Liberal economist Paul Krugman slammed the Obama administration’s new plan to fix credit markets in a column Saturday, and on Monday the president’s treasury secretary and top economic adviser both responded dismissively.
“I’m afraid I didn’t understand his argument,” Lawrence Summers, chairman of the president’s National Economic Council, said of Krugman’s column, during a TV interview.
Here’s the key portion of what Krugman, a Nobel prize winner, wrote:
“Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.
“As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.
“That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.”
Treasury Secretary Tim Geithner made a pointed comment this morning during a press conference in response to Krugman’s argument.
“We are the United States of America,” Geithner said. “We are not Sweden.”
— Jon Ward, White House reporter, The Washington Times