The most frustrating part of this work, but in some ways it’s the most consequential, is how effective you can be in relaxing the political constraints that exist on policy. You can see that most compellingly now in the fiscal debate. Paulson before us and the President were very successful during the crisis in getting a very substantial amount of authority essential to resolving the crisis. But it has been very hard since then to get out of the American political system more room for maneuver both on near-term support for the economy, as well as reforms that would lock in a sustainable fiscal path. That is the most frustrating thing, to get the political system to embrace better policies for the country.
Geithner believed that “restoring business confidence” was everything. Once the gods of Wall Street, those all but immortal geniuses, were certain that they would be held harmless for their monumental stupidity, incompetence, and greed, they would start lending again, which is precisely what did not happen, because there was no demand. Geithner fought against the stimulus, and he fought, successfully, to prevent any real relief for under water mortgage holders. The relief he allowed was for the banks, not for the home owners. Where Geithner won, and where he lost, there were very real policy disagreements, and for him to pretend that all opposition to his ideas were mere “politics” is both self-congratulatory and disingenuous.
I think that the best economic strategy for the country would be to combine a set of very powerful near-term investments in infrastructure and elsewhere that would help support demand with long-term fiscal reforms that would restore sustainability. I think the limits we face right now are only political, not economic, not fiscal.
In fact, as renegade Republican Bruce Bartlett points out, “our long-term deficit situation is not nearly as severe as even many budget experts believe. The problem is that they are looking at recent history and near-term projections that are overly impacted by one-time factors related to the economic crisis and massive Republican tax cuts that lowered revenues far below normal. Taking a longer-term view, such as that in a recent Treasury Department report, shows that our longer-term fiscal problem is in fact quite manageable.”
Throughout his four years in office, Geithner was the constant champion for the Wall Street obsession with cutting Social Security and Medicare, and Obama was as well. Fortunately for America’s geezers, Republicans hated the President far more than they hated long-term deficits, and they refused to make a deal, lest the President regain Wall Street’s favor.
Afterwords
Simon Johnson provides a far more scorching review of Tim’s legacy here. In large part, Simon faults Tim for not preventing Wall Street from acting so stupidly. Perhaps he might fault Wall Street a little more for being so stupid in the first place.
