Boxed-in

[koganbot]

Simon Johnson (What Would Gorbachev Say? On The US, China, And Saudi Arabia): If we continue to depend on "cheap enough" oil, that's dangerous enough in geopolitical terms. But if we run our economy so we finance our oil imports by borrowing heavily from the outside world (not all from China; the Middle East and Japan are also big providers of net savings), we are asking for trouble.

(I don't pretend to understand the issues here, but Johnson is saying that Obama and Geithner are setting exactly the wrong pattern for the future, and are doing it to support a status quo that will prevent us from getting out from under our problems. This type of argument isn't surprising from Johnson, who says that if some banks are too big to fail, then those banks shouldn't have existed in the first place, and we should act to prevent them from existing in the future.)

Comments

[petronia.livejournal.com]

The question here is more like: how fast can you turn around this boat anyway?

[koganbot]

Well, Johnson is arguing that there are a lot of people whose short-term welfare depends on our not trying to turn the boat, and these people/interests will dictate crucial parts of policy unless the government specifically restricts them (e.g., breaks up anything that's "too big to fail").

[petronia.livejournal.com]

Signs are that this Administration will do rather better at resisting those interests than the last one, at least where it matters. Where I disagree with this guy is that IMO where Gorbachev screwed up was by going at the dismantling/reform too fast (to simplify the issue). The Chinese have been a lot slower and steadier at the helm, and thus more successful - "avoiding Gorbachev's mistakes" has been #1 on the Chinese leadership agenda for the past 15 years or so. Also, I'm not sure the foreign policy / trade deficit part of this really has anything to do with breaking up stuff that's "too big to fail". It's just... a really stretched comparison, by me.

[koganbot]

You may be right on both counts, that what Johnson wants would move things too quickly, and that the comparison to breaking up things that are "too big too fail" is the wrong comparison - he does want to break up the things that are too big to fail, but the comparison is mine. But the comparison would be: bank or insurance giant too big (i.e., too interconnected with economy as a whole) to fail = economy too saturated with oil dependence. And in both instances the correct argument isn't that we should let the big financial houses fail or create draconian policies against oil use, but that the direction has to be towards reducing the size of the bank/redirecting the energy policy. And I'm sure that Obama will do better than Bush (and Geithner better than Paulson). But Johnson obviously really dislikes the recent moves.

Anyway, as I said, I'm not pretending to know what I'm talking about; here's a piece in the Atlantic Monthly where he lays out his worries.

But there's a deeper and more disturbing similarity [between the current U.S. situation and that of emerging market nations in trouble in the late '90s, e.g. South Korea (1997), Malaysia (1998), Russia and Argentina (time and again)]: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

[koganbot]

And so what Johnson says in the blog post I linked up top:

Just don't tell me that the financial sector will collapse if we make any moves in the right direction, e.g., cutting back on our current budget-breaking implicit subsidies to that enormous rent-seeking sector; we're on our way to doubling our debt/GDP ratio, from around 40% to near 80%, directly because of the way this sector has behaved. Remember the excessive power of particular sectors (and all their policymaking friends) consistently hampers sensible efforts to reform any economy.