Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

24 February 2009

Should Geithner Go?

[For comment on the President’s speech February 24, click here.]

Is Treasury Secretary Tim Geithner the Donald Rumsfeld of our economic recovery? That’s the $ 64 trillion question on which our economic future depends.

After four years of Rumsfeld at the helm, our enterprise in Iraq was collapsing in flames. Things began to turn around when Robert Gates came on board, bringing with him Generals Petraeus and Odierno, Ambassador Crocker, and a change in strategy.

As this recent history proves, in a crisis good people are more important than good ideas. Crises require flexibility, adaptability and speed above all. People who think they have the right ideas because they have never questioned their basic assumptions offer fatal leadership in times of crisis.

Personnel changes are doubly important when the person in charge has an idée fixe. For Rumsfeld, it was the notion that a modern version of German blitzkrieg would let us win a war, occupy a huge country, and change its culture with a small expeditionary force. So enamored was he of this idea that he never considered our failure in Vietnam or the millennial power struggles of Shia and Sunni.

Geithner’s idée fixe is more subtle than Rumsfeld’s. It’s less a particular substantive approach than a philosophy. He believes that the same people who made our economic crisis must fix it because they are indispensable. He also appears to have the same allergy to government intervention in our economy that brought us our first Gilded Age and Great Depression and now seems ready to bring on our second. He has drunk the Cool-Aid of free-market infallibility that, for forty years, has hollowed out our industry and destroyed our economy.

And so we have today’s extraordinary spectacle. The same folks who destroyed our banking system are going to get more money and continued authority to run things, with few or no strings attached. For Citigroup, for example, the taxpayers will give up the protection of their preferred shares (with guaranteed return) without even seeking effective control. And the same folks who ran our auto industry into a ditch seem poised to get new money to squander on the same strategy and tactics that failed for the last half-century.

I don’t know how all this looks from the inside the Beltway or on Wall Street. But I know how it looks from the outside. It looks as if the inmates are running the asylum again.

If you want to know why confidence is collapsing everywhere, you need look no further than that. We, the people—including all the experts who were and are the President’s core constituency—voted for change at the top. We hoped that change would bring a thorough house cleaning, with new, fresh faces everywhere. Now we see the same old, tired faces, mouthing the same old denial and “spin,” running our economy (especially the finance sector!) in much the same old way.

The supreme irony is that we’re talking here about business. Up until a decade or so ago, business and the military were the two remaining institutions in our society where competence and performance mattered. They were meritocracies, or at least they seemed to be.

The marketplace, we were told, imposed “discipline” on business. If you didn’t perform, you were bankrupt or out. “You’re fired!” was supposed to be the response to failure and incompetence. At least that’s what egomaniac Donald Trump used to say with delight before he got his comeuppance.

But off the TV, it hasn’t worked that way for a long time. You can stay on forever if you have the right connections, through failure after failure. You can stay on, apparently, even after you’ve bankrupted your firm and helped destroy the economy. All you need is membership in the right social class and the right subculture in Washington, D.C., New York City or now even Detroit.

If you think this is meritocracy, I’ve got some subprime derivatives I’d like to sell you.

The universal desire for change in personnel is not just a matter of retribution for undeserved salaries and perks. As I have written, the amount spent on unfair perks for executives is utterly negligible compared to the huge sums we have already spent trying to heal our economy, let alone what we still must spend to get it right.

Nor is retribution the principal motivation for cleaning house. No doubt the general public wants a little revenge against the fat cats who cost them their jobs, houses and peace of mind. But the experts just want to see people in charge whose competence and expertise they can trust. Keeping the same folks in place whose abysmal performance created this mess doesn’t seem to satisfy that simple criterion.

And so we have the odd phenomenon of people from the same social class and city, who know each other socially, declining to lend to each other. Even the greedy, incompetent fools who created this mess are that smart.

There are two possible rational explanations for failing to redress this abysmal state of affairs. Seasoned reporters suggest that neither Treasury nor the rest of the federal government is fully staffed as yet. Apparently the President and the Cabinet have been so busy fighting alligators that they haven’t yet had the chance to hire subordinates and fill the ranks.

