One of the leading progressive voices in the Obama White House said on Monday that criticism over the administration's bailout policies from like-minded economists -- namely the New York Times' Paul Krugman and The American Prospect's Robert Kuttner -- were "not entirely convincing."
In a short speech at the America's Future Now conference in Washington D.C., Jared Bernstein argued that, in the absence of any blueprint, the best way to judge a bailout policy was to look at its success. On this front, he reasoned, Treasury Secretary Timothy Geithner deserved credit.
"I think there is a lot to be said for the argument made by the Treasury Secretary and, for that matter, the chairman of the Federal Reserve that the authority to unwind an AIG simply doesn't exist," said Bernstein, Vice President Joe Biden's chief economic policy adviser. "It is something we absolutely need going forward. But I guess the larger point is that nobody really knows what the best way is to proceed in terms of stabilizing the financial sector in a way that is most effective, most efficient and least burdensome to the taxpayers. Everyone has strong ideas about it, myself as well. What I have seen unfold and I hope that we. ... give Secretary Geithner a tone of credit for this ... what I have seen unfold, I think, has been really very promising and really quite effective."
As for the critiques, Bernstein acknowledged that there were "honest disagreements" among economists on these very issues. But, he added, some of the progressive arguments against the administration - mainly that the White House has been tougher on the auto industry than Wall Street or has catered too willingly to the needs of the big banks -- failed to acknowledge the recent good news on these fronts.
"Take Paul Krugman, who I suspect is on a similar page as Bob [Kuttner]," said Bernstein. "Here is, I have to say, where I have found myself being in meetings with the folks in the administration, pursuing our strategy and reading everything from the critics on the outside, and I have found the critical arguments not entirely convincing. ... I think a lot of people thought that the banks who scored badly under the stress test and you can bend the curve anyway you want, would have great difficulty going out to financial markets and raising capital. But in fact they have been able to do that in ways that I think have been somewhat surprising and heartening. So I think basically since there are so many different ways of going at this and nobody really knows the right way I think you have to look at the outcomes. And I think the outcomes have actually been pretty favorable ... in terms of efficiency and in terms of protecting the taxpayers."
It is hardly unusual for an administration figure to defend its own policies. But Bernstein's strong response to Krugman shows the extent of the divide between the White House and the Nobel Prize-winning economist -- and just how confident the administration is with the early returns on its bailout and economic recovery packages.