Somebody sent Bobo a pre-release copy of a book on the Fed, so now he’s gonna ‘splain it to us. In “Wise Muddling Through” he says that the Federal Reserve is not the most democratic institution, but under Ben Bernanke, Henry Paulson, Tim Geithner and others it seems to have done a good enough job. “A good enough job” apparently means didn’t completely frack up EVERYTHING that they touched. Prof. Krugman, in “Health Care Realities,” says many Americans don’t understand that getting the government involved in health care wouldn’t be radical: the government is already deeply involved, even in private insurance. Here’s Bobo:
Everybody wants to be a striding titan. Almost all alpha-leaders want to be the brilliant visionary in a time of crisis—the one who sees the situation clearly, makes the bold plans and delivers the faithful to the other side.
It almost never works out that way. The historian Henry Adams concluded that “in all great emergencies … everyone was more or less wrong.” Abraham Lincoln didn’t feel like a heroic leader: “I claim not to have controlled events, but confess plainly that events have controlled me.” In real crises, the successful leaders are usually the ones who cope best with ignorance and error.
David Wessel’s about-to-be-released book, “In Fed We Trust,” gives a revealing blow-by-blow account of the recent financial crisis and illustrates this point.
It is a tale replete with error. In theory, Ben Bernanke, Henry Paulson and Tim Geithner were as well prepared as anyone for this sort of event. Bernanke had spent his life studying the Great Depression; Paulson had led the world’s most prestigious investment bank; Geithner had been involved in financial rescues in Asia and beyond.
Moreover, all of them were expecting some kind of crisis. They knew there had been a dangerous surge of debt.
And yet as the panic unfolded in 2007 and 2008, they continually underestimated its scope and implications. In July 2007, Bernanke estimated global losses from the subprime mortgages and other loans of $50 billion to $100 billion. The losses turned out to be in the neighborhood of $4 trillion. In October of 2007, Bernanke said the banking system was healthy and doubted that the housing woes would destabilize it. He was wrong.
Their decision not to bail out Lehman Brothers was based on a complete misreading of the economic psychology. Paulson was sick of doing bailouts. He seems to have had some sort of intuitive moral sense that it was time for some bank to pay for its mistakes. Bernanke and Geithner went along, and none of them anticipated the meltdown that followed.
But this is not a story of failure. It’s a story of effective muddling through. Bernanke & Co. never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done.
Bernanke’s first achievement was social, not intellectual. Wessel describes one long meeting and one tough decision after another. Rarely have so few endured so many conference calls for the sake of so many. And yet through all the talk, the fear and the rotten choices, Bernanke seems to have cultivated a feeling of comradeship and harmony within the group. He kept the conversation going.
Something unexpected would happen. At one point A.I.G. claimed that it needed a $4 billion cash infusion. Within days it drew in $38 billion instead. Bernanke, Geithner, Paulson and others would just keep talking it through. They developed a feel for the crisis, and for the sort of traditions they would have to smash to address it.
Second, Bernanke avoided the grand gesture. Occasionally, Paulson would make a bold policy pronouncement. The idea was to lay down some sort of principle so the markets would understand the new rules and feel more secure. But then events would change and he’d have to reverse course. He’d end up producing more uncertainty, not less.
Bernanke and Geithner favored a process of constant and gradual adjustment. They were navigating in a violent sea, shifting their weight this way and that to stay upright another day. They tried to solve one problem at a time and worry about the unintended consequences later. Their method didn’t produce a set of clear principles. Their lack of a grand plan or an exit strategy worried some. But their method matched the chaos of the situation.
Finally, there was the size of the response team. It wasn’t too big. There weren’t giant agencies going at each other. The White House and the Congress were barely involved. But it wasn’t too small — just a lone genius and a few loyalists. Instead, the same little platoon of about a dozen people shows up again and again in Wessel’s account—a manageable community of decision makers with no single person dominating the proceedings.
This recession is happening at a time when many wonder if the political system is capable of addressing the nation’s problems. The presidency has become a gargantuan enterprise in which media-star leaders are surrounded by a permanent campaign apparatus. The Congress is both riven by ideology and dominated by parochial concerns.
The Federal Reserve is not the most democratic institution, but under Bernanke et al, it seems to have done a good enough job. Self-effacement did not lead to timidity. Good people were mobilized and were able to talk frankly about the many things they did not understand.
My brain is all ouchy now. Here’s Prof. Krugman:
At a recent town hall meeting, a man stood up and told Representative Bob Inglis to “keep your government hands off my Medicare.” The congressman, a Republican from South Carolina, tried to explain that Medicare is already a government program — but the voter, Mr. Inglis said, “wasn’t having any of it.”
It’s a funny story — but it illustrates the extent to which health reform must climb a wall of misinformation. It’s not just that many Americans don’t understand what President Obama is proposing; many people don’t understand the way American health care works right now. They don’t understand, in particular, that getting the government involved in health care wouldn’t be a radical step: the government is already deeply involved, even in private insurance.
And that government involvement is the only reason our system works at all.
The key thing you need to know about health care is that it depends crucially on insurance. You don’t know when or whether you’ll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay out of pocket. Triple coronary bypasses, not routine doctor’s visits, are where the real money is, so insurance is essential.
Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care. Horror stories are legion: the insurance company that refused to pay for urgently needed cancer surgery because of questions about the patient’s acne treatment; the healthy young woman denied coverage because she briefly saw a psychologist after breaking up with her boyfriend.
And in their efforts to avoid “medical losses,” the industry term for paying medical bills, insurers spend much of the money taken in through premiums not on medical treatment, but on “underwriting” — screening out people likely to make insurance claims. In the individual insurance market, where people buy insurance directly rather than getting it through their employers, so much money goes into underwriting and other expenses that only around 70 cents of each premium dollar actually goes to care.
Still, most Americans do have health insurance, and are reasonably satisfied with it. How is that possible, when insurance markets work so badly? The answer is government intervention.
Most obviously, the government directly provides insurance via Medicare and other programs. Before Medicare was established, more than 40 percent of elderly Americans lacked any kind of health insurance. Today, Medicare — which is, by the way, one of those “single payer” systems conservatives love to demonize — covers everyone 65 and older. And surveys show that Medicare recipients are much more satisfied with their coverage than Americans with private insurance.
Still, most Americans under 65 do have some form of private insurance. The vast majority, however, don’t buy it directly: they get it through their employers. There’s a big tax advantage to doing it that way, since employer contributions to health care aren’t considered taxable income. But to get that tax advantage employers have to follow a number of rules; roughly speaking, they can’t discriminate based on pre-existing medical conditions or restrict benefits to highly paid employees.
And it’s thanks to these rules that employment-based insurance more or less works, at least in the sense that horror stories are a lot less common than they are in the individual insurance market.
So here’s the bottom line: if you currently have decent health insurance, thank the government. It’s true that if you’re young and healthy, with nothing in your medical history that could possibly have raised red flags with corporate accountants, you might have been able to get insurance without government intervention. But time and chance happen to us all, and the only reason you have a reasonable prospect of still having insurance coverage when you need it is the large role the government already plays.
Which brings us to the current debate over reform.
Right-wing opponents of reform would have you believe that President Obama is a wild-eyed socialist, attacking the free market. But unregulated markets don’t work for health care — never have, never will. To the extent we have a working health care system at all right now it’s only because the government covers the elderly, while a combination of regulation and tax subsidies makes it possible for many, but not all, nonelderly Americans to get decent private coverage.
Now Mr. Obama basically proposes using additional regulation and subsidies to make decent insurance available to all of us. That’s not radical; it’s as American as, well, Medicare.
