Krugman’s blog, 2/3/16

There was one post yesterday, “Half A Loaf, Financial Reform Edition:”

A lot of the debate over the Sanders insurgency hinges on whether you see Obama-era reforms as trivial, utterly inadequate to the problems, or as a half loaf that’s a lot better than none. (It also hinges on whether you believe that a Sanders candidacy could mobilize vast untapped wells of progressive sentiment, or whether you believe that he would be hit with a smear campaign like nothing you’ve seen before — except for what has already happened to Hillary Clinton, and is baked into her polling. You can guess what I think.)

On healthcare, people like me and most of the health wonks I know believe that Obamacare represents a huge step forward, while the Sanders wing tends to dismiss it as nothing much. I’ve been making the case that Obama energy policy is going to have a much bigger impact on climate change than many people think. But what about financial reform?

Well, it partly depends on what you consider the problem. I’ve been on record since early days saying that too-big-to-fail is not the key issue, so that the fact that big banks remain big is, um, no big deal. The real question — or so I’d argue — is leverage within the financial sector, and in particular the kind of leverage with no safety net that characterizes shadow banking.

So Matt O’Brien weighs in with evidence that leverage has in fact declined substantially, and continued to decline even as the economy expanded — probably because of Dodd-Frank. This is certainly right; the same decline shows up in other measures, as in the chart above showing financial sector debt securities as a percentage of GDP.

Should we have had a stiffer financial reform? Definitely — required capital ratios should be a lot higher than they are. But Dodd-Frank’s rules — especially, I think, the prospect of being classed as a SIFI, a strategically important institution subject to tighter constraints, have had a real effect in reducing risk.

The reality of the Obama era, for progressives, is a series of half loaves. But after all the defeats over the previous 30 years, aren’t those achievements something to celebrate?

Yes, Paul, they are.  However, there are still many of us who would rather aim higher.

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