Brad DeLong says I buried my lede in this afternoon’s stimulus post. Here, he says, was my lede: If unemployment were vastly lower today, “I think it would be due to decisions related to the housing market and the Federal Reserve rather than the stimulus.” So, DeLong writes, “explain to me why putting people in charge of housing and monetary policy who took the macro situation more seriously wasn’t the administration’s top priority.”
On monetary policy, I think the administration thought Ben Bernanke took the macro situation very seriously. And so did most everyone else. Krugman supported Bernanke’s reappointment (”I’m pleased.”). DeLong supported Bernanke’s reappointment (”the consensus judgment appears to be the correct ‘outstanding but not flawless.’ ”). The monetary doves in the White House supported Bernanke’s reappointment.
Bernanke turned out to be a lot less aggressive in accelerating the recovery than he was in preventing another Great Depression. That was, as far as I can tell, a surprise to a lot of people. To be fair to Bernanke, I think he believes the various policies left in his toolbox will be of marginal help to the unemployed and come at a high cost to the Federal Reserve. I tried to outline the debate here. I side with his critics on this one, but I’m not particularly confident that I understand monetary policy better than he does. I don’t think moving more rapidly on appointments to the Federal Reserve’s Board of Governors would have changed the unemployment rate.
On housing policy, there are essentially three different questions. The first is: Could the administration have done a lot more through Congress? For reasons I explain more fully here, I doubt it. The politics on housing are, as Doug Holtz-Eakin told me, hideous. It’s a lot easier to get money to build bridges than to get money to bail out delinquent homeowners. Then there’s the question of whether it could have done more with its TARP money. I think the answer here is yes, but nothing game-changing.
The final question is whether administration officials could have done more through Fannie Mae and Freddie Mac if they had managed to install an activist to head the agency that oversees the two housing giants. And here, they clearly screwed up. Appointing a new director for Fannie Mae and Freddie Mac languished until after the 2010 election — long after Democrats had lost their 60-vote majority. And by that time, Republicans weren’t letting the Obama administration take control of that agency.
This was, in retrospect, just a huge mistake on the administration’s part. It hasn’t been very swift or attentive about nominations in general, and in this case, that left Fannie Mae and Freddie Mac under the oversight of Ed DeMarco, a career civil servant who takes a much more cautious view of the role Fannie Mae and Freddie Mac should be playing in the housing market. I don’t know how different the macroeconomic picture would look today if the administration could use Fannie and Freddie to heal the housing market, but it’s at least plausible that a really aggressive refinancing program could have helped quite a bit.
Perhaps this is another buried lede, but there seems to be a lot more interest in the things the Obama administration could have done to help the economy than in the things Congress could have done to help the economy. But the fact of the matter is, I can come up with counterfactuals in which the Obama administration made different decisions over the past three years and the economy is marginally better today. And, frankly, I’m not all that confident in most of them. But I can come up with counterfactuals that I’m very confident in in which Congress made different decisions and the economy is significantly better today.