Economics of Contempt wishes for Geithner, but thinks we'll probably get Summers because now is a lousy time to go switching out the president of the New York Fed. I think this attributes too much sense to politicians, but he may well be right.
Whoever we get--Geithner, Summers, or a dark horse--I think it will have to be someone who's either very risk-loving, or doesn't care about his reputation. I've talked to quite a few smart economists with specialisations in various aspects of the crisis over the last few months, and the conversation usually goes a lot like this.
Megan: So, the financial crisis. What the hell?
Smart economist: Yeah, that's what I'm titling my next paper.
The lack of understanding, much less consensus, on what is happening and what to do next, would seem to indicate that there's a not insignificant chance that the crisis will get worse and the Obama administration will not be able to do anything about it, making them look (unfairly) completely incompetent, and giving generations of future economists something to smugly criticize.
So taking the job is a gamble unless you're someone who's already wrapped up in the mess. For Summers, it might be worth it to ensure that the Harvard debacle is not the coda to his public career. But I suspect anyone else would think long and hard about how much they wanted to risk for the chance of glory.
Unfairly, my ass. It's politics. Plenty of blame has been laid solely at the feet of GWB and the Republicans when it took a multitude of actors from both parties a number of years to create this crisis.
Summers being in the cabinet would be quite a shock- a truly politically incorrect choice.
I would love to see it just for the entertainment value.
I dunno. I think anyone who is competent, or imagines they are, would see our current condition as a challenge. You fix the situation and you get huge praise, you don't fix it and you finesse the matter by blaming previous administrations or the magnitude of the problems.
Anecdotally, my coworker, who would constantly call Summers a sexist for his comments, shrugged off my mentioning his name as the Treasury secretary by saying "If he can run the economy, I don't care if he is sexist".
You may be underrating the vanity of such people.
That's what always made me curious about Greenspan; given his background, he must have realized the inevitability of a central banker making huge mistakes, or at least appearing to have made them, no matter his wisdom. Ultimately, central planning by the Fed is eventually as doomed to failure as central planning by the Soviet Central Commitee. I would have thought that between, say, 1998 and 2002, Greenspan would have realized that it was time to get the hell out while he was still being put on a pedestal.
Will,
I have often had the unoriginal thought that Greenspan did it all knowing it would blow up the system.
Are the top academic economists really that vain? The only upper-level academic economists I ever knew personally were my professors at NYU, so I honestly don't know. I guess it doesn't surprise me that academic economists would be narcissistic enough to consider reputational risks when weighing whether or not to take the Treasury Secretary job, but I definitely hadn't thought about that.
To play devil's advocate: I think it's fair to say that Ben Bernanke's reputation among academic economists has been bolstered by the financial crisis (history may judge him differently, but at the moment I think he commands the respect of most economists). Some of the academic economists possibly in the running (e.g. Summers, Jeff Frankel, Maurice Obstfeld) might see the Treasury job as a way to enhance their reputation. So it might come down to whether the economist values his long-term reputation or his short-term reputation.
What about Robert Shiller for Treasury Secretary? His analysis of the various bubbles the economy has been going through (both the dot-com and and the housing) has been vindicated with a vengeance. I think he has more credibility than any other economist to fix the problems.
If they don't know what to do, I think it's entirely fair to call them incompetent. That's pretty much what the word means.
What may not be fair is saying somebody else would have been competent.
What is the problem? (Remember that from Michael Douglas's rape by Demi Moore in Disclosure?)
The problem in Wall Street is Too Many Big Banks, Too Many bankers.
It's not liquidity. It's solvency. The $12 tr in housing value has maybe halved to $6 tr, so $6 tr of fictitious housing wealth has disappeared.
But all the leveraged MBS / CDOs and even Credit Default Swaps, up to $60 tr in notional value, was based on that now-missing $6 tr in housing value.
Even at only 1%, highly efficient, that $60 tr leads to a $600 bil 'fictitious' financial industry. It's gone. NOT solvent.
The financial bailout can no more save the finance industry than the auto bailout can save the auto companies.
The Fed should be loaning companies money, and working on a low transaction cost bankruptcy plan for financial companies, especially to avoid long drawn out lawsuits. Depositors get their cash; shareholders and bond holders get nada, and CEOs get the boot. Bankruptcy, like Lehman. For AIG, Fannie Mae, Freddie Mac. Starting over is easier than cleaning up.