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So Paul Krugman's column today makes the important point that government policy is the central reason that our recession hasn't become a depression and that the economy is poised for recovery. It's especially timely as conservatives use the health-care debate as an opportunity to paint the government as some kind of evil, even as people prefer government-run health care to private insurance. But he also makes a more controversial point:
In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.In the past couple of months, there has been a tendency to forget why the bailouts happened in the first place: The government used them to avert economic catastrophe. Even though the programs certainly haven't been executed as well, or as transparently, as they should have been, they're still a net good. Decrying them as some kind of unmitigated horror just isn't very productive. Even the limited transparency has allowed federal regulators to examine the weird compensation practices at the banks, creating a prototype for real financial regulation. And for all the talk of taxpayer money and expense, we may end up being surprised by how relatively cheap the bailouts ultimately are -- keep in mind, for all the talk of spending, the Obama administration's policies will still result in a lower deficit than if Bush administration policies had been kept in place, that banks are paying back their loans, plus interest, and that ultimately the cost of the bailouts will be much lower than its sticker price, especially if management of the program continues to improve under congressional and public pressure for higher returns. Of the $1.1 trillion in bailout money being tracked by ProPublica, only $583 billion has been committed, even less has been spent, and $77 billion has been returned.Congressional Republicans who say we need to "eliminate" the bailouts are promising disaster. What we need to do with the bailouts is maximize their efficacy and efficiency, especially the programs that are designed to help regular people as well as institutions.
-- Tim Fernholz
