In a number of earlier posts I’ve discussed the alternative to the Geithner Plan of temporary nationalization followed by restructuring and re-privatization of the Banks. I’ve also pointed to the lack of transparency of the Administration in refusing to explain its decision to follow the Geithner Plan in the context of a fair evaluation against the nationalization alternative favored by so many prominent economists.
Yesterday, in the midst of a fine speech on the economy, President Obama offered part of his reasoning on this choice. After directly mentioning those critics who favor some form of temporary nationalization, he said:
”. . . it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm.”
I’m glad the President finally talked about this, and also glad to know that he thinks the Geithner Plan is a better economic choice than temporary nationalization. However, his statement above is just an assertion of a belief supporting his decision. It doesn’t provide a clear explanation of the advantages and disadvantages of each of the alternatives, and it doesn’t provide the Administration’s calculations showing that government takeovers would be likely to cost taxpayers more. In the end, it’s just a statement saying we’re doing it this way because our gut tells us that it will cost taxpayers less and have a less negative effect on “confidence” in banks. That’s all very well, but we’re talking about trillions of dollars in public exposure here, and also some pretty careful analyses by some of the critics against the Geithner plan. We deserve more than just an “I believe this” or “I believe that” to be persuaded that Geithner’s is really the way to go.
Of course, an extended argument against nationalization could not be given in a high-level speech. But the Administration can produce a White Paper or Report outlining its reasoning on this matter, and considering in detail the alternatives to Geithner. Why hasn’t it done that? The importance of the issue merits it, if only to show that its decision both received and survived a serious evaluation against the nationalization alternative. Now, some may think that the President doesn’t owe us any explanation at all. After all, he won the election. He’s got the responsibility to make such decisions. However, that’s not transparency. It would not inspire confidence. It’s the way the Bush Administration did things. Worst of all, it doesn’t continue the conversation with the critics in a way that both they and the Administration can learn and evolve, as we all begin to see the results of the current Plan. Continuing the conversation will provide a basis for changing the policy easily if it becomes necessary. Just leaving things at: “well, I believe it will cost taxpayers more; you believe it will cost them less. Too bad; it’s my decision,” will make it much harder to acknowledge later that others were right to favor nationalization, if he needs to.
BTW, Brad DeLong also thinks the Government needs a narrative about its banking policy. Take a look at his post, and note also that the reasoning the President gave yesterday isn’t the only brief rationale he’s offered for the policy. Paul Krugman points out that there may be a proliferation of narratives going on now, and, I might add, none of them seems to be terribly well-worked out. About this proliferation he says:
”Can I say that this very proliferation of narratives is disturbing? I don’t want to claim moral equivalence with the Bushies, who were utterly cynical about such things, but the ever-shifting rationales for an unchanging policy do bring back unhappy memories of the selling of the 2001 tax cut, and for that matter — again, no moral equivalence! — of the selling of the Iraq War.”
This gets us back to the issue of transparency. There are many narratives developing because there’s no transparent account of the Administration’s thinking on this subject. Once again, it really needs to provide that account.