Paul Krugman, glomming on to the Failed Presidency of Barack Obama meme originated earlier this week by the FT’s Martin Wolf, writes in his column today:
So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.
First of all, Obama has been in office for all of three weeks. In that time he has gotten a stimulus package of a size that would have been pretty much unimaginable (except maybe to Krugman) a couple of months ago almost all the way through the legislative process, filled his cabinet and top advisory ranks at dizzying speed but made a few missteps along the way, and has yet to unveil a definitive plan for fixing a banking system embroiled in a once-in-a-century crisis. So yeah, the guy should probably just admit his utter failure and resign right now. Seriously, has the news cycle really sped up so much that a presidency is to be judged on its first three weeks, against a standard that I really don’t think any previous White House would have met?
But more to the point that Krugman makes in the paragraph cited above, is the current approach really “reminiscent of Japan in the 1990s”? Japan didn’t even begin to attempt a serious cleanup of its banking system until a decade after its real estate bubble burst. We’re about a year-and-a-half or two into our financial meltdown in the U.S. Where did Sweden–now everybody’s favorite example of how to tackle a banking crisis right (although you read about it here first)–stand two years into its early 1990s financial debacle? Pretty much where we are now, with the economy in a deep recession and a half-baked financial rescue effort that had averted total meltdown but had come nowhere near resolving the banks’ problems.
“Basically we did all the same mistakes,” said Anders Borg, Sweden’s current finance minister (whose pony tail Tim Geithner really ought to think about emulating) at Davos a couple of weeks ago. “In the end, the U.S. and U.K. will probably end up as we did.” That is, forcing a sweeping writedown of bad assets and fully nationalizing (albeit only temporarily) a few big banks in the process.
Now I’m all for avoiding mistakes, and for speeding things up on the whole stress-testing-and-nationalization front. But to imply that we’re currently moving at a pace similar to that of Japan in the 1990s is nonsense.