Sunday, March 22, 2009  

Who's more important to the economy than even AIG? Paul Krugman's fundamental critique of the Geithner Toxic Asset plan may or may not be correct,** but this political judgment seems highly questionable:
 

I'm afraid that this will be the administration's only shot - that if the first bank plan is an abject failure, it won't have the political capital for a second.***

If the plan fails, and the financial sector remains indisputably frozen up, won't the following happen: Geithner will be fired, a new Treasury secretary will come in with a new plan, maybe a Swedish style nationalization more to Krugman's liking. And then that plan will either work or not work. This doesn't seem like a situation where the "political capital" metaphor applies. The metaphor does apply on an issue like health care--Obama could easily fail to pass his health care plan, lose influence ("capital") and not get another chance. But Congress can't afford to not give Obama another chance to fix the economy. It would be like deciding, in the middle of World War II, that FDR's strategy wasn't working and he'd lost a lot of credibility--so we'll just have to lose the war. ...

On the issue of rescuing the economy, Obama is too big to fail. It follows that, even if Geithner's plan is flawed for the reasons Krugman offers, giving it a try is not as risky.as he fears. ...

Update: The normally reliable Tom Edsall buys the "political capital" argument , unconvincingly. If the problem is populist rage at Obama for doing Wall Street's bidding, how would that prevent a future policy shift to an anti- Wall Street bank nationalization plan?  I'm in unaccountable accord with my enemies at  Lawyers, Guns and Money on this. ...

_______

**--See Brad DeLong's defense of the plan and Krugman's counter . I'd say DeLong wins the debate, but that's a different thing than saying he's right. 

***---Krugman repeated this argument in his print column:

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.

11:35 P.M.

___________________________