Sunday, October 12, 2014

Krugman In Defense of Obama. 2014.
And this big improvement in American society is almost surely here to
stay. The conservative health care nightmare – the one that led
Republicans to go all-out against Bill Clinton's health plans in 1993
and Obamacare more recently – is that once health care for everyone,
or almost everyone, has been put in place, it will be very hard to
undo, because too many voters would have a stake in the system. That's
exactly what is happening. Republicans are still going through the
motions of attacking Obamacare, but the passion is gone. They're even
offering mealymouthed assurances that people won't lose their new
benefits. By the time Obama leaves office, there will be tens of
millions of Americans who have benefited directly from health reform –
and that will make it almost impossible to reverse. Health reform has
made America a different, better place.


Let's be clear: The financial crisis should have been followed by a
drastic crackdown on Wall Street abuses, and it wasn't. No important
figures have gone to jail; bad banks and other financial institutions,
from Citigroup to Goldman, were bailed out with few strings attached;
and there has been nothing like the wholesale restructuring and
reining in of finance that took place in the 1930s. Obama bears a
considerable part of the blame for this disappointing response. It was
his Treasury secretary and his attorney general who chose to treat
finance with kid gloves.

It's easy, however, to take this disappointment too far. You often
hear Dodd- Frank, the financial-reform bill that Obama signed into law
in 2010, dismissed as toothless and meaningless. It isn't. It may not
prevent the next financial crisis, but there's a good chance that it
will at least make future crises less severe and easier to deal with.

Dodd-Frank is a complicated piece of legislation, but let me single
out three really important sections.

First, the law gives a special council the ability to designate
''systemically important financial institutions'' (SIFIs) – that is,
institutions that could create a crisis if they were to fail – and
place such institutions under extra scrutiny and regulation of things
like the amount of capital they are required to maintain to cover
possible losses. This provision has been derided as ineffectual or
worse – during the 2012 presidential campaign, Mitt Romney claimed
that by announcing that some firms were SIFIs, the government was
effectively guaranteeing that they would be bailed out, which he
called ''the biggest kiss that's been given to New York banks I've
ever seen.''

But it's easy to prove that this is nonsense: Just look at how
institutions behave when they're designated as SIFIs. Are they
pleased, because they're now guaranteed? Not a chance. Instead,
they're furious over the extra regulation, and in some cases fight
bitterly to avoid being placed on the list. Right now, for example,
MetLife is making an all-out effort to be kept off the SIFI list; this
effort demonstrates that we're talking about real regulation here, and
that financial interests don't like it.

Another key provision in Dodd-Frank is ''orderly liquidation
authority,'' which gives the government the legal right to seize
complex financial institutions in a crisis. This is a bigger deal than
you might think. We have a well-established procedure for seizing
ordinary banks that get in trouble and putting them into receivership;
in fact, it happens all the time. But what do you do when something
like Citigroup is on the edge, and its failure might have devastating
consequences? Back in 2009, Joseph Stiglitz and yours truly, among
others, wanted to temporarily nationalize one or two major financial
players, for the same reasons the FDIC takes over failing banks, to
keep the institutions running but avoid bailing out stockholders and
management. We got a chance to make that case directly to the
president. But we lost the argument, and one key reason was Treasury's
claim that it lacked the necessary legal authority. I still think it
could have found a way, but in any case that won't be an issue next

A third piece of Dodd-Frank is the Consumer Financial Protection
Bureau. That's Elizabeth Warren's brainchild, an agency dedicated to
protecting Americans against the predatory lending that has pushed so
many into financial distress, and played an important role in the
crisis. Warren's idea was that such a stand-alone agency would more
effectively protect the public than agencies that were supposed to
protect consumers, but saw their main job as propping up banks. And by
all accounts the new agency is in fact doing much more to crack down
on predatory practices than anything we used to see.

There's much more in the financial reform, including a number of
pieces we don't have enough information to evaluate yet. But there's
enough evidence even now to say that there's a reason Wall Street –
which used to give an approximately equal share of money to both
parties but now overwhelmingly supports Republicans – tried so hard to
kill financial reform, and is still trying to emasculate Dodd-Frank.
This may not be the full overhaul of finance we should have had, and
it's not as major as health reform. But it's a lot better than


Barack Obama might not have been elected president without the 2008
financial crisis; he certainly wouldn't have had the House majority
and the brief filibuster-proof Senate majority that made health reform
possible. So it's very disappointing that six years into his
presidency, the U.S. economy is still a long way from being fully

Before we ask why, however, we should note that things could have been
worse. In fact, in other times and places they have been worse. Make
no mistake about it – the devastation wrought by the financial crisis
was terrible, with real income falling 5.5 percent. But that's
actually not as bad as the ''typical'' experience after financial
crises: Even in advanced countries, the median post-crisis decline in
per- capita real GDP is seven percent. Recovery has been slow: It took
almost six years for the United States to regain pre-crisis average
income. But that was actually a bit faster than the historical

Or compare our performance with that of the European Union.
Unemployment in America rose to a horrifying 10 percent in 2009, but
it has come down sharply in the past few years. It's true that some of
the apparent improvement probably reflects discouraged workers
dropping out, but there has been substantial real progress. Meanwhile,
Europe has had barely any job recovery at all, and unemployment is
still in double digits. Compared with our counterparts across the
Atlantic, we haven't done too badly.

Did Obama's policies contribute to this less-awful performance? Yes,
without question. You'd never know it listening to the talking heads,
but there's overwhelming consensus among economists that the Obama
stimulus plan helped mitigate the worst of the slump. For example,
when a panel of economic experts was asked whether the U.S.
unemployment rate was lower at the end of 2010 than it would have been
without the stimulus, 82 percent said yes, only two percent said no.

Still, couldn't the U.S. economy have done a lot better? Of course.
The original stimulus should have been both bigger and longer. And
after Republicans won the House in 2010, U.S. policy took a sharp turn
in the wrong direction. Not only did the stimulus fade out, but
sequestration led to further steep cuts in federal spending, exactly
the wrong thing to do in a still-depressed economy.

We can argue about how much Obama could have altered this literally
depressing turn of events. He could have pushed for a larger, more
extended stimulus, perhaps with provisions for extra aid that would
have kicked in if unemployment stayed high. (This isn't 20-20
hindsight, because a number of economists, myself included, pleaded
for more aggressive measures from the beginning.) He arguably let
Republicans blackmail him over the debt ceiling in 2011, leading to
the sequester. But this is all kind of iffy.

The bottom line on Obama's economic policy should be that what he did
helped the economy, and that while enormous economic and human damage
has taken place on his watch, the United States coped with the
financial crisis better than most countries facing comparable crises
have managed. He should have done more and better, but the narrative
that portrays his policies as a simple failure is all wrong.

While America remains an incredibly unequal society, and we haven't
seen anything like the New Deal's efforts to narrow income gaps, Obama
has done more to limit inequality than he gets credit for. The rich
are paying higher taxes, thanks to the partial expiration of the Bush
tax cuts and the special taxes on high incomes that help pay for
Obamacare; the Congressional Budget Office estimates the average tax
rate of the top one percent at 33.6 percent in 2013, up from 28.1
percent in 2008. Meanwhile, the financial aid in Obamacare – expanded
Medicaid, subsidies to help lower-income households pay insurance
premiums – goes disproportionately to less-well-off Americans. When
conservatives accuse Obama of redistributing income, they're not
completely wrong – and liberals should give him credit.

Krugman on Obama. 

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