NY Times, January 23, 2009
Op-Ed Columnist
Stuck in the Muddle
By PAUL KRUGMAN
Like anyone who pays attention to business and financial news, I am in a
state of high economic anxiety. Like everyone of good will, I hoped that
President Obama’s Inaugural Address would offer some reassurance, that
it would suggest that the new administration has this thing covered.
But it was not to be. I ended Tuesday less confident about the direction
of economic policy than I was in the morning.
Just to be clear, there wasn’t anything glaringly wrong with the address
— although for those still hoping that Mr. Obama will lead the way to
universal health care, it was disappointing that he spoke only of health
care’s excessive cost, never once mentioning the plight of the uninsured
and underinsured.
Also, one wishes that the speechwriters had come up with something more
inspiring than a call for an “era of responsibility” — which, not to put
too fine a point on it, was the same thing former President George W.
Bush called for eight years ago.
But my real problem with the speech, on matters economic, was its
conventionality. In response to an unprecedented economic crisis — or,
more accurately, a crisis whose only real precedent is the Great
Depression — Mr. Obama did what people in Washington do when they want
to sound serious: he spoke, more or less in the abstract, of the need to
make hard choices and stand up to special interests.
That’s not enough. In fact, it’s not even right.
Thus, in his speech Mr. Obama attributed the economic crisis in part to
“our collective failure to make hard choices and prepare the nation for
a new age” — but I have no idea what he meant. This is, first and
foremost, a crisis brought on by a runaway financial industry. And if we
failed to rein in that industry, it wasn’t because Americans
“collectively” refused to make hard choices; the American public had no
idea what was going on, and the people who did know what was going on
mostly thought deregulation was a great idea.
Or consider this statement from Mr. Obama: “Our workers are no less
productive than when this crisis began. Our minds are no less inventive,
our goods and services no less needed than they were last week or last
month or last year. Our capacity remains undiminished. But our time of
standing pat, of protecting narrow interests and putting off unpleasant
decisions — that time has surely passed.”
The first part of this passage was almost surely intended as a
paraphrase of words that John Maynard Keynes wrote as the world was
plunging into the Great Depression — and it was a great relief, after
decades of knee-jerk denunciations of government, to hear a new
president giving a shout-out to Keynes. “The resources of nature and
men’s devices,” Keynes wrote, “are just as fertile and productive as
they were. The rate of our progress towards solving the material
problems of life is not less rapid. We are as capable as before of
affording for everyone a high standard of life. ... But today we have
involved ourselves in a colossal muddle, having blundered in the control
of a delicate machine, the working of which we do not understand.”
But something was lost in translation. Mr. Obama and Keynes both assert
that we’re failing to make use of our economic capacity. But Keynes’s
insight — that we’re in a “muddle” that needs to be fixed — somehow was
replaced with standard we’re-all-at-fault, let’s-get-tough-on-ourselves
boilerplate.
Remember, Herbert Hoover didn’t have a problem making unpleasant
decisions: he had the courage and toughness to slash spending and raise
taxes in the face of the Great Depression. Unfortunately, that just made
things worse.
Still, a speech is just a speech. The members of Mr. Obama’s economic
team certainly understand the extraordinary nature of the mess we’re in.
So the tone of Tuesday’s address may signify nothing about the Obama
administration’s future policy.
On the other hand, Mr. Obama is, as his predecessor put it, the decider.
And he’s going to have to make some big decisions very soon. In
particular, he’s going to have to decide how bold to be in his moves to
sustain the financial system, where the outlook has deteriorated so
drastically that a surprising number of economists, not all of them
especially liberal, now argue that resolving the crisis will require the
temporary nationalization of some major banks.
So is Mr. Obama ready for that? Or were the platitudes in his Inaugural
Address a sign that he’ll wait for the conventional wisdom to catch up
with events? If so, his administration will find itself dangerously
behind the curve.
And that’s not a place that we want the new team to be. The economic
crisis grows worse, and harder to resolve, with each passing week. If we
don’t get drastic action soon, we may find ourselves stuck in the muddle
for a very long time.
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