The Changing Story

You should definitely read Ezra Klein’s long take on the Obama administration economic team’s retroactive assessment of their performance. But I think it’s helpful to skip to the end:

That isn’t to say that this time couldn’t have been different or that next time won’t be. But it is no accident that these crises so often turn out the same, in so many countries, with so many types of governments, who have tried so many kinds of responses.

In general, the policies that are vastly better than whatever you are doing are not politically achievable, and the policies that are politically achievable are not vastly better. There were many paths that could have been taken in January 2009, and any one would have made this time a bit different. But not different enough. Not as different as we wish.

I have some policy points to make about the whole thing, but something interested I’ve noted is a change in the story that the Obama administration economic team tells about itself. Back in 2009 what you would hear from key officials was much more like what Tim Geithner told John Cassidy when Cassidy was doing a version of this same piece written in a more optimistic time:

Still, it is worth remembering that he was hired not for his critique of contemporary capitalism or for his abilities as a communicator but for his experience as a financial firefighter. From his time as a mid-ranking Treasury Department official, during the nineties, to his presidency of the New York Fed, from 2003 to 2008, he worked on resolving a series of financial crises around the world. For all the wrath that has descended upon his slight frame, he appears to have succeeded in putting out another inferno. “Why do policymakers screw up financial crises?” he said before I left his office. “They screw up financial crises because the politics are horrible, and that deters action. They are slow and late and tentative and weak because they are scared to death of the politics. But sometimes a policymaker has to say, I’ll take pain now against pain later.”

The March 2010 Cassidy piece and the October 2011 Klein piece end with the exact same factual reflection, in both cases driven by Obama administration awareness of the exact same stylized fact about the likely prognosis of a country facing an economic crisis. Call it the Reinhardt/Rogoff Fact. But the affect has completely changed. In March 2010, the story from the administration was that they spent 2009 being completely aware of the Reinhardt/Rogoff Fact and thanks to their awareness, political guts, and policy knowledge they were going to overcome it. By October 2011, the affect is totally reversed. Having succumbed to the exact political dilemma that they once swore not to succumb to, they now cite the dilemma as nigh-unfixable.