Krugman, Obama
Just about everything Paul Krugman says resonates deeply with me, so I was surprised by his less than positive take on Barack Obama's recent speech wherein the candidate laid out his plans for dealing with both the mortgage meltdown and the ensuing financial mess. I thought the speech laid out some great policy ideas.
This isn't a "Barack's better than Hillary" argument. She too has lots of good stuff to say in this area. But I don't think Paul gave Obama a fair shake. So here's the skinny on the speech, from one wonk's perspective.
There's was lots of Obama-esque rhetoric up front, which I won't get into except for this: "in our 21st century economy, there is no dividing line between Main Street and Wall Street."
It's an important point. I was just out in South Bend, Indiana, talking economics with a bunch of folks from the community. One of their central questions was: how to the dots connect between the mortgage meltdown, the tremors on Wall St., and the recession? Obama's comment, and the discussion surrounding it, underscores Main St's vested interest in structuring oversight to avoid the excesses and market failures that got us where we are today. Hillary gets this too. Even Paulson kind of gets it.
Krugman liked this part of the speech too, but he was critical?-overly so, I think?-of a) Obama's ideas for dealing with the present problems in housing and mortgage markets, b) Obama's tax cuts, and c) his tendency toward policies that are too "cautious and relatively orthodox." So let's head for the weeds and see if you agree with me or Paul on this one.
Krugman praised Hillary's endorsement of the type of plans being put forward by Congressman Barney Frank and Senator Chris Dodd. Under these plans, in exchange for a significant write down of the principal, the government provides lenders with insurance against default on the new mortgage.
But Obama endorses the same plan! As he put it in the speech, "To stabilize the housing market and help bring the foreclosure crisis to an end, I have sponsored Senator Chris Dodd's legislation creating a new FHA Housing Security Program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages."
As far as I can tell, once again, there's little space between Clinton and Obama on the issue of addressing the meltdown. They both want to hasten loan renegotiations, and pursue generally similar paths to do so. They even both have identically sized?-$30 billion?-state stimulus packages (hers was first). There's one point on which they disagree?-she's proposed a five-year freeze on rate resets on subprime loans?-but I suspect Krugman doesn't much like this idea (has anyone seen him comment on it?).
As regards his tax cuts, Obama does go further than Hillary in cutting middle-class taxes, and neither I nor Paul get how he pays for it along with the rest of his agenda. He has, however, been quite bold in proposing necessary tax hikes, from closing the carried interest loophole, to raising high end marginal rates and the capital gains rate, and cracking down on international tax avoidance.
The truth is that none of their numbers add up?-none of them clearly enumerate how they would pay for the full set of initiatives they're proposing. That is not uncommon, and McCain happens to be the worst offender. And anyway, as an avid Krugman devotee, I can't believe he really wants Hillary and Barack to provide a detailed explanation of how they're going pay for their priorities. That just sets easy targets for your enemies to shoot at. I'm sure they both recognize, as does Paul, that at this stage, you stay within the realm of fiscal reality (i.e., you don't promise the moon without identifying some new revenue), you broadly stress your priorities, your thematics, and you wrestle with Congress later.
Finally, the best part of Obama's speech from a policy perspective was the six principles he laid out for oversight of financial markets. Read them for yourself. Most are good common sense:
if you borrow from the Fed, you play by the same rules as other borrowers;
you need to hold enough capital to cover your bets (see Bear Stearns meltdown);
"regulate financial institutions for what they do, not who they are" (bring the shadow financial system into the light of day).
Then there's the standard issue calls for consolidation of redundant agencies, and, granted, some pabulum about the SEC cracking down on fraud.
There's also kind of a neat, creative idea for a financial market oversight commission that would report to both the president and Congress. I'm not sure what the Obama folks have in mind, and the Fed would argue that this is their turf, but they clearly need some backstopping. Personally, I'd like to see a bubble-watch committee headed up by Dean Baker.
Are these ideas too "orthodox and cautious?" Dunno. And if they are, is that necessarily bad, given the likelihood of implementing uncautious, unorthodox ideas?
The operative question comes down to this: would these ideas improve our economy's performance and help to stave off big market failures like the one we're in the midst of. I absolutely think so. C'mon Paul...you do too, right?
