Economic Policy: Come Out Wherever You Are!

My friend Barry reminds me this morning that I have become a tad repetitive in my drum beating in favor of nationalization. As ever he is far more politically sensitive than I am so I take his cautionary words seriously. I agree, perhaps the molasses like pace of economic policy roll-out is a function of ‘political realities’. Perhaps, also, the country is just not prepared to do whatever is necessary to save itself from calamity. This may be true.

But.

I am not alone: Op-Ed Columnist – Behind the Curve Krugman, who is far better equipped than I am to see the dangers ahead, is even more strident than I am. There seems to be a massive disconnect between the Obama team and a large number of us critical types who have a greater sense of the need for urgency. Is it simply politics?

So here’s my response to the political problem argument.

I find it unacceptable that a newly elected president, someone who advocated change, who tapped into a vast reservoir of dissatisfaction with the prior regime, and whose words reflected the fears of a nation facing a mounting economic crisis cannot dictate the terms of the game being played in Washington. Sometimes politicians need to get out in front. They need to explain, cajole, bully, and ultimately pull the country in the proper direction. They don’t need to soothe always. They don’t need to triangulate to what is publicly acceptable. And they don’t need to reach consensus with an ideologically implacable opposition. Tentative is out and determination is in.

Or at least it should be.

Now I admit that there are many people who think that all we need a little tweaking and that the economy will spring magically back to life resolving all the banking problems along the way. This seems to be the dominant position within the administration – at least if we take its public statements at face value.

I just am not one of those people. I think the economy is in worse shape and that to get it going we need to fix the banks as quickly as possible. Not only that, but I also think we need a far greater stimulus package, maybe as much as double the amount set aside so far.

It is the seemingly massive gap between what I see as the size of the problem and what the Obama folks see that is driving my advocacy.

I think that there are times when the political calculations of normal times are inappropriate. In these few unusual moments our leaders should shape the political landscape not conform to it. I thought Obama was transformative. Right now he appears to be a highly intelligent bureaucrat determined to conform tightly to what he perceives as a fixed political environment. He is not leading. He is administering. He is accepting the shape of the landscape rather than reforming it.

His incapacity to take bold action in the face of a strident opposition from the Republicans is inevitably going to weaken him. He has failed to take his case to the people strongly enough. His window of opportunity to transform is closing as he gets further bogged down in the vast array of issues facing his team. His failed appointment process is causing him to over-react which means many of our key economic leadership roles are still unfilled even as the economic crisis builds. As Krugman points out: the risk is that Obama will realize his error so late that his policies will be tarred as failures and his subsequent ability to fix our problems severely hampered.

A case in point is the hesitancy to spend enough to fix things quickly. Another article in this morning’s New York Times covers this point and sympathizes with the administration: Geithner Is Scrambling Frankly I read this as a story placed by the administration to damp down opposition to its go slow attitude. It reads almost apologetically and asks us to wait a while as the administration fusses about to fill the key jobs it hasn’t been able to so far. But that merely points to the inadequacy of the system. These are extraordinary times and I feel that Washington is trying to behave according to normal rules. Surely there must be a way to accelerate appointments in the face of emergency. Or is the American political system so rigid that it is destined to fail? What happened to ‘Can Do’?

Keynes said, in the depths of the Great Depression, that the country [in his case the UK] hadn’t suddenly forgotten how to make things, or sell things, or deliver them on time and so on. The solution to the Depression, he argued, was not a failure of the people’s ability. It was failure of ideas. Those who were charged with leading the country out of the mess were both intelligent and diligent. They simply lacked courage: the courage to admit that their original ideas were wrong, and that new ideas were needed.

Keynes analysis is correct today. Washington is beset by terrificly ingenious ideas being peddled by exceptionally clever people. McKinsey consultants; Treasury Department economists; Wall Street bankers; Industrial managers; and armies of academics. All well meaning. All tremendously clever. All extremely experienced. And all wrong. They are bureaucrats whose outstanding talents are appropriate for the endless fine tuning of a well established and successful machine. They don’t seem capable of creating a new machine.

The economic machine of the past twenty years has sputtered to a halt. It needs replacing not a tune-up. The free wheeling laissez faire economics that provided the dominant intellectual framework for the Reagan era need discarding not cleaning. So to rely, as all those experts seem to be doing, on that same philosophy as a basis for solutions just as it revealed as dysfunctional is ridiculous. It is failure.

We need change.

We need to break the mold that got us here.

We need to experiment with new ideas.

We need to take risks.

We need different ideas.

We have little to lose.

It took FDR a while to understand what he needed to do. Then he told us we had nothing to fear but fear itself.

Right now we have nothing to fear but timidity and bureaucracy.

Do we really want to emulate Japan circa 1990?

My frustration is that we don’t have to, but that our erstwhile leaders can’t seem to avoid taking us down that doomed path.

And that’s more than a shame. It’s negligent leadership.

Hence my somewhat overwrought advocacy of nationalization: guys it works. Why not give it a shot?