Do you know what I really hate? People who do a really bad job working for the government, and then retire to high paying jobs and six-figure book deals. Today, of course, I’m speaking of Timothy Geithner and his book, Stress Test. Now sure: Geithner isn’t the worst guy in the world. In fact, I think he was the perfect Treasury Secretary for Obama: basically a Bush kind of guy who is very concerned about the global economy. But he doesn’t care about it because instability actually kills people. He cares about it because millionaire bankers might not get their yearly bonuses.
In the 1950s, they said, “What’s good for GM is good for America.” Well, that wasn’t true, but it was a hell of a lot more true than what they say today, “What’s good for Goldman Sachs is good for America. Because at least what was good for GM was not generally bad for America. Despite the repugnant “Progress” commercials that Goldman Sachs is flooding the world with, in generally what is good for them is bad for America. And by “America” I mean the people.
Aside from Geithner spending what is apparently hundreds of pages showing that it wasn’t just the banks who were stress tested, he makes some economic arguments. He was very big for bailing out the banks, because, hey, each tear a millionaire sheds causes an angel to burst into flames. But when it came to things that would help the regular economy—you know, places you shop; places you work—he didn’t really care. Now Geithner claims he was not against stimulus. “I was not an austerian.” But as Paul Krugman pointed out this morning, three years ago when the heroic Christina Romer pressed the White House for more stimulus, Geithner snapped. “Stimulus, he told Romer, was ‘sugar,’ and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.” Sounds like he was very much an austerian. And, not to put too fine a point on it:
But it is more than that. Geithner argues that the administration was right to bail out the banks while just letting homeowners suffer and allow a foreclosure crisis. His reasoning is that doing that wouldn’t have really helped the economy. “The economy” is Geithner speak for the millionaire bankers who invite him to parties and hire him for high paid jobs like president of Warburg Pincus. But it looks even worse than that.
Two economists—Atif Mian and Amir Sufi—have looked at his economics, Why Tim Geithner Is Wrong on Homeowner Debt Relief. Geithner wrote, “We did not believe, though we looked at this question over and over, that a much larger program focused directly on housing could have a material impact on the broader economy… it would have increased annual personal consumption by just 0.1 to 0.2 percent” So it wasn’t worth doing. Mian and Sufi’s article is a little technical, but they find a number of problems with Geithner’s assumptions. First, there is this thing called the marginal propensity to consume (MPC). This is how much less you will spend if the value of your house goes down. There is a vast amount of research on this and the number comes out to be between 5% and 10%. Geithner assumed 2%—less than half the lower limit! What is that I smell? A rat, perhaps?
Mian and Sufi then go on to do the calculation correctly and find that the actual number would have been ten times higher. And remember: this is just the direct effect. Their article gets into some other details that I’m not that interested in. But let’s assume their base number of 1.3% increase in GDP from mortgage forgiveness. We usually multiply any direct number by 1.5 because spending spreads through the economy. So that’s a 2.0% increase in GDP. Roughly one and half million jobs are created for every 1% increase in GDP. So this program that Timothy Geithner thought wasn’t worth doing would have created three million jobs.
But even if Geithner’s 0.2% number had been right, it still would have represented a half million jobs. But the truth is that Geithner was, is, and always will be focused on debt. Because that’s what’s in the interests of the rentier class that he represented and now is officially part of as the president of Warburg Pincus. Not to put too fine a point on it:
He should be chased out of the country, not held up as our savior.