Over the last couple of days, in reaction to the fifth anniversary of the collapse of Lehman Brothers, there has been quite a bit of reflection about where we have been, where we are now, and where we’re going. Writing at The Atlantic, Derek Thompson blames everybody:
This is a failure of Fed leadership. It’s absurd for Bernanke to focus on historically low inflation while the employment-population ratio continues to drop. But it’s the system, too. The Fed is not designed to easily and immediately put money in the hands of households. A first-order effect of QE is that banks have more dollars to lend. A second-order effect is that families and firms that want loans (for mortgages, for offices) will get better terms. A third-order effect is that people with money will be more confident in the economy when they think the Fed has its foot firmly planted on the accelerator. All of this should help typical, cash-strapped families. Richer companies can hire more people and good feelings breed good feelings. But the Federal Reserve doesn’t write checks to households. It doesn’t drop money from helicopters on Sun Belt exurbs.
The federal government can “drop money” into bank accounts. In fact, it did. It’s called a tax credit. It was a part of the 2009 stimulus — a huge, historic, essential effort to help American families, directly. But the stimulus was also way too small. Whose fault was that? The White House, for being so famously wrong about how bad unemployment would be? The Bureau of Economic Analysis, for being so famously wrong about how fast the economy was shrinking? Republicans, for rejecting every follow-up effort to stimulate the economy? Washington, for clearly and repeatedly preferencing the values of the rich over the poor?
The answer is … yes. They were all all fault. For different reasons. Washington’s fiscal policy has been a tactical, statistical, philosophical, and moral failure.
I think it might be productive to think about the winners and losers over the last half dozen years. The losers are clear: those who lost their jobs and remain unemployed, those who lost their homes. The winners are clear, too: financial companies, large companies, politicians. There are, however, other losers and among them I would place anyone who believes that government policies will be allowed to operate in continuing approximation. There was one shot at the fiscal stimulus bullseye and it was wasted. By virtually every reckoning the size and, more importantly, the structure of fiscal stimulus was inadequate.
That’s why to Mr. Thompson’s list I would add Harry Reid and Nancy Pelosi. More than anyone else they were responsible for the structure of fiscal stimulus in 2009. If it succeeded at its objective, then its most obvious objective must necessarily have been paying off political supporters since that what it succeeded in doing. It failed in providing fiscal stimulus timely enough or targeted enough to jumpstart the economy.
Of course, to blame everyone is to blame no one and, implicitly, to believe that nothing can be done. I do believe that there are things that could have been done and that still can be done. It is political calculation that prevents them from being done.