Res Ipsa Loquitur (II)

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I posted last week about the negative reception to Geithner’s bank plan. Here, for instance, was Paul Krugman’s take:

It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation….So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place.

Not exactly an enthusiastic endorsement. Today’s Washington Post has some of the back story:

Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

The sharp course change was one of the key reasons why Geithner’s plan — his first major policy initiative as Treasury secretary — landed with such a thud last Tuesday. Lawmakers, investors and analysts expressed dismay over the lack of specifics. Markets tanked, and fresh doubts arose about the hand now steering the country’s financial policy.

Public acceptance of the plan suffered from several missteps, said sources involved in the decision-making or in close contact with those who were.

The Obama administration, they said, failed to rein in the grand expectations built for the plan on Wall Street and in Washington, concluding that they would rather disappoint the markets with vagueness than lay out a lot of details they might have to change later — a failing they saw in the Bush administration’s handling of the crisis.

Meanwhile, the sources said, Obama’s senior economic advisers were hobbled in crafting the plan by a shortage of personnel. To date, the president has not nominated any assistant secretaries or undersecretaries at the Treasury, and the handful of mid-level staffers who have started work were still finding their offices and getting their building passes and BlackBerrys.

I guess the only question I have is: why couldn’t they wait a couple of weeks to get it right? To paraphrase Mark Twain, it’s better to keep quiet and be suspected of not having a plan, then to open one’s mouth and remove all doubt. Hopefully Geithner et. al. will do better in the future, but this was not a promising start.

Also, Darwin’s post today is really good.

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Rule Britannia! Brexit is Adopted!

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  1. Another view of the limits of Governments and economic policies:

    “The third issue, I would like to mention here today, is the current financial and economic crisis. I recently spent three full days discussing this topic at the World Economic Forum in Davos and my feeling is that the rationality and the economic science have been suppressed or forgotten. The very unpleasant, day by day deeper economic crisis should be accepted as a standard economic phenomenon, as an unavoidable consequence and hence a “just” price we have to pay for the long-term playing with the market by the politicians. Their attempts to blame the market, instead of themselves, are unacceptable and should be resolutely rejected. Their activities, aiming at “reforming” the economic system, are all very doubtful and I as said in Davos: I am getting more afraid of these reforms than of the crisis itself. ”

    Václav Klaus, Foreign Policy Lecture Series, Foreign Policy France, Ledoyen Restaurant, Paris, 11 February 2009

    Full text here:

  2. While Klaus is known for taking controversial positions, I think the debates around the stimulus package have clarified his point fairly well: we don’t know that it will work, but we hope (and have some reason to expect) it will be better than nothing. Time will tell.

  3. The haste of our Hope and Change President and enlightened Congresspersons in enacting the Porkapalooza Bill speaks loudly. As though releasing pent-up energies building up since 1965. Possibly since 1933. As in always one or more reasons not to do it. Those pesky wars. Roaring economic times or the lack thereof in the 30s. Those even peskier GOP Presidents- Ike, Tricky Dick, Ronaldus Magnus, Bush pere et fis. Those really annoying elections of 1994, 2000, 2004 that held back the tide. By November 4, 2008 the stars and planets aligned in their favor. The Messiah of Hope and Change ascended to the White House. Another two years of enlightened Dems running Capitol Hill. A GOP dismayed and flummoxed. And we can’t wait write write write get it done Speaker Pelosi’ trip to Rome may be in jeopardy. Listening to our all-news radio station this morn- story of how City Hall bureaucrats pour over the 1000-plus pages of the Porkapalooza Bill, rightly dividing the word of truth to see how much cash funnels to Philly. Where it better help our beleaguered police department, pronto- Officer John Pawlowski, fine young Catholic law enforcement pro, gunned down like a deer in the woods Friday night. Sixth such murder of an officer in a year. Leaves a greaving bride pregnant with first child. No sympathies coming from Washington. Why? If Porkapalooza is the first of such bills, why need state or local governments? And who would care in D.C. of such heroes as Officer Pawlowski? Thus we interpret Hope and Change.

  4. we don’t know that it will work, but we hope (and have some reason to expect) it will be better than nothing. Time will tell.

    I think that’s part of it, but another big chunk (and I fear it’s actually the larger part of the motiviation) is that as a matter of self defense people are always more inclined to do something rather than do nothing in a situation with a lot of pressure — even if the information and reason they have available to them suggest that a less interventionalist course might actually be the best one.

    If you say, “We’re already doing everything that we can, and now we just want to execute to our plans and hope for the best,” you leave yourself wide open to all sorts of, “But if he had done this,” claims. If, on the other hand, you constantly come up with and execute new plans (even plans that use up resources without helping — possibly even make things slightly worse) you can always point back and say, “We did everything we could. Surely things would have been even worse if we hadn’t acted.”

    So in an attempt to assure approval people will often do incremental actions that are actually helpful, just so that they can claim to have “done everything”.

  5. I would agree that the 1) something must be done, 2) this is something, therefore it must be done line of thinking was a primary motivation for the stimulus package. I would add a third: cramming in eight years worth of projects from the Democratic Congressional wish list.

    Larison thinks the Democrats will come out of this fine, regardless of the outcome. At least they can say they did something. That’s quite possible, but it seems to me they over-played their hand somewhat. As discussed previously, almost half the funding won’t even be spent until 2011; the Democrats basically refused to make any concessions on the bill, saying basically, ‘we won’.

    If it doesn’t work out, I think they will be vulnerable to the charge that they acted irresponsibly; pursuing their own pet projects instead of policies like payroll tax deductions that most economists support. The ‘we were trying everything’ line only works if people think you are sincere. I am not sure the Democrats effectively made the case that their motivations were for the public rather than their party.\

    On the banking plan, the article seems to suggest they’ve (rather clumsily) decided on a somewhat less interventionist approach than they originally planned.

  6. but we hope (and have some reason to expect) it will be better than nothing.

    It may do what it is intended to do, but that is far worse than nothing. This is not a stimulus bill, it is a vast enlargement of the Federal government, it creates new entitlements and distributions which will never be rolled back, and to boot… it will not likely help the economy even in the short run.

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