Posner and Barber on the Geithner Plan

Richard Posner’s understanding of the Geithner plan on “toxic assets” and why we ought to be satisfied with it as a solution is very well stated.  

A problem with that approach, however–a political rather than an economic problem, if politics can be separated from economics in a depression (I don’t think it can be)–is that the government doesn’t want to ask Congress for more money to lend to banks because “Wall Street” has been thoroughly demonized by an ignorant (or demagogic) Congress and the ignorant media. The Federal Reserve, it is true, could infuse cash into the banks, without having to go to Congress, just by buying the overvalued assets. But that approach has two problems. First, if the Fed just pays the actual value of the assets, it isn’t doing much for the banks–it is not expanding their balance sheet–but if it overpays, it will be fiercely criticized as being in the pocket of Wall Street. 

In short, since the most direct economic route is unfeasible politically, Geithner’s plan represents a way to do the same thing indirectly while not triggering public anger.  

On Benjamin Barber’s blog, he writes:

But Geithner has a problem: capitalism’s recipe makes profit the reward entrepreneurs receive for taking risks. The collapse of trust in the global fiscal system, however, means no one wants to take risks anymore. They will take the profits, yes, but not the risks.

I suspect that Barber here is sounding an excessively populist note.  Ultimately, he still endorses Obama and Geithner because:

Geithner showed a second face at the Council, as well, and this is the good news. For he said repeatedly that the greatest danger of our time was not government doing too much but government doing too little; that recovery would require persistent experimentation; that if market solutions and public-private partnerships fail, other option must and will be explored. Like the President he serves, Geithner may believe in markets but he is a pragmatist, a progressive and a Democrat, and seems willing, if market strategies fail (as they will), to abandon them in favor of whatever works.

Depending on what “market strategies” means, I am not sure that I agree with Barber that they will fail (not that it is clear what the standard is for “failing” either)  I think that in this case, Posner is correct that the pragmatic strategy is a market strategy.  I must confess that in reading Barber and from being his student for two courses, it is not clear to me precisely what markets do in his view of politics.  He argues strongly that they do not trump the public good, and since he has many opponents that believe that markets and the public good are always the same, this takes the appearance of an important stand.  However saying the role of markets “ought not be x” is not the same thing as saying what, precisely, markets are supposed to be doing.  Barber’s criticism of Geithner creates the impression one cannot be a pragmatist and a market capitalist because all capitalist strategies are inherently  ideological strategies. 

If I’m not mistaken, Barber is a dialectician.  He believes that critical tensions invariably lead to critical failure of systems and so they must be resolved.  This position, one could argue, is more ideological than pragmatic.  For a pragmatist may very well conclude that some tensions must simply be accommodated.  This seems to be the Geithner/Obama approach to our economic crisis.  And, for what it is worth, for all the talk about market ideology in Barber’s post, it is worth noting that it is Posner who demonstrates more practical flexibility in endorsing Geithner’s plan than Barber.

Some Thoughts on USA-El Salvador…

Match report here:

My own player ratings:  

DOTW: Paraguay-Uruguay

It’s a World Cup Qualifying weekend, so I’ll highlight the battle for spots in South America.  Uruguay hosts South American leaders Paraguay this weekend.  Uruguay is sitting in the same 5th place spot they finished Qualifying in last cycle, which lead to their surprise defeat to the Socceroos.  The 5th place game should be much easier this cycle, but I’m sure Uruguay would prefer the safe ticket.  Not to mention a decent Ecuador side is breathing down their neck.  Paraguay won their previous matchup to start qualifying 1-0.

Some Data on Citizen Debt…

Five Thirty-Eight has a nice post on the increase in debt per household and it’s effect on the economy.  The data is interesting to me in part because it corrects my perceptions about credit card debt.  The image below is from Nate Silver’s post.  

 

I thought it might be useful to post a Wikipedia graphs on the change in real median household income as a comparison to the change in debt.  

 

If I read this properly, median household income went up about $5,000 from 1989 to 2005.   The 5oth percentile went from a $40,000 in income per year in 1990 to somewhere under 50,000 in 2003.  Whereas debt per family doubled in the same time period.  Only the top 5% of earners income rose close to per dollar to the increase in average debt.  

My understanding of what this means is that the root cause of this crisis is simply that people were given and took, more debt for themselves than they could manage.  Whose to blame?  I think the answer might possibly be pretty close to everyone.  Financial institutions for bad lending practices, the government for poor oversight, both institutional sets for not generating more real income growth and  family’s and businesses for taking on excessive debt they could not manage.  

How do we restructure the average family’s debt/income ratio?  Well, one way is for the state to assume some of this debt either from the consumer side or the lending side, and thus lessen the load on individuals.  The government then shoulders the debt burden until in the long run, economic growth both pays down the debt and raises family incomes, thus improving the debt to income ratio of both the state and the average family.  

I’m not an economist by trade, but I think this is the general outline of the situation we are looking at.  If it is not, I am certainly amenable to having a better understanding.

Well, yeah, you used to play in St. Petersburg…

Andrei Arshavin likes us, he really, really likes us.  That’s good, because that feeling is very mutual.  Let me show you why.

Can I bring a Gavel? Can it be 3 feet long?

I am now chairing my first MPSA panel.

New Layout

What think you of the new layout?

Restructuring the NHL…

I used to be a huge New York Islanders fan, and I used to really love the NHL.  I also went to more Hershey Bears AHL games than I can count.  I haven’t watched hockey with any seriousness since I was in college.  To me, there are too many teams, too many players to keep track of, and it is too difficult, once out of the loop, to work up enough interest to follow it again.  

I, however, have moved to hockey-crazy Minnesota.  I enjoy the local hockey culture, and would not mind being a part of it.  I ran an idea past my dad on the phone tonight (a lifelong Rangers fanatic), and I have at least one devotee for my plan to make the NHL more palatable.  My plan is this: adopt a more european-style soccer format for the NHL.  None of my proposals could be adopted easily, or maybe at all, but I still think it’s a fun idea.  

Allan Bloom quote to ponder….

“Regimes depend on men’s virtues, not on institutions; if the highest virtues are not present in the rulers, an inferior regime must be instituted.”  

  Bloom is talking about what he thinks one of the critical lessons of The Republic is.  I have to say that I am somewhat warm to the statement.  It seems as if institutions need to be crafted around virtues (or lack thereof), and not as much the other way around.  I see Bloom’s comment not as a lament that we are not virtuous enough for the best regime, but that we are involved, as the rulers of our state, in coming to make wise compromises with our defects.