Policy Proposals Based on Sound Economic Theory: An Infantile Disorder

Brad DeLong has argued

1) a Sound approach to the financial crisis would be temporary nationalization troubled banks
2) Republicans would oppose this, but trying to compromise with Republicans is a fools game

Therefore

3) The Democrats should propose this and dare Bush to veto it.

Matt Yglesias is enthusiastic.

So far all good fun, but now Paul Krugman is making sympathetic noises.

Such Nordtopian dreaming has no place in serious blogs.

I stand athwart economic theory and shout stop !

If one asks what should America do, then the answer probably is "whatever Sweden did is a lot better than anything US policymakers come up with". In this particular case, the proposal is to follow the approach which has been standard operating procedure since the (last) great depression and even conservatives tend to try to change the topic if asked if they think the timing is a coincidence. The arguments made by DeLong, Yglesias and followers (sorry Paul I *had* to type that) are irrefutable.

So ?

First if one is nationalizing it is best to nationalize quickly. Months or even weeks of struggle with Republican obstruction will give greedy bankers plenty of time to bail out with their golden parachutes. The stuff which they leave behind will be worth much much less than nothing.

Second, trying to legislate with blue dogs is a game for people too foolish to try to compromise with Republicans.

Third, if you are dealing with insane people don't call their bluffs.

Fourth, never let good advice to the social planner influence your thinking on politics.

Fifth we are not in the Republic of Pericles. We aren't even in the sewer of Romulus. Caligula had better sense than the current crop of Republicans.