Dinner With Prize-Winning Critics
Reader C.K. asks what I think about Barack Obama’s dinner with Paul Krugman and Joe Stiglitz.
I think it’s a good thing. It’s important for a President to try to get in touch with people who are outside his immediate circle of go-to advisers. That said, on the controversial question of the administration’s banking policy at this point the die is basically cast. The administration has hit on what it thinks is a reasonable satisficing solution and they believe the economy is starting to turn around. Critics respond that having taken more forceful action in the past would have been better, but to a large extent the water is now under the bridge. What’s more, it’s very likely that a few months hence we’ll start seeing slightly positive GDP growth and continued weakness in the labor market and that both sides in the Great Democratic Party Banking Family Feud will view that data as vindication for their position. So I don’t expect anything enormously concrete will emerge from this, but it’s good to see an administration trying get some input from a variety of directions rather than adopting a bunker mentality.
27 Responses to “Dinner With Prize-Winning Critics”
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May 5th, 2009 at 6:14 pm
“but to a large extent the water is now under the bridge”
Excuse me? We have a number of giant banks which are still insolvent. If they’re still insolvent, they’re zombie banks – further down the road from now they’ll need another bailout, and after that another bailout, all because Obama – like Bush before him – decided to take nationalization off the table. You’re acting like this is yesterday’s news, some old squabble between Krugmanites and Summersites that’s all in the past. It’s happening now! Why don’t you know this? You get paid to comment on this!
May 5th, 2009 at 6:33 pm
In other words, why worry about a half trillion in Option ARM losses over the next two years when the subprime losses are still sitting on the books at 90 cents?
May 5th, 2009 at 7:12 pm
So I don’t expect anything enormously concrete will emerge from this, but it’s good to see an administration trying get some input from a variety of directions rather than adopting a bunker mentality.
Yes it’s good to see Obama demonstrate that he feels Krugman and Stiglitz have legetimate concerns and for him to take time out of his busy schedule to speak with them.
Bernanke doubled down on his 60 Minutes predictions and said things will bottom out at the end of the year and turn next year, depending on the banks. The challenge for Obama will be getting to full employment with productivity gains going to labor also and will be enacting effective financial regulations.
May 5th, 2009 at 7:15 pm
What’s more, it’s very likely that a few months hence we’ll start seeing slightly positive GDP growth
Wow, this is positively Friedmanesque. Let me predict that in a few months this sentence will become an annoying stain on your reputation and will make people recall how you were gullible enough to support the Iraq war.
May 5th, 2009 at 7:21 pm
Wow, this is positively Friedmanesque. Let me predict that in a few months this sentence will become an annoying stain on your reputation and will make people recall how you were gullible enough to support the Iraq war.
As I recall the predictions for a very long time now have been pretty much unchanged: that Q1 2009 would be very bad (it was), Q2 close to 0 growth, and Q3 slight growth. What part of that do you not believe? If every three months the forecast changes to have the growth starting two quarters down the line maybe you can start calling it Friedmanesque but I haven’t seen a single instance of that yet.
May 5th, 2009 at 8:10 pm
The bailout could not have happened at a better time. By bailing out Big Finance the Republicans lost all credibility as the Free Market party at the same time as they handed power over to a progressive President.
I was ecstatic when I heard about the bailout. Not only did I think it would cripple the Republican Party for years to come but it was a once in a lifetime opportunity to tear down Wall Street and rebuild it. I also assumed at the time it would be a nut grinding process and take the incoming Obama administration five years or more.
Nothing that has occurred since the inauguration has given me the slightest inclination to change my mind. The process of taking the wrecking ball to Wall Street is in its opening phase. Bringing in Krugman and Stiglitz for a chat 100 days in strikes me as pretty good timing. Any earlier and there would have been a holy uproar. I expect both those guys to close if not top advisers in the years to come. But now is not the time.
