All Life Is Problem Solving

It’s funny how US Administrations can’t simply admit error and then act accordingly. No they have to try to persuade us that that everyone else committed the error in question too. Remember, the Bush Administration’s insistence that no one could have anticipated an attack on high value US targets using hijacked airliners? The Bush Administration was hewing to that line long after the Press had pointed to a number of well-known fictional scenarios that had postulated just such an attack. The Bush Administration also insisted that every major intelligence service in the world made the same mistake as the US in thinking that Saddam Hussein had weapons of mass destruction. And later on, it claimed that no one could have anticipated that New Orleans would be struck by a Katrina-like storm when there were clear forecasts of the likelihood of such an occurrence broadly available. Finally, they ignored warnings about the impending crash of the economy appearing in 2006 and 2007, and later claimed that no one could have anticipated the crash of 2008.

Now comes the Obama Administration, in the person of Joe Biden, saying in an ABC This Week interview: “The truth is, we and everyone else misread the economy . . .” in the course of an admission that the economic downturn we’re living through is much worse than it anticipated.

Of course, the Vice President’s use of “everyone” here, makes one wonder just what Smokin’ Joe is smoking, since “everyone” certainly doesn’t include: Paul Krugman, Joe Stieglitz, Nouriel Roubini, Nassim Nicholas Taleb, Dean Baker, Jamie Galbraith, Brad DeLong, Robert Kuttner, Robert Reich, and a host of other economists including some on the conservative side. All of these folks, and many others, not quite so well-known, weighed in at the time the stimulus bill was wending its way through Congress and “everyone” made it quite clear that the size of the stimulus was too little, its proportion of tax cuts too great, and its support for States revenue needs inadequate to prevent the counter-stimulus that would result from the widespread reductions in State employment we are seeing as a result of declining State revenues coupled with their constitutional inability to run deficits.

I think this Administration ought to just admit that it underestimated the extent of the economic crisis in spite of warnings from many economists. That the mistake is on it, and not on “everyone.” And then, I think it ought to take action by replacing the members of its economic team who were wrong about this, with others who were right in their predictions, and who are more likely to have better models about how to proceed now. I think this advice should apply not only to the stimulus issue; but also to the issue of stabilizing the financial system.

In that area, the Government has used its financial power to provide assets to the big banks in hopes that this would prevent their collapse, help them to deal with the problem of their “toxic assets,” and allow them to begin lending again to businesses and individuals. Like the stimulus program, this one too, has been a failure since the banks are not lending and have done very little to recognize and re-value their “toxic assets.” They remain “zombie banks,” and also represent a drag on the economy, since they’ve substantially raised credit card interest rates in an effort to inflate their profits on the backs of the very taxpayers who have been bailing them out. In addition, they violate “everyone’s” sense of justice by continuing to pay excessive compensation to executives who arguably contributed to the present crisis, and appear now to be continuing to profit outrageously, when the very livelihood of working people is threatened by the mess they created.

This is another area where many of the same economists who disagreed with the Administration on the stimulus package, also disagreed on what to do about the banks. Instead of using public monies to re-inflate banking assets while exerting very little control, these economists proposed taking the “zombie banks” into receivership and then ensuring that lending and re-evaluation of toxic assets would occur, while the practice of excessive compensation would be ended, and credit card interest rates would remain low. The big banks would then be broken up to fix the problem of “too big to fail,” and the resulting institutions would then be sold off to private capital, while making the taxpayers whole. Even though we can’t be sure that this alternative way of fixing the banking system would have worked, we do know that the strategy of Geithner, Summers, and Bernanke has failed, and that the “zombie banks” are not helping main street to recover with increased lending. So, again, let’s have some accountability for being wrong. People are losing jobs, homes, and hope out there. Geithner, Summers, and Bernanke implemented a plan that is not working. Their understanding of the system is in error. Let’s change direction and give other economists a chance to implement an alternative strategy. Perhaps we’ll be luckier, and at least we’ll be trying something that hasn’t already failed, and also beginning once again to teach the lesson of accountability to those entrusted with great power. This is a lesson that the Bush Administration never learned and absolutely refused to teach. The Obama Administration must be different. The policy for failure must be enforced retirement, not continuing reward.