A Report Card on President Obama’s Progress: The president’s critics complain that his only real accomplishment is the $787 billion stimulus bill--which they deride, somewhat contradictorily, as either budget-busting, ineffective or both. But is that all there is? I think not.
STOPPING THE SLIDE Let’s remember that the new president was dealt a dreadful hand on Inauguration Day--including a shattered financial system and a national economy teetering on the brink of disaster. The administration’s chief accomplishment to date surely is devising and executing--with huge assists from the Federal Reserve — a comprehensive program to pull us back from the abyss. The stimulus was just one component.... Job No. 1 — stopping the train wreck — appears to have been done rather well.
ENACTING THE STIMULUS PACKAGE The much-maligned fiscal stimulus has been criticized from both the left (as too small) and from the right (as too big, especially the spending parts). My own judgment is that both its magnitude and composition were reasonable, though not perfect. But bills that navigate the multiple hazards of the Congressional sausage grinder must be graded on the curve.... Give it a B or B+.
RESCUING THE BANKS.... When the Treasury secretary finally did release his plan, in stages, he wisely resisted the siren songs coming from both the left (“nationalize the banks”) and the right (“let ’em fail”), opting instead for the high-risk “stress tests” of 19 big financial institutions. Today, all 19 are alive and breathing. None have been nationalized.... So give the bank rescue plan an A–. The minus comes from being too soft on many banks and bankers, who failed us and then benefited from public largess.
REDUCING FORECLOSURES.... C.
TRYING FOR REGULATORY REFORM While it is still only a set of proposals, not laws, the Treasury worked at breakneck speed.... At this point, we can’t even guess what may pass. So give this policy an “incomplete,” noting, however, that the first draft shows promise....
[O]n the crucial macroeconomic and banking issues, we must conclude that “Saturday Night Live” got it quite wrong: Mr. Obama’s accomplishments in just nine months are palpable and were very much needed...
From my perspective, two big parts are missing:
No strategy to get unemployment down to no more than 8% by the end of next year.
No reform of financial industry compensation to make it incentive compatible.
This second may turn out to be a fatal mistake. Wall Street is now paying out huge cash bonuses when it should be giving its high flyers long-term stakes in the firms that they work for. This creates incentives for traders that may produce another big crisis five years down the road. And this makes it impossible for the federal government to commit more money to supporting the financial sector in the short run. That is a bad thing: there is about one chance in ten that things will turn down sharply, and that we will really want to provide more support to the financial sector. And now--because we did not reform financial compensation over the past year--we will not be able to do so if we need to.