Obama plays his cards tight. He wants to have five times as many chips as his opponents at the table when he goes all-in. He has built up a considerable political chip stack, and my prediction is he goes all-in within 90 days.
May 5th, 2009 at 8:17 pm
I was kind of hoping it meant he was gonna fire Summers/Geithner and hire Stiglitz/Krugman.
Long shot, I know. But still. Don’t administrations cycle through economists pretty frequently?
Too bad James Galbraith wasn’t at the dinner. I’d sleep easier at night.
May 5th, 2009 at 10:04 pm
In the Newsweek article you link to, Evan Thomas says this about Presidents failing to receive competing opinions:
Really? I think it’s pretty clear that this is a failure of small minds in general (eg George Bush)
May 5th, 2009 at 10:30 pm
The economy will continue to crash as a new wave of mortgage defaults hits, starting in September.
The economy will then flatline for a while. Mid-2010, we should see some recovery, because by then there shouldn’t be many more shoes left to drop. However, if we still have ZOMBIE BANKS WALKING THE EARTH, we’ll still have some serious problems. They have to be FDIC-liquidated.
To their credit, Obama, Geithner, and Bair all support giving the FDIC this power, but apparently it has to go through Congress. I have no idea why it’s been delayed so long.
May 5th, 2009 at 10:55 pm
Well things will be just honky dory, eh? I hate unnecessary equivalence, as if continued weakness in the labor market should not be the precedent.
During the Bush years we had aggregate GDP growth, didnt we? However, the labor market was slack. Further, over the last 20 odd years we’ve had an incredibly two tiered wage market whereby most Americans’ real wages have not grown as fixed costs continue to grow.
Rather than positing this as some age-old, small bore issue, this is a defining issue of how we envision our economy and for whom it works – a line in the sand, if you will.
The divide between the credentialed neo Keynesian economists and the neoliberal, bank friendly crew is a serious chasm in liberal/progressive politics.
The question begs, “Whose side are you on…”
May 5th, 2009 at 11:23 pm
You know, I’m used to typos on this site, but “satisficing” can’t pass without comment. At first, I just stared at it trying to figure out what it meant, but now I’m convinced it’s a brilliant new coinage, a portmonteau of satisfying and sacrificing. Kudos, sir!
May 5th, 2009 at 11:30 pm
http://en.wikipedia.org/wiki/Satisficing
May 5th, 2009 at 11:31 pm
“it’s very likely that a few months hence we’ll start seeing slightly positive GDP growth”.
Well, that does it – Obama obviously made a big mistake in talking to Krugman and Stiglitz because it’s actually Matt who has the answers.
Making reassuring “predictions” about the economy is part of the job description of the Fed Chairman et al – is this also true of bloggers? Or does Matt actually believe the stuff that they throw out?
May 5th, 2009 at 11:34 pm
Yeah, satisficing is a real word, and it’s the appropriate one.
The consensus is badly wrong on the economy, tho. We’re still at 20% over trend on housing prices. That simply cannot last.
May 5th, 2009 at 11:52 pm
Whoa, my bad. In my defense I should note that typos on this site are hardly an anomaly. That said, it’s true that you learn something new every day. Nevertheless, it just reinforces my general feeling that it’s not fair for someone half my age to be smarter than me, typos or not. Pretty soon I’ll be at the age where it’s expected that someone half my age is smarter than me, but I’m not there yet. Damn you, satisficer!
May 6th, 2009 at 12:19 am
So, Obama invites the Cassandras to dinner only after all the decisions have already been made? That’s a good thing, why?
May 6th, 2009 at 4:35 am
What’s more, it’s very likely that a few months hence we’ll start seeing slightly positive GDP growth and continued weakness in the labor market and that both sides in the Great Democratic Party Banking Family Feud will view that data as vindication for their position.
Why not look at more direct measures of credit market health (the relevant spreads, volumes, and such)? After all, that is the goal: for banks to be lending at reasonable rates.
