As Seeking Alpha shows, it’s possible to argue endlessly about the details of economic policy and how far and what form government action should take. Yet, some basic points can probably agreed.
I suggest the following list which we can then test the Obama administration against.
First: Get financial markets working. Never mind debate about who deserves to get saved and who doesn’t, or what fair market price for various derivatives might be, or concerns over nationalization or shareholder interests. What markets need is reduced uncertainty so that they can get to work again.
This can be achieved by nationalizing or terminating various big banks and by stating set prices or relativities for various classes of troublesome securities. Then let the chips fall as they may. This would be unfair to some and the one-off shock would be large. But the fog of uncertainty would largely be removed and the survivors could get on with business.
Second: Provide some assistance to manufacturers of durables - who are the most vulnerable in the downturn. This can be done simply by adjusting the tax code in various ways, including for losses, to improve their net position. This also avoids picking winners.
One can argue to do a lot more than the above. The point is that if you want government intervention, then these would be the soundest and most urgent actions to deal to the crisis. Aside from these two positive actions, there are four actions to avoid:
First: Don’t reward lobbyists and insiders by handing out money in an opaque fashion or with rules that look likely to benefit the big boys and those who have positioned themselves well.
Second: Don’t add to uncertainty in the market by delaying or postponing packages. Don’t make packages so complex that it’s hard for those not in the room to work out just who will benefit or when.
Third: Don’t impose compliance costs and encourage perverse behavior by complex regulations that provide lots of opportunities for clever work-arounds.
Fourth: Don’t crowd out private sector activity by proposing new government lending or spending programs in areas normally covered by business.
These six points don’t even touch upon the government debt issue, or monetary policy. They can be summarized as:
Do the urgent stuff quickly, strongly and simply. Do no harm beyond that necessary for triage in the financial sector.
Now look at Obama’s speech to Congress and the actions of his administration to date. I make their score a straight zero out of six. Forget the rhetoric, this is not change to believe in
