The trouble with Paul Krugman's column in today's New York Times is that his predictions about the likely outcomes of his preferred solution to the financial crisis versus the Geithner plan are too vague and opaque to allow readers to draw an informed conclusion or to permit other commentators to offer meaningful criticism.
The Krugman plan 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.
Professor Krugman's criticism of the Geithner plan goes like this:
But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
What's missing, and what an economist is uniquely qualified to do, are specific predictions about the likely effects on the economy of the respective plans, in terms of employment, economic growth and other measures of the real economy.
If Prof. Krugman offered such specifics, he would be doing a real public service.
James Galbraith's article at firedoglake, while not offering specific predictions, offers specific suggestions (read the loan tapes) about how to proceed in evaluating the Geithner plan. This is an example of the kind of constructive criticism that economists should be offering up about the Geithner plan.
I have been a very big fan of Paul Krugman's for the last several years and used to eagerly anticipate each of his columns, repeatedly refreshing the NY Times front page on late Thursday and Sunday nights until his headline appeared. That has not been true lately.
Too often, of late, Professor Krugman hurls his opinions like thunderbolts from Mount Olympus. Today's column was little more than hollow bloviating and given Prof. Krugman's obvious talents, that is a real waste. We can get contentless screeds from plenty of non-Nobel Prize winners.