan “must” be for a large giveaway." I think that is right up to a point but the criticisms go further - that even if done with the proper amount of capitalization the Geithner Plan is the wrong policy for a number of reasons. Paul Krugman describes one of them today:

[T]h[e] era of boring banking was also an era of spectacular economic progress for most Americans. After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits.

. . . Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a “catastrophic meltdown.” But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan’s concerns.

And the meltdown came. Much of the seeming success of the financial industry has now been revealed as an illusion. (Citigroup stock has lost more than 90 percent of its value since Mr. Weill congratulated himself.) Worse yet, the collapse of the financial house of cards has wreaked havoc with the rest of the economy, with world trade and industrial output actually falling faster than they did in the Great Depression. And the catastrophe has led to calls for much more regulation of the financial industry.

But my sense is that policy makers are still thinking mainly about rearranging the boxes on the bank supervisory organization chart. They’re not at all ready to do what needs to be done — which is to make banking boring again.

(Emphasis supplied.) Now to what does Krugman attribute this attitude from policymakers?

Part of the problem is that boring banking would mean poorer bankers, and the financial industry still has a lot of friends in high places. But it’s also a matter of ideology: Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.

(Emphasis supplied.) Krugman is not saying that President Obama, Secretary Geithner, Summers, et al, are not incredibly smart and well intentioned, he is saying they are wrong. Their "ideology" regarding the financial industry is wrong. It so happens I think Krugman is wrong in some of this analysis - I'll save that for another post - but the important point here is that it is not a matter of trust for Krugman on whether he agrees or disagrees with the Geithner Plan, it is a matter of thinking it through and deciding that he thinks the Geithner Plan is the wrong policy.

That is the way we should do it, to our own meager abilities. Judge the policies - not whether you trust or distrust the policymaker.

Speaking for me only

Full post as published by TalkLeft on April 10, 2009 (boomark / email).