September 14, 2020
Robert Samuelson, the Washington Post columnist who has provided so much material for this blog over the years, announced his retirement today. I’ll take this opportunity to agree with a couple of points he made in his final column.
Samuelson notes the work that Treasury secretaries Henry Paulson and Timothy Geithner, along with Federal Reserve Board Chair Ben Bernanke did to combat the Great Recession, and then says “but that doesn’t excuse their failure to anticipate the housing boom and to preempt the bust.” This is absolutely right.
The fact that house sale prices had risen in an unprecedented manner, with no corresponding rise in rents, and at a time when vacancy rates were hitting record levels, should have been the sort of thing that even a top economist could notice. The fact that this bubble was driving the economy was also easily seen in a quick glance at the quarterly GDP data. There was no excuse for failing to recognize the bubble and the failure to realize that its collapse would sink the economy.
Unfortunately, Samuelson also gives this trio credit for avoiding a second Great Depression. That’s just a fairy tale they tell to children to justify shoveling hundreds of billions of dollars to the richest people in the country, to save their banks from their own incompetence. There is nothing about the situation in 2008-09 that would have forced us to endure a second Great Depression. We know the secret of getting out of a depression. It’s called “spending money.”
While the initial downturn surely would have been worse if we allowed the market to work its magic on Goldman Sachs, Citigroup, and the rest, there is no economic reason we could not have boosted the economy back to something close to full employment in 2010 with a big spending package. There are of course political issues, but that is rarely how this debate is framed.
The other point I want to endorse is Samuelson’s complaint that economists (present company included) exaggerate their ability to steer policy to achieve desired outcomes. This can lead to seriously flawed policy and a disillusioned public. Of course, this exaggerated confidence is a rationale for economists’ six-figure salaries. It is the reason that they get paid so much more than custodians and dishwashers. (It ain’t the market, as I argue in Rigged [its free].)
But you won’t find a column saying that in the Washington Post. It hits too close to home.