Neel Kashkari, previously of Goldman Sachs, subsequently of TARP creation fame, and currently of PIMCO payroll generosity and Macroeconomic Advisors "expert network" insight, has penned a charmingly faux-heartfelt, and supremely hypocritical Washington Post op-ed in which he asks rhetorically whether "Washington can tackle the big economic issues?" Ironically these are precisely the same "issues" that have arisen as a result of none other than his very own decision to make moral hazard a global policy courtesy of his own TARP creation. It was also none other than the Washington Post's own profile of Kashkari that explained the deep thought that went into the creation of the biggest Bernanke Put in history: "Seven hundred billion was a number out of the air,” Kashkari recalls….”It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.” So the next time Kashkari's own boss at Pimco waxes philosophically on how it is that "the Fed is now the most brazen of all ponzi schemes" perhaps he can first get the advice of his own puppet whose own morally hazardous actions "held up the world." And, by the way Neel, had the US government done the right thing, and not "held up the world" letting those who deserve to fail, actually fail, then there would be no need for Washington to tackle big economic issues - ironically the market would have long been able to fix said problems on its own. But thanks to your actions we will indeed watch in terror as the government continues its exercises in supreme central planning.
Full Kashkari platitude:
- We are facing a multi-year adjustment period, a "new normal" that many economists agree includes sustained high unemployment.
- The proposal from the president's fiscal commission and the tax-cut
compromise are promising starting points. But they are not nearly
- Success in Washington should be defined as enacting major structural
reforms to improve our economic competitiveness - and our leaders must
answer to the American people if they fail.
This article was originally published on washingtonpost.com on December 10, 2010.
agreement on the Bush tax cuts and unemployment benefits illustrates
that Washington can tackle incremental issues. Lawmakers will
undoubtedly agree to raise the debt ceiling and pass another federal
budget to keep the government running.
But will this new divided government be able to make the major
structural changes necessary for our economy to grow and prevent the
fiscal crisis on the horizon?
Many Americans outside Washington prefer divided government. In
theory, it forces our political parties to work together on initiatives
that have the broadest possible popular support. It demands shared
accountability: With one party in control, it is too easy for
politicians to shower their constituents with largess and for the party
out of power to simply object to everything. Divided government often
leads to better governing.
Consider the landmark legislation that has been produced through
divided government in the past 30 years: Working with a Democratic
House, President Ronald Reagan enacted Social Security, tax and
immigration reforms. President Bill Clinton achieved welfare reform with
Republicans controlling both chambers of Congress. President George W.
Bush got his No Child Left Behind legislation through a Democratic
This track record suggests our political leