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Timothy Geithner Is a Moral Hazard

Susan Li/Medill DC

Samuel Gregg - published on 05/28/14

Things could have been much worse. Maybe.

Just as today’s economists and historians continue to trade blows about the Great Depression’s causes, we can be confident that future commentators will be providing diametrically-opposed explanations of the Great Recession that began unfolding in 2007. Hence it’s not surprising that some of those who were closest to the policy epicenter of the maelstrom are anxious to get their version of events on the record. Former Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Hank Paulson came out with books soon after leaving government service.

Now it’s Timothy F. Geithner’s turn.

Having served as the head of the Federal Reserve Bank of New York and then Treasury Secretary during the Obama Administration’s first term, Geithner’s Stress Test: Reflections on Financial Crises focuses its readers’ attention upon how he and others reacted to the waves of successive crises that made their way through the American economy in 2008 and 2009.

Stress Test is written in the regrettably chatty, forced-informality manner of too many memoirs by politicians and public officials in our age of excessive casualness, selfies, and perpetual adolescence. For all that, however, Geithner does make a sincere effort to explain himself and his actions — even if his account won’t convince everyone.

Judging from this text (but also from other books written on the financial crisis by other players), Geithner comes across as an intelligent, decent man who found himself dealing with incredibly difficult problems in an environment full of Zeus-sized egos inside the self-referential bubble of Washington, D.C. “I wasn’t,” he writes, “a banker, an economist, a politician, or even a Democrat” (1). Indeed Geithner stresses over and over again his independence. The Left, according to Geithner, saw him as “Wall Street’s wingmen” while Wall Street thought he and others were “Che Guevaras in suits” (20).

Nevertheless it’s clear from the tone and substance of many of Geithner’s remarks that he has far less time for those who question what might be called the center-left outlook that has dominated America’s mandarin class from the New Deal onwards (and even before). Though Geithner confesses that policy-makers should be much more humble when it comes to what they can know about what ails an economy of trillions of dollars (18), Geithner finds difficult not to dismiss anyone who questions the scale of government’s expansion into the economy since 2008 as ignorant, unreasonable, or worse.

Given that he self-identifies as socially liberal, economically moderate (by which he means, as far as one can tell, a mild Keynesian), and “pragmatic above all” (241), that suggests Geithner has a less-than-positive view of about half of America. But that, I suspect, is hardly uncommon among America’s Washington-based technocracy.

I use the word “technocracy” because I think this is what best characterizes Geithner’s view of finance and the economy. It implies a top-down approach to the economy in which politicians and public servants imagine that, through a series of interventions, they can direct the economy towards the goals they have chosen beforehand. It’s characteristic of the neo-Keynesian mindset that continues to dominate the economics profession and most government officials.

Among Geithner’s regrets is that America did not engage in even more stimulus after 2010. Nor does he seem especially worried by high levels of government debt, despite the considerable evidence which suggests that, once above a certain level, it tends to act as a brake on the growth that Geithner says has not been fast enough since 2008. Nor does he seem interested in understanding why steady majorities of Americans remain so opposed to the Affordable Care Act, or generally skeptical about tax increases and resistant to more government-spending.

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