Skip to main content

In the last week I have seen two diaries screaming that Krugman admitted that Geithner was right, apparently seeking to score points.  Paul Krugman recently reviewed Geithner's book.  It's an excellent review and I learned a lot from it.  But he is quite critical of Geithner's policies in that review.

Paul Krugman,  Does He Pass the Test? (Review of Geithner's Book)

First, the two diaries I saw were literally correct in that Krugman admitted he was wrong about nationalization of banks and Geithner was correct.   I admire intellectual honesty and Krugman showed it here:

Finally, there was Geithner’s position, which was that despite its scale the financial crisis should be treated more or less as an ordinary lender-of-last-resort problem—that temporary nationalization would hurt confidence and was unnecessary, that once the panic subsided banks would be OK. A principal part of Geithner’s argument against nationalization was the belief that a “stress test” of banks would show them to be in fairly decent shape, and that publishing the results of such a test would, in conjunction with promises to shore up banks when necessary, end the crisis. And so it proved. He was right; I was wrong; and the triumph of the stress test gave him the title for his book.
Paul Krugman,  Does He Pass the Test? (Review of Geithner's Book)

But to focus only on that is to miss the entire point of the review, which is that Geithner misread the entire situation, treating it only as a financial crisis, when in reality something deeper was going on:  

Quite early on, two somewhat different stories emerged about the economic crisis. One story, which Geithner clearly preferred, saw it mainly as a financial panic—a supersized version of a classic bank run. And there certainly was a very frightening panic in 2008–2009. But the alternative story, which has grown more persuasive as the economy remains weak, sees the financial panic, while dangerous in its own right, as a symptom of something broader and deeper—mainly a large overhang of private debt, in particular household debt.

What’s the difference? A financial panic is above all about confidence, or rather the lack thereof, and the overriding task of policy is to restore confidence. And one way to think about policy in the crisis is to say that people like Tim Geithner and Ben Bernanke dealt forcefully and effectively with the urgent task of restoring confidence in the financial system.

But confidence in itself is not enough to deal with the broader consequences of a debt overhang. That takes policies that go well beyond saving financial institutions—policies like sustained fiscal stimulus and debt relief for families. Unfortunately, such policies were never forthcoming on a remotely adequate scale, which is why true recovery has remained so elusive. And although Geithner denies it, one contributing factor to the inadequacy of policy was surely the fact that he seemed uninterested in, and maybe even hostile to, the policies we needed after the panic subsided.


But a funny thing happened next: banks and markets recovered, but the real economy, and the job market in particular, didn’t.

Paul Krugman,  Does He Pass the Test? (Review of Geithner's Book)

Krugman's conclusion:

Or to use one of the medical metaphors Geithner likes, we can think of the economy as a patient who was rushed to the emergency room with a life-threatening condition. Thanks to the urgent efforts of the doctors present, the patient’s life was saved. But while the doctors kept him alive, they failed to cure his underlying illness, so he emerged from the procedure partly crippled, and never fully recovered.
Paul Krugman,  Does He Pass the Test? (Review of Geithner's Book)

Cherry picking one point obscures the actual article Krugman wrote.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site