May 6th, 2009 at 5:52 am
yes, but one of the things I would expect Krugman to hammer home is that the administration should not be trying to get back to the situation we had just before we got into this mess. Few people could probably make the case so well.
May 6th, 2009 at 9:11 am
Oh, to have been a fly on the wall to hear that two-hour discussion. Or better yet, to have been Bo under the table hoping for scraps of roast beef in addition to the high wattage conversation scraps. Please Barrack, more dinners with Krugman and Stiglitz and no more dinners with George Will.
May 6th, 2009 at 9:35 am
Please Barrack, more dinners with Krugman and Stiglitz and no more dinners with George Will.
Why not have dinner with both?
Heck, he probably has dinner almost every night.
May 6th, 2009 at 9:54 am
Lambert, I’d be interested in your response to jeff (@10): methinks the really important choices may yet await.
May 6th, 2009 at 10:58 am
Obama is trying to stave off an economic disaster and some people want utopia the day after tomorrow. It’s kind of ridiculous.
he divide between the credentialed neo Keynesian economists and the neoliberal, bank friendly crew is a serious chasm in liberal/progressive politics.
I think it’s made out to be more than it actually is, like the fight over “free trade.” Obama’s goals are to ward of disaster then get full employment with decent jobs and health care, and new regulations of the financial system so this doesn’t happen again. Summers has listed the recent crisises: ‘87, Asian crisis, Long Term Capial Management, tech bubble, Savings and Loan crisis, shadow banking system-financial innovation crisis, etc. etc.
Fact is Obama knows about Japan and Sweden and is talking with Stiglitz and Krugman, and people bitching about his “bank-friendly” advisors is getting old.
May 6th, 2009 at 12:01 pm
Poptarts wrote, Fact is Obama knows about Japan and Sweden and is talking with Stiglitz and Krugman, and people bitching about his “bank-friendly” advisors is getting old.
Yeah! How dare people piss and moan about perhaps $4 trillion being handed to the banksters and their bondholders in exchange for nothing?
May 6th, 2009 at 12:04 pm
Adam wrote, As I recall the predictions for a very long time now have been pretty much unchanged: that Q1 2009 would be very bad (it was), Q2 close to 0 growth, and Q3 slight growth. What part of that do you not believe?
The part where people somehow think working off a few trillion in bad debts is going to be this easy.
May 6th, 2009 at 12:23 pm
I’m going with the we’re still fucked outlook. Any profits banks have made in the last quarter appear to be from pay-offs from AIG derivatives which is still taxpayer money.
Maybe the plan is to prop everything up until the panic subsides and serious work can be done on restructuring the financial markets, but as long as we got the same players, we are going to be playing the same game.
May 6th, 2009 at 3:11 pm
“liberal”
Yeah! How dare people piss and moan about perhaps $4 trillion being handed to the banksters and their bondholders in exchange for nothing?
In exchange for nothing? I think you’re being a drama queen. But yeah it will be interesting to see what they do so that the worst banking crisis since the Great Depression doesn’t happen again. Free-market, anti-regulation, anti-government ideology has certailing taken a hit even if the Austrian cuckoo-types are trying to blame it on easy credit and the evil Federal Reserve Bank.
May 6th, 2009 at 8:08 pm
Matthew Yglesias, have you actually read one or two essays on ABC Theory by an economist of the Austrian school? Or, as I predict, have you only read essays by the critics?
(Are you so unsure of your views that it cannot withstand a debate? Perhaps you should write your own essay refuting the theory. Why, if it is such a stupid and kooky theory, it should be very easy to logically refute.)
You know, I’m speaking about those Austrian economists that by and large predicted the mess that we are in now. If Obama really wanted “input from a variety of directions,” then why does he not talk to one of those economists?
P.S.,
What is “progressive” about the Fed? It helps to fund the wars. It hurts the poor and the middle classes. Etc.