Tuesday, May 31, 2011

A View Inside The Bubble

David Dayen catches an amazing quote from recently not-employed-by-the-White House economist Jared Bernstein: (in response to this Paul Krugman column)
Let me be clear. I totally agree that we mustn’t let “political realism” shut down our thinking on the best way out of this mess. And while that kind of writing sometimes feels academic to me, if done well (as Paul does it), it can slowly but persistently set the stage for actually doing the right thing when the political landscape shifts. Shift it will, and at that time, Paul will be among those who built the “new” paradigm from which economic policy will flow (“” around ‘new’ because most of this is known since Keynes).

I know—sounds like wishful thinking (well, for some…for others, sounds like their worst nightmare)…but I bet I’m right.

But then there’s this: There will be no WPA-type programs in our near future. There was no appetite for them in the Obama admin in the midst of the worst recession since the Great Depression and there’s a lot less now. The reasons for that are interesting and I’ll speak to them another day. But it ain’t happening.

And please don’t accuse me of “negotiating with myself” here. I stressed above the importance of making those arguments, and I frequently made them myself as a member of the President’s economics team.
1) on a WPA program, Bernstein explicitly says it was the White House, not Republicans, who had no appetite for direct, public job creation during the first term. Bernstein says he made the arguments about public works jobs inside the White House, but he was clearly outvoted. He doesn’t give the arguments made in response, tantalizingly alluding to “interesting” reasons that he will “speak to another day.” But he says very clearly that the reason we did all of this hoops-jumping and nudging in the stimulus package rather than just paying people to work at jobs that needed to be done was a philosophical decision inside the White House. In a sense we already knew this, but it’s important that a former White House insider re-emphasized it.
I can't say that this is too different than what I had guessed based on the various reports that had come out on the subject, but it's important to hear it from someone who has worked there, and made these decisions.

Bernstein's revelations about attempts at morgage modification are just as upsetting:
It’s also congenitally hard for politicians to get behind “a serious program of mortgage modification.” Those who advocate for this (the NYT editorial page, e.g.) are right, but they’re also downplaying a very binding constraint. The politics of this idea are deeply wound up in moral hazard. People forget, but it was precisely this action—giving mortgage relief to someone at risk of default and not to someone who was struggling to keep up their payments—that birthed the Tea Party.
Dayen (who has done some great work reporting on the forcolsure crisis, points out:
2) on mortgage modification, Bernstein agrees that this would be a wise course of action. But he adds that there’s a restraint on politicians, presumably also at the White House, about moral hazard, about the “wrong kind of people” getting a mod. He references the Rick Santelli rant, which happened over two years ago, as proof for this difficulty.

Now, the most interesting thing about this is that the Obama Administration, through federal regulators, are RIGHT NOW attempting to negotiate a program of mortgage modification with the country’s major banks, as part of the foreclosure fraud settlement. This raises very troubling issues about what the eligibility would look like on that deal. Clearly, the White House is preoccupied with the “right” type of person getting help; Obama has mentioned this on several occasions. Yet who is that “right” type of person when the banks have engaged in systematic fraud? They didn’t just defraud those deserving of aid, whatever “deserving” means; they defrauded everyone, with their fake documents and breaking of the chain of title and fee pyramiding and the like. There’s no way to slice the salami at this point, and divy up the “deserving” from the “undeserving” of a mortgage modification. That simply doesn’t make sense in this case.
I think it's worth pointing out that while politicians claim they support a rigorous examination of making sure only the "right" people get helped, this only matters when we're talking about people who have been screwed by the banks. When the richest of the rich came asking for help, no one gave a shit. Trillions of dollars were given, no questions asked, to the very same fuck ups whose recklessness enriched themselves and destroyed the economy.

So while I understand the point that he's making, I think he's giving the White House/Politicians who make that argument too much credit. They're not worried about the chance of helping a "wrong" person, they help them all the time. The issue is that they don't care about helping anyone who isn't rich and powerful. That, in my view, is the real problem.


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