The Politics of Taking Credit

One can imagine, though with difficulty, an Administration spokesman explaining the nation's recent economic history as follows:

"Because of serious errors of monetary policy, excessive deregulation of the banking industry, a belief there would never be another depression, a failure to understand the full significance of the bursting of the housing bubble, and mistakes in responding to the financial collapse of last September (such as allowing Lehman Brothers to collapse and thinking the banks' problem was one merely of liquidity, rather than of solvency) by the troika that managed U.S. economic policy in the final two years of the Bush presidency--Ben Bernanke, Timothy Geithner, and Hank Paulson--the economy took a disastrous dive.

"Still, by the end of October, the members of the troika had regained their composure and taken a series of measures that avoided a complete collapse of the banking industry and a liquidation of General Motors and Chrysler.

"When the new Administration took office in January, the troika remained in charge of economic policy but with the substitution of Lawrence Summers for Paulson. Economic policy since then has been largely continuous with the policy of the previous Administration, not surprisingly given the continuity of the economic leadership. The stress tests and other measures relating to the financial sector taken by the new Administration would undoubtedly have been undertaken by the previous one had its time in office not expired. Even a large stimulus program might well have been launched by the previous Administration, despite vociferous Republican opposition to the program when it was proposed by a Democratic President and Congress. That opposition reminds me of the dog who barks ferociously at passersby when he is behind a fence, but take away the fence and he quickly becomes quiet. When the stimulus program was proposed, the economy was in dire straits and the bank bailouts and related measures focused on the financial sector (such as pushing down the federal funds rate almost to zero) had not arrested the decline. And it's not as if the Bush Administration had been averse to spending and deficits.

"On the whole the measures taken by the two Administrations have probably contributed to the bottoming out of the economic downturn, though it is impossible to measure their impact relative to the impact of natural economic forces, such as the depletion of inventories, the modest expansion in exports, the wearing out of some durable goods, and falling prices, which have lured timid consumers out of their burrows. It is impossible to separate out the effects of the different recovery measures or determine which Administration did more to save the economy--a meaningless question since it is uncertain whether either Administration did anything important that the other would not have done." 

But this of course is not how politicians speak. President Obama in his speech of September 14 on the economic crisis acknowledged that "Congress and the previous administration took necessary action in the days and months that followed. Nevertheless, when this administration walked thorugh the door in January, the situation remained urgent." And so "this administration...moved quickly on all fronts, initializing a financial stability plan to rescue the system." (I assume "initializing" is a misprint for "initiating.") The implication is that, the previous Administration having failed to stop the rot, the new Administration had to move quickly to create a financial stability plan. In fact all the new Administration did, apart from the stimulus and an ambitious but not terribly successful mortgage-relief plan, was to continue the policies of the previous Administration.

The speech goes on to describe the recovery program, and while acknowledging that "the work of recovery continues" states that"we can be confident that the storms of the past two years are beginning to break." The implication is that they are beginning to break because of the Administration's recovery program, but actually they are beginning to break as the result of the natural recuperative strengths of the economy plus the combined efforts of successive administrations.

The speech then turns to the causes of the economic crisis, and naturally there is nothing there about failures of government policy, in which Bernanke and to a lesser extent Geithner and Summers were implicated. Such an acknowledgment would strike a discordant note, and not only because the President has announced that he is reappointing Bernanke as chairman of the Federal Reserve and because Geithner is his Secretary of the Treasury (not only held over, but promoted from his job as president of the Federal Reserve Bank of New York.) The Administration wants to enlarge the powers of the Fed, yet the Fed under Alan Greenspan was a major cause of the economic crisis because of its bubble-blowing monetary policy, and the Fed under Bernanke failed to detect or arrest the crisis until it was almost too late; acknowledgment of these errors would raise questions about the appropriateness of rewarding the Fed for its failures by giving it enhanced powers.

Presented by

Richard A. Posner

Richard Posner is an author and federal appeals court judge. He has written more than 2500 published judicial opinions and continues to teach at the University of Chicago Law School. More

Richard A. Posner worked for several years in Washington during the Kennedy and Johnson Administrations. He worked for Justice William J. Brennan, Jr, the Solicitor General of the U.S., Thurgood Marshall, and as general counsel of President Johnson's Task Force on Communications Policy. Posner entered law teaching in 1968 at Stanford and became professor of law at the University of Chicago Law School in 1969. He was appointed Judge of the U.S. Court of Appeals for the Seventh Circuit in 1981 and served as Chief Judge from 1993 to 2000. He has written more than 2500 published judicial opinions and continues to teach at the University of Chicago Law School. His academic work has covered a broad range, with particular emphasis on the application of economics to law. His most recent books are How Judges Think (2008), Law and Literature (3d ed. 2009), A Failure of Capitalism: The Crisis of '08 and the Descent into Depression (2009). He has received the Thomas C. Schelling Award for scholarly contributions that have had an impact on public policy from the John F. Kennedy School of Government at Harvard University, and the Henry J. Friendly Medal from the American Law Institute.

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