Matt Yglesias

Obama on Sweden

In response to a very good question for ABC News’ Terry Moran, President Barack Obama specifically addressed why he’s rejected a “Swedish” approach to the financial crisis:

There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.

Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country.

Obviously, Sweden has a different set of cultures in terms of how the government relates to markets and America’s different. And we want to retain a strong sense of that private capital fulfilling the core — core investment needs of this country.

And so, what we’ve tried to do is to apply some of the tough love that’s going to be necessary, but do it in a way that’s also recognizing we’ve got big private capital markets and ultimately that’s going to be the key to getting credit flowing again.

Obama makes two arguments here, one about scale and one about national tradition. I think the argument about tradition is clearly true—this is a big barrier to a Swedish-style solution. But I don’t think it’s a valid objection for the President to offer. What he’s describing is precisely the situation I fear; a situation in which public officials are refusing to do what needs to be done out of what amounts to ideological rigidity. This is the United States of America, so we can’t have widespread nationalization even if we should. The argument about scale is different. You could see it being the case that what works in a small open economy wouldn’t work in a large somewhat open one. There are, in fact, lots of situations like that. The sort of unilateral fiscal stimulus we’re attempting isn’t really appropriate to small open economies. So I could be convinced that this is correct. On the other hand, it’s not clear to me what about the Obama/Geithner alternative to nationalization actually meets this problem. It’s inherently more difficult to conduct oversight and administration in the United States, which really could make it harder to make nationalization work. But the Obama/Geithner alternative will also work poorly unless oversight and administration can be made to work. This amounts to saying “just because nationalization worked in Sweden doesn’t mean it’ll necessarily work here, so I’ll try something else that also might not won’t work.” The reasoning doesn’t go through without the first consideration—we’re not nationalizing the banks because, damnit, we don’t do that sort of thing in the United States. To which I say that nationalizing the banks’ losses doesn’t exactly fit in with American cultural ideas about rugged individualism either.

See also Paul Kedrosky (who I largely agree with but I wouldn’t quite get so irate), Felix Salmon (who’s grateful that unlike Geithner, Bush, or Paulson Obama can at least explain himself in a cogent way), Paul Krugman (who says nationalization is more American than Obama thinks, but who has no credibility since he’s on the Swedish payroll) and Tyler Cowen (who I think agrees with Obama).

My bottom line: Visit the Nordic countries and you’ll be impressed that their civilian public agencies are much more effective than ours. Arguments which observe that things their institutions can do, our institutions might well screw up are valid. At the same time, there are things that require effective public agencies to do that need to be done. In fields like educating poor children, we’re simply not doing them, and a price is paid. But it’s a price that most middle class Americans don’t see or pay personally. If it turns out that we can’t manage a financial panic adequately, we’ll all be paying the price. I don’t think assuming failure in advance and therefore adopting unlikely-to-work policies makes sense. Abraham Lincoln and FDR both asked the government to do things it didn’t have the ability to do; that meant they had to build the institutions.

Resigning in Iceland

Prime Minister Geir Haarde resigns due to the collapse of his coalition following the breakdown of the Icelandic economy. I’m a little confused as to why the early elections have been called for May 9. It seems that given the nature of the situation, Icelanders could use early elections to happen really early — like sometime in mid-to-late February. The ability to call early elections when incumbents have been discredited is one of the strengths of these kind of systems of government, but you may as well use the power to actually avoid America-style “months of drifting aimlessly.” But the election date was set a couple of days ago, so maybe as a result of the decision to resign it can be moved up even further. I’ll admit that I’m not entirely familiar with Icelandic constitutional procedures.

Presidential Trouble

Garrett Epps has a very interesting article in The Atlantic making the case that the presidency is simply a poorly designed office as currently conceived. I really recommend that you read the piece. It’s main flaw, I think, is that it partakes in the brand of solipsism that’s all-too-common in the American media. When the Founding Fathers put the constitution together, they made their best effort at canvassing the historical experience of republican governments in finding models and cautionary tales about what to do. But they didn’t have all that many examples to consider. These days, we can do better. There are lots of republics and constitutional monarchies to survey. And my view is that surveying them reveals that pure parliamentary systems (UK, Netherlands, Germany) with an essentially symbolic head of state are superior to presidential (US, Mexico) or semi-presidential (France, Russia, Afghanistan) ones.

Needless to say, though, that’s not very practical. Epps offers, instead, some incremental proposals for reform. One—the biggest no-brainer of the bunch—is to change the electoral system. Another provocative thought is that we ought to formally divide the execute. An odd feature of the US political regime is that at the level of state government we (except for New Jersey) tend to divide executive authority among multiple independently elected officials even though it’s not especially plausible that the governor of North Dakota is going to seize dictatorial authority. But when it comes to the federal government, where abuse of power is a very real fear, we have only one elected officer. Epps suggests establishing the Attorney-General as an independent figure, elected to four-year terms during the off-cycle years—2010, 2014, 2018, etc. Since this resembles the way most states (and, indeed, many counties) work it might go down smoother as a proposal than would a shift to a Euro-style parliamentarism.

