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It Could Have Been Worse.

Austan_01.jpgAfter taking a few shots from Jack Welch, Joe Stiglitz and Meredith Whitney at a Vanity Fair/Bloomberg panel, Council of Economic Advisers member Austan Goolsbee fired back with a pretty rousing defense of administration policy.

Look, we enter[ed] the government essentially in a hotel that is on fire. We’re throwing people from the windows into the pool to save their lives and this is the evaluation of the Olympic diving committee.[...]
The fact that we are here to bitch about the economy and about this policy and that and the budget forecasts for GDP growth are 1 percent too low, I’m thrilled, I’m overjoyed that we aren’t all out of our jobs and we prevented the Great Depression. That in itself is an overwhelming accomplishment.

Noam Scheiber agrees. "It's remarkable how quickly the people now kvetching about inflation forget that we were on the verge of a massive deflationary spiral a few months ago," he writes.

And I'm with him. There's a tendency in policy arguments to choose your own counterfactual. And fairly frequently, the counterfactual is "a world in which we implemented my preferred policies, and they worked out much as I hoped." Talk to Obama folks, however, and they've got fairly different counterfactuals. A massive deflationary spiral. A total collapse of the financial sector. A second Great Depression. You can say that, in retrospect, those outcomes were not as likely as the experts thought. But at the time, those were the projected cost for failed policies. And so the Obama administration pursued policies that weren't always elegant but were crafted to have as little uncertainty -- and thus as small a chance of catastrophic failure -- as possible.

You don't want to go too far with this line of thinking, of course. Just because an outcome is better than the worst case doesn't mean it was the best case. But even Obama's critics have to admit that on the spectrum of possible outcomes, we've thus far avoided the disastrous scenarios that seemed terrifyingly likely only a few months ago. To say that "it could have been a lot worse" is not faint praise when you're dealing with an unprecedented financial crisis paired with a sharp recession that struck during a presidential transition period. "A lot worse" is, in this case, pretty damn bad.

(Photo credit:

By Ezra Klein  |  June 3, 2009; 10:30 AM ET
Categories:  Financial Crisis , Solutions  
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Is it worth listening to Jack Welsh about anything?

Posted by: MerrillFrank | June 3, 2009 11:39 AM | Report abuse

Isn't this precisely the Bush Administration's justification for torture?

Posted by: tomtildrum | June 3, 2009 11:47 AM | Report abuse

I'm having trouble believing this was such a disaster avoided -- of "Great Depression" proportions -- when they've done nothing structurally to reform the system.

I don't expect instant reforms but the New Deal dramatically changed the way we do finance in this country. All Geithner, Summers & Co. want to do is hire a few more regulators, leaving the banking monopolies completely untouched.

This 'New Deal 2.0' is a joke.

Posted by: leoklein | June 3, 2009 11:48 AM | Report abuse

They sound just like the GOP after 911. This is like the Patriot Act and Iraq all over again except this time our economic freedoms are at risk.

Posted by: fallsmeadjc | June 3, 2009 4:28 PM | Report abuse

The only meaning "inflation" has these days is rising wages. Remember Greenspan in the 90s, desperately fighting the rising hourly wage and annual salaries with nothing more than interest rates? Well, Bernanke is no better. He is in absolute terror that an American worker might get an extra 25 cents an hour and an extra hour or two of work a week. He goes to sleep every night dreading such nightmares, and often wakes up screaming about W2 forms showing such increments.

If McCain had been elected and proposed heating Bill Gates's house by burning hundred dollar bills as a gesture of good will from the American taxpayer, Bernanke would be there with the shovel, ready to OK any deficit spending, and perhaps squawking "tax cut" like a Republican senator.

While I don't believe the Bernanke is partisan, if you consider him to be a Republican party hack, you can get 100% accurate, no fail predictions of his behavior. You have to say that, just the way Copernicus couldn't say the earth actually orbited the sun.

That's all this is about.

Posted by: earther | June 3, 2009 8:37 PM | Report abuse

But --

Is there anything that the Obama administration did or announced it was intending to do that can be said to have prevented the feared deflationary spiral?

Accepting that the threat of disaster was real, what did Obama's people add to the programs and facilities that Paulson-Bernanke-Dodd-Frank had already put into effect?

Posted by: topos | June 3, 2009 9:04 PM | Report abuse

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