Monday, March 23, 2009

Paul Krugman is overinvested

Paul Krugman genuinely thinks he knows how to clean up the bank mess. Maybe he does. He knows that Geithner is wrong to try to find ways to improve the banks' balance sheets without taking them over. Maybe he's right. But frustration is hardening his hypotheses into certainty:
Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.
Krugman is starting to sound a little like Rush Limbaugh. It's not fair to put in his mouth, "I hope he fails." But if Geithner's plan doesn't fail, then what happens to Krugman's credibility? Would he enjoy a stint on The Daily Show?

Update 3/24: Time's Justin Fox, responding to criticism of a post venturing that Geithner's plan could "provide a path to intelligent nationalization (cf. Andrew Leonard, below, and xpostfactoid, 2/21) voices a similar sentiment about Krugman:
it's entirely possible that Hempton and I are guilty of wishful thinking about Treasury's intentions. But it's also possible that Krugman is guilty of whatever the opposite of wishful thinking is.
Even if Krugman is right about the futility of Geithner's attempts to bolster banks, he may well have the political calculus wrong. Compare Andrew Leonard in Salon:
But all the sturm-und-drang expressed hither and yon about how the Obama administration is damning us all to a decade or more of economic doldrums by not pursuing immediate bank nationalization today, is just a bit overwrought. The U.S. economy is not going to stop shedding a half million jobs a month if we nationalize Citigroup today, instead of two months from now. We are deep in a recession and it will be quite awhile before we crawl out of it. Two months of caution do not mandate a "lost decade." Indeed, we will know in a matter of months whether the Obama administration's current efforts are gaining any traction, and if they aren't, then there will be no other alternatives. Perhaps the smartest thing that Geithner's critics could do is to just step aside and let him fail.
Never mind Geithner's critics. If it's true that megabanks must be nationalized, it may be smart politics for Obama to exhaust all other options before presenting that one to the country.

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