The intra-progressive debate over the Geithner plan for financial institutions often seems like an arcane argument over obscure subjects that most of us–myself included–struggle to grasp. And so we often use shorthand involving “left” and “center” ideological postures, or alternatively, different levels of trust, from high to low, in the president and his economic team.
But now and then some of the contestants in the debate offer a ray of light into the larger and more generally accessible aspects of the crucial choices facing the administration and the country in addressing the financial crisis. That’s true of Paul Krugman’s New York Times column today.
It’s no secret that Krugman is an increasingly acerbic progressive critic of the administration’s approach to the financial system; the release of the Geithner plan filled him with “despair.” But his basic fear about Team Obama’s approach has never been so clearly articulated than today:
Much discussion of the toxic-asset plan has focused on the details and the arithmetic, and rightly so. Beyond that, however, what’s striking is the vision expressed both in the content of the financial plan and in statements by administration officials. In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.
To be fair, officials are calling for more regulation. Indeed, on Thursday Tim Geithner, the Treasury secretary, laid out plans for enhanced regulation that would have been considered radical not long ago.
But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.
As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good.
A different voice from a different ideological corner of the Democratic coalition, Will Marshall of the Progressive Policy Institute, offered a similar observation of the contending factions in a RealClearPolitics column yesterday:
Obama and Geithner are working to restore the financial sector as it existed roughly a decade ago, before the frenzied run-up in real estate prices and the bubble in securitized loans. But as the president has said, the regulatory minimalism of the Bush years must be replaced with a new regime that extends oversight to hedge funds and derivatives and ensures that we never again face the necessity of bailing out companies that are too big or too interlaced to fail.
The administration’s critics envision a more fundamental restructuring: a dramatic shrinking of the financial-services sector; an end to easy credit; a tight corset around any lending practices that might smack of seduction or predation; the permanent intrusion of government into matters of firm strategy and compensation; and, somewhat ironically, a return to the old, black-and-white days when conservative bankers took modest risks for modest profits.
Putting aside for a moment Krugman’s belief that Obama and Geithner only want to roll back a couple of years of financial malpractice, and Marshall’s contention that they are trying to restore the pre-Bush status quo ante, the fundamental fault line remains: how far should the madness be rolled back?
And this fault line both parallels and overlaps with an older intra-progressive argument that lurked just unde the surface of the last two Democratic presidential nominating contests: are Democrats trying to restore while modernizing the public policies of the Clinton administration, or was that administration itself a reflection of a rightward drift in domestic and international policy that needed to be overthrown?
This revived question is made all the more compelling by the fact that most of the Obama administration’s economic advisors were major figures in the Clinton administration, and have often been accused of favoring policies excessively favorable to Wall Street and excessively skeptical of government regulation.
Indeed, one central issue in the current debate casts light on the earlier arguments over the state of affairs in the 1990s: the question of exactly how large a role the financial sector ought to play in the national economy, and in a society where much of the middle class has financed its survival and the acquisition of its assets via novel credit instruments. Was the ideology of mass homeownership, avidly promoted by the Clinton adminstration, a mistake? And was the creation of a mass upper-middle-class, generally considered one of the epochal accomplishments of the 1990s, a mirage that disguised the brutal realities of a wealth-dominated economic system for those who didn’t share in the bounty?
In the end, the current financial policies of the Obama administration will either work to some degree or another, or won’t, and just as I’m sure Paul Krugman hopes for the best while predicting likely failure, I would hope that more optimistic progressives would adjust to bad results by rethinking the assumption that the late Bush Era represented an aberration in the generally positive upward trajectory of a modernized global economy. If progressives are, to use the familiar term, a “reality-based community,” we should learn a great deal soon not only about our future, but about our past.