Team Obama old financial ideas may be out of date

James Galbraith is definitely on the same page as I am with his somewhat worried cogitations about whether Larry Summers, Tim Geithner, Peter Orzag, Christina Romer et al aren’t trying to apply 20th-century ideas to a 21st-century economic difficulty.

Chief worry? Their belief, one that transcends “liberal” and “conservative” sides of modern economics, that our economy is ultimately self-sustaining, or to put it another way, that it has a certain natural homeostasis. As Galbraith puts it, the liberal/conservative split is over what policies best get it back to that point.

Well, what if they’re wrong?

And, what if they’re wrong that the private banking system needs to be a chief motor of the economy?

Geithner’s banking plan would prolong the state of denial. …
The oddest thing about the Geithner program is its failure to act as though the financial crisis is a true crisis—an integrated, long-term economic threat—rather than merely a couple of related but temporary problems, one in banking and the other in jobs.

I couldn’t have said it better myself.

Read Galbraith’s whole piece for four solutions he offers to what we really need. (Think bigger additional stimulus bills, real bank intervention, and a jobs program, among other things.) Galbraith also pooh-poohs inflationary worries about the degree of deficit spending this would involve.

That said, while I’m not a “deficit hawk,” some of Galbraith’s assumptions in the piece cannot go unchallenged.

Above all is the assumption that the rest of the world will bankroll such massive public debt because we’re “the indispensable country.” THAT is exactly the type of hubris, from both sides of the two-party duopoly aisle, that has us where we’re at right now.

Beyond that, you don’t even need to read Galbraith. Try Paul Kennedy, “The Rise and Fall of the Great Powers.”