What Geithner Did

It seems every day that a well-regarded economist is telling us that the US economy is in dire straits. Larry Summers has warned that we are entering a period of “secular stagnation.” This is a condition in which low-interest rate monetary policy no longer stimulates growth of the economy and well-paying jobs. Interest rates near zero appear powerless to alleviate the stagnation of the middle and lower income echelons, the “99%.” Negative interest rates makes little practical sense because people and companies would simply hoard cash. Japan has suffered from this condition for decades.

The rock-star French economist, Thomas Piketty, has even more troubling research to report. His data show a spiral of income and wealth disparity. He finds increasing accumulation of wealth by the wealthiest (accelerated by extraordinarily high incomes at the highest levels of income and wealth) and persistent low growth in the sectors that provide income to the vast majority of Americans. He postulates that the spiral will continue so long as investment returns exceed growth rates and that growth (read the well-being of the 99%) remains relatively low indefinitely—a new normal different from the decades following the Second World War.

This will continue absent some significant change or until wealth accumulation reaches an inflection point at which the opportunities to invest wealth are saturated and investment returns become very low. Piketty concludes that wealth disparity could become extraordinarily high before that inflection point is reached. As the fortunes of the wealthy accumulate, they will accrue enormous political power to protect their privileges, especially given the current views of the Supreme Court in Citizens United and McCutcheon.

All of this screams for massive Federal spending on infrastructure, global warming programs, education and other purposes that promise long-term benefits and important stimulus to the real economy. Which brings us to the roll out of Tim Geithner’s new memoir, complete with a soulful and earnest portrait on the front cover of the New York Times magazine and a story by Andrew Ross Sorkin that purports to let us in on what Geithner “really thinks.”

I, for one, am uninterested in what Geithner (or Paulson or Bernake) thinks. I am very interested in what he and the others did in the dark days of the crisis, though. I am not one who discounts the assertion that we were on the brink of another Great Depression and that bold action was needed. Geithner also tells the truth when he owns up to the fact that too-big-to-fail is still part of our economy. But the myth that Geithner and the others took bold action, proportionate to the events of the crisis, is a distortion of history that is designed to rehabilitate their reputations.

Let's assume that Summers and Piketty are mostly correct in their observations. They describe a terribly unfair and massively inefficient economy that has been in the making at least since Ronald Reagan was elected on the platform that “government can not solve the problems, government is the problem.” This portends an economic and political system that is oppressive to almost all of the public and ruled by a dynastic class of the mega-wealthy, for at least as long as it takes the majority of Americans to wake up to the true motivations behind conservative policy.

Geithner and the others, including Congress that gave us financial reform that did not go nearly far enough, were in a position to understand that the real problem was a distorted economic system that incentivized the greed and recklessness that crashed the markets. The financial sector had evolved into a giant machine for transferring wealth from the majority to the elite few, run by members of the dynasty of wealth with their super bonuses. Piketty points out that the main factor that distinguishes our current condition from the time of the European landed aristocracies are the “super managers” whose wealth derives from the absurd notion that their compensation is justified by their service to the public as job creators.

But the opportunity to strike a meaningful blow for the 99% was wasted. Geithner and company elected to preserve a system that allows the parasitic financial sector to continue syphoning off the aspirations of the vast majority of Americans for the benefit of the financiers and their allies, the business potentates that believe that they deserve their privilege because of superior entrepreneurship rather than birthright. Of course, in a generation or two, that will morph into birthright.

Geithner and friends did save us from the immediate threat. But never let it be said that they were bold. It makes one wonder what governance by true visionaries, not leaders paralyzed by timidity and sycophancy for the bankers, could have accomplished. That job will get done, but it will be much more difficult and many Americans will be deprived of their political rights and potential well-being in the process.