The Geithner Plan and Obamanomics: Not Your Parents’ Liberalism

What is now universally referred to as the “Geithner Plan” has caused quite a stir in the past forty-eight plus hours. E.D. had a good run down of various reactions around the blogosphere, including some prime time shirt-tearing lamentation from the eminent Paul Krugman. E.D. himself decries,

Obama is in a position right now to walk one of two roads: either he will go the corporate route, leading the governments charge to save the banks, or he will go the road less traveled and use his political capital to institute radical reforms to our financial system.  Right now, under Geithner, it looks as though we’re seeing more focus on bailing out the greedy bastards that got us into this mess and not ensuring that the system works in the future.  This is short-sighted and stupid.  I expected better from this administration.

And regular commenter Bob has, as E.D. notes, and even deadlier prognosis of the newly minted administration: the Bush third term moniker that Democrats sought to hang around McCain’s neck.

Daniel Larison is damning in an entirely different fashion, casting Obama’s decision to stick with Geithner as a function of his basic political opportunism,

Geithner’s presence in the administration represents its acceptance of “centrism” in economics and it is supposed to defend against the charge that the administration is embracing some sort of radical agenda. Above all, Obama keeps Geithner in place because he accepts continuing the collusion between government and the financial sector that Geithner and the decisions he made support.

But generally speaking, there seems to be a lot of reeling coming from the fact that this bank bailout plan follows on the heels of died-in-the-wool, big spending liberal initiatives in the stimulus package and the budget and everyone is trying to nail down just what map Obama is reading from. And on the face of it I can understand why some people might be inclined to see Obama as following in the lineage of George W. Bush, it may indeed look that way viewing these developments in a one off fashion. But there is a method to this madness and it isn’t the type that afflicts its host with malapropisms.

In the midst of all the kerfuffle, there is at least one person out there who isn’t surprised by this string of events, his name is David Leonhardt and if you ask him about it he’d probably tell you that you get what you pay for: a  schizophrenic, yet highly functional twenty-first century  liberalism that splits the difference between big spending, public investment Reichean economics and deficit hawking, free market centrist Rubinesque economics by taking the core principles of each and meshing them together in a thoroughly eccentric fashion destined to throw everyone off.

Welcome to Obamanomics.

From Leonhardt’s excellent article that sets up the broad context necessary to understand the individual movements currently in play,

Today’s Democratic consensus has moved the party to the left, and on issues like inequality and climate change, Obama appears willing to be even more aggressive than many fellow Democrats. From this standpoint, he’s a true liberal. Yet he also says he believes that there are significant parts of Reaganism worth preserving. So his policies often involve setting up a government program to address a market failure but then trying to harness the power of the market within that program.

Drilling down into more of the specifics with which people are grappling, but on a different topic,

The best example of his approach, however, may be his climate policy. By last year, Democrats in Congress essentially agreed that to reduce greenhouse-gas emissions, the government should place a nationwide cap on these emissions and then issue tradable permits giving companies the right to produce them (thus the term “cap and trade”). Most Congressional bills envisioned giving away many of the permits to power companies. Economists, by and large, considered this giveaway to be the worst part of the plan. It would require Congress to decide how many free permits each company should get and would set off a frenzy of corporate lobbying.

The alternative was to auction off the permits — to let the market set their value. “If you don’t auction 100 percent of the permits,” Goolsbee told me, “this could be one of the biggest pieces of corporate welfare ever.” With Congress making the decisions, the power companies with the best political connections might get the permits. With a full auction, the permits would end up with companies willing to make the highest bids. Presumably, these would be the most efficient companies, the ones able to produce the most energy (and profits) for a given amount of greenhouse-gas pollution.

The auctions would have another big advantage too. They would raise billions of dollars for the government, money that could then be returned to taxpayers to offset the higher energy prices created by the emissions cap.

It’s not a perfectly fitting analogy, but the basics are all there and one can begin to see that the “Geithner Plan” could just as easily be called the “Obama Plan”, a fact that only becomes more and more apparent as one reads Leonhardt’s article. Obama is engaged in precisely the kind of needle threading in which Bill Clinton perhaps wanted but was never provided the kind of political capital to engage, and he’s doing it not within the wilting flower of compromise or sheep’s clothing of centrism, but rather within the bold spirit of synthesis and twenty-first century liberlaism that in many ways both proves and disproves the “too liberal” tombstone that conservatives tried to gin up for him.

The key that I think Obama has picked up on is that the Reichean view of economics and the Rubinesque view of economics are not inherently at odds, his choice isn’t between big spending and free-marketism. Rather, Obama seems to get that the two views hold hands perfectly when you let them: a high functioning economy is the economic engine to big spending and so long as you  let business people do what they do best — with appropriate and reasonable regulations in place to ensure that the engine doesn’t drive the train off the tracks (the primary problem with Bush economics) — then you have a durable model for moving society forward and addressing some of the deeper structural problems within the country. In turn, that public spending you engage in to address structural deficiencies within society pays off in both grassroots policing, but also fundamentally feeding the economy with a talented, confident, and motivated population and workforce.

As per the Geithner plan itself, Dave has gone into the details of the plan from an economic perspective and provided a good synopsis of why nationalization isn’t the obvious direction that E.D., Krugman, and other seems to think it ought to be. For further explanations on the hesitancy around nationalization, despite the two thumbs up from the likes of Greenspan, give Ezra Klein a read (h/t: Sullivan).

For my part, doing everything possible not to have to nationalize any banks makes a lot of sense not just for the cost and bureaucracy of the matter, but also because doing so would fundamentally tie up so much of the administration’s political capital that they wouldn’t really be able to follow through on many of the vitally important structural changes they seek to address. And I’m just not convinced that nationalizing and then breaking up the larger financial instituions would put an end to the corporatism that E.D., Krugman, and others rightly worry about.

In many senses, in fact, I think that nationalization only sets up the same old dichotomy with which we’ve been working for decades: government vs. the market and all its attendent problems. And while it is true that buying and then breaking up the large banks may remove the “too big to fail” element from the market on one side, it doesn’t remove the entrenched mindset of corporatist capitalism that currently ails America’s economy. Certainly the administration can and will go about putting in place regulations that will help to stop some of that monopolizing, but  it’s tough to tell companies they can’t grow and be successful in national culture of the original do-it-yourself country (as opposed to, say, telling companies they can’t poison the environment and mistreat workers for their own gain). At the same time as providing only a minor speed bump to recorproatization, this route also reinforces the “party of government” label that represents Democrats’ primary epithet.

The best antidote to a corporatist culture is the kind of invigorated and vital civil society that, contra conservative sentiments, Reichean economics via Obama seeks to build. There are structural inequalities and inefficiencies that require public investment that only government is in position to provide. The notion that market prosperity alone with provide the investment needed has been more than amply proven wrong. Market prosperity drives more market prosperity and without the backdrop of a healthy and vibrant civil society that prosperity will wind up in a narrowing few hands  and tilt the scales towards eventual disaster. That truism is on plain display for a majority of Americans right now and so the iron to make the most of heavy public investment is the hottest its been since the Great Depression. People are primed to take back control of their country, they just need the opportunity to get back on their feet and do so.

It is this picture that Leonhardt’s lays out in his article and that picture is why the big-spending budget of which David Brooks was aghast and the market friendly solution that Krugman can’t stand cannot be seen in isolation. Obama is a big picture player, if you get hung up on one corner you’re likely to miss out on what’s really going on.

Tagged as: bank bailout, Bob Reich, Bob Rubin, civil society, corporatism, David Leonhardt, nationalization, obama, Obama budget, public investment