Not, of course, that I have any real hope that any of this will be done. The American public and political class are both strangely complacent about institutional issues. There’s a tendency to become really unhappy about political outcomes and processes, but to give almost no thought to the idea that changing the rules that govern our institutions might be a potent way to relieve this unhappiness. Instead, we believe that a change of personnel will eliminate our unease—that George W. Bush will “change the tone” or Barack Obama will restore hope. Obviously, it really does matter a great deal who occupies our public offices. But on another level, if you want to change things you do need to look at the system in which people are operating.

Trouble at the War College

I’ve been impressed that throughout the disastrous Bush years, the US Army War College’s Strategic Studies Institute has continued to host work by scholars who’ve been critical of the Bush administration — in some instances (Jeffrey Record) scathingly so. But according to Tom Ricks (via Farley and Klein) things aren’t going so smoothly.

An SSI clampdown would be very bad for the country. Effective government requires serious, professional, independent research. The US political system, to be frank, often doesn’t provide very effective government. But our military is an important exception to that trend. Much more like a Northern European civilian agency, the military is well-funded, well-regarded by the public, and enjoys high morale. The senior managers in the military are career professionals — the generals and admirals — and though ultimate authority rests (as it should) with civilian politicians, there’s a strong sense (as there should be) that the military should be engaged in autonomous, proactive thinking about its enduring mission. The Strategic Studies Institute is part of that system of rigor and professionalism and it’d be a very bad sign for its integrity to be compromised.

Hasen: Let’s Run Elections Properly

Rick Hasen has the correct proposal that would let us avoid these every-two-years allegations of voter fraud and suppression — do voter registration like other modern democracies:

The solution is to take the job of voter registration for federal elections out of the hands of third parties (and out of the hands of the counties and states) and give it to the federal government. The Constitution grants Congress wide authority over congressional elections. The next president should propose legislation to have the Census Bureau, when it conducts the 2010 census, also register all eligible voters who wish to be registered for future federal elections. High-school seniors could be signed up as well so that they would be registered to vote on their 18th birthday. When people submit change-of-address cards to the post office, election officials would also change their registration information.

This change would eliminate most voter registration fraud. Government employees would not have an incentive to pad registration lists with additional people in order to keep their jobs. The system would also eliminate the need for matches between state databases, a problem that has proved so troublesome because of the bad quality of the data. The federal government could assign each person a unique voter-identification number, which would remain the same regardless of where the voter moves. The unique ID would prevent people from voting in two jurisdictions, such as snowbirds who might be tempted to vote in Florida and New York. States would not have to use the system for their state and local elections, but most would choose to do so because of the cost savings.

Since some people drop out of high school, you would need some other entry points. But that’s the basic shape of the system — a nationally administered registration scheme that keeps track of what’s going on, instead of a system that relies on “registration drives” to get people signed up, and a whole bunch of separate authorities to keep track of whether they’re signed up legitimacy.

American Individualism

Jonathan Cohn writes “I would concede that America’s strong individualistic streak makes the country inhospitable to government activism, at least relative to Western Europe.”

I think sometimes people are too quick to make concessions of this sort. It does seem to be the case that the Anglophone states have a systematically less expansive state in a way that makes it tempting to look for a cultural explanation. But at the same time, Canada and the UK have among the most heavy-handed government health care systems in the world. And when trying to understand why we differ so much from our Anglosphere cousins in that regard, I don’t think it’s very enlightening to talk about culture or individualistic streaks. FDR decided against making a big push for universal health care during the New Deal era not because of “individualism” but because of racism, it would raise a thicket of questions about integrating hospitals and so forth that he didn’t want to deal with. In later periods, efforts to create a universal health care system have been stymied by the institutions of American government which features a relatively large number of “veto points” at which organized interests can block legislative initiatives. If the United States had a Westminster-style political system we would almost certainly have implemented a universal health care program during one of our earlier periods of progressive ascendancy, the program wouldn’t have been dismantled.

In general, I don’t think people should overestimate the role of public opinion in constraining policymaking. People don’t generally have detailed opinions about policy issues, and politicians can “get away” with doing all kinds of stuff as long as it doesn’t wind up blowing up into some kind of obvious disaster down the road. By contrast, institutional factors create very real constraints on what people can do. A farm reform bill would need to go through the Agriculture Committees which are both chuck full ‘o congressfolk who represent the beneficiaries of current bad policies. Consequently, nothing can be done. One could look at all the grain-fed beef we eat in the United States and conclude that our cultural proclivity for grain-fed beef is causing our agricultural policies, but that’s almost certainly backwards — people come to think of the results of longstanding policies as “normal.”