That’s an opportunity, not a problem. Treasury could, as I’ve suggested, scour the country for bankers of rare competence who actually foresaw and avoided the subprime debacle and ran profitable businesses. Then it could bring them to Washington to help. What an invaluable meritocracy that sort of staffing might make!

The other rational explanation for failing to clean house is that reluctance to do so may be coming from the top, i.e., the President. With his superb political sensitivity, President Obama may believe that the nation is not yet ready to give up its entrancement with economic fairy tales and laissez faire government and impose discipline and competence on our sinking economy.

Denial and reality allergies die hard. A few historians and FDR-haters still think FDR deliberately allowed the attack at Pearl Harbor to happen, believing it would not be so disastrous and knowing that only an event so dramatic could galvanize our isolationist nation for necessary war.

Maybe President Obama believes that we need an economic Pearl Harbor before our collective fixed ideology capitulates at last. Only then, perhaps, can the meritocracy just recently restored to Washington begin to impose some semblance of meritocracy on Wall Street, the executive offices of our financial and automobile sectors, and eventually Main Street.

I’ve learned by experience not to question the President’s political genius or judgment. If this is what indeed he thinks, he may be right.

But that’s a matter of politics, in which the President’s judgment has proven right again and again. As a matter of economic substance, I fear that we are so close to irreversible changes in our national performance and global economic position that an economic Pearl Harbor might be more than we can take.

And as a teacher who believes in merit, excellence and performance above all else, I can only cringe at the thought of another Donald Rumseld in charge of our economy at this critical time. How can we re-establish confidence in our financial system by continuing to rely on the same old boys’ network that destroyed it? How can anyone else trust the folks who are running our financial institutions now, when they—with good reason—don’t even trust each other?

The President’s Speech

When the President gave his “State of the Union speech that wasn’t” last night, there was no question who was in charge. Power and strength emanated from the podium like unseen electromagnetic energy.

The source was wasn’t just the office he holds. Nor was it the majesty of the assembled dignitaries. The power came from his vision and moral clarity and the simplicity of his message. Quoting little Ty’Sheoma Bethea, a young student from a collapsing school in South Carolina, he reminded us that “We are not quitters!”

There was none of Dubya’s happy talk or Billy’s wonky ten-point programs. The message was sober, serious, and simple. We are in a deep hole that we have dug for ourselves over many years, but we are going to dig ourselves out. And, for once in forty years, we are going to do it together, with all of us participating and all of us pulling our weight.

The formula also was simple. Clean energy plus health care plus education equals recovery, he told us. We are going to put ourselves back to work doing things we have neglected for decades. In the process, we are going to renew the promise of America and the American dream.

The vision was so simple and powerful—and so right—that a child could understand it.

For me, the cameras’ brief glimpses of Ty’Sheoma summed up the evening. Small, dark, self-evidently out of her element, she looked overwhelmed and awed by everything around her. Even when the dignitaries clapped for her, she couldn’t manage a smile until Michelle beamed and hugged her.

But she is our future. She studies in a leaky, dilapidated school, with trains rushing by and shaking the rafters. She deserves the same education as any student in Beverly Hills. Though awed and cowed in the Capitol, she had had the guts to write the President and say so.

“Generational theft” is not borrowing to rebuild our city on the hill. It is depriving little Ty’Sheoma and millions like her of the opportunity that we had and that they deserve. As the President so simply explained, we can pick ourselves up by our bootstraps and put ourselves back to work by restoring Ty’Sheoma’s future and, with it, America’s promise.

President Obama’s speech last night marked a stunning reversal from Dubya’s last appearance before Congress. Then our unpopular president seemed like a wayward child pleading his case before a group of disapproving adults. The embarrassment was so overwhelming that I couldn’t finish watching the speech.

Last night, we saw the opposite. An adult reminded squabbling children of all they had left undone.

Members of Congress seemed to absorb his message only dimly. Some jeered and taunted each other across the aisle, applauding and cheering thunderously for their pet ideas, until the President reminded them that all love their country deeply. So do we in the larger audience at home.

After the speech, members of the House flocked for the President’s autograph like groupies at a rock concert. For those of us watching on TV, it was another embarrassing moment, emblematic of the vacuum of sober, sensible leadership we have endured for so long. At times like that, both during and after the speech, the President and our First Lady seemed the only adults in the room.


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