Tuesday, June 16, 2009

Polemical Economic Criticism

Let us face it, with a nonstop critic based on the core thesis of ‘uncontrollable political power’ of Wall Street Banks, Economist Simon Johnson is essentially becoming a critic like his another colleague at MIT – Noam Chomsky. Chomsky’s criticism of American Foreign Policy has been famous – famous for it’s exceptionally ‘lone worrier’ status among experts. Same seems to be Simon’s criticism of American Finance. For Simon and Roubini, everything comes back to the same root cause: inability of Washington to rein in Wall Street Banks or deficit spending. Most of the 10 points what Simon mentioned in this article, those are interlinked and essentially emerging from the same source (except may be the point of compensation).

Fact of the matter is there is no way we are going to get what Simon is asking in terms bank regulation. However Simon, Roubini and Krugman included too – all were wrong about Bank Nationalization. Not that Geithner had theoretically any superior plan of ‘stress tests’ or the criticism of this gang was invalid. It was a valid criticism as well as it was true that there were gaping holes in Geithner plans. But the reality is like business folks these policy makers have to do something, have to act and take the risk. Geithner took the risk and despite his poor ‘delivery’ managed to get the success (private funding to avoid Nationalization and hence to take tax payers off the hook). You can very well argue that this is a short term victory for Geithner and long term we are still in a problem. But that is why JJ Cramer criticizes Dr. Doom – it is always long term for him despite the fact that serially he is wrong in short term.

Look as Ezra Klein has explained on his blog, already the prospectus of any of these reforms materliazing is dim. This is due to the Congressional Legislative Calendar which is all tilted towards Health Care Reform. Next year when Finance Regulation Bills finally start moving through Congress how many of these ‘urges for reform’ are still going to be strong? Quite less. Add to that all the time made available for financial lobbyists to influence this reform package. Finally, the midterm elections by next year end will compel most of the Congress people to take money from these lobbyists. So where is the realistic chance to pass these reform bills in some stricter form? Why waste then ‘ink’ in criticizing it? President and Geithner have political jobs to do; so they will have to do this ‘salesmanship’. President and White House are good at it and in fact their Media Management skills in effect helped to create the ‘air of green shots’ which helped to raise private money for banks. So they are onto their own ‘political time table’ to organize such big media circus while releasing the regulation. Public and serious critics can afford to wait till actual bills ‘boil’ in Congress.

Truth is for next year or two, people will be quite alert in terms of financial bubbles and dangers. In absence of these reforms, general vigilance will help. It is all about the period in future after this initial alertness.

We need discourse about financial reforms keeping this context in mind. Otherwise, ‘single trick pony’ criticism hardly adds value to this discussion. Unfortunately, Simons is sounding like that, Dr. Roubini has been always so for quite long. At times, however, Krugman seems to show the openness to adapt and be flexible intellectually.

Can we be ‘polemical’ in Economics, that is the question? When Justin Fox’s book about intellectual history of Economics and theory of Stock Market is making waves, perils of ‘polemical economic doctrinism’ are well known. Fear is Simon is becoming a doctrinaire or an ideologue instead of being an intellectually curious and open economists who contributes to the discourse now and here.

1 comment:

Bayard said...

I heartily disagree. What planet are from? We still, after many Congressional hearings on the subject, don't have the whole story. But it is emerging. We do know that the CRA's were a root cause. And, as to Simon, Stiglitz, Roubine, and Krugman, well they recognize that they are on the opposite end from the financial community in a tug of war. They can't moderate, otherwise their dissent will not have the necessary effect of dragging the bad actors into the open. Unfortunately, I agree with your point regarding the likelyhood of any kind of prompt effective legislation happening in a timely basis. And, maybe that's as it should be. We need some time to see where things go, because whatever is enacted will be in place for many years, if not decades, and so should be carefully and thoughtfully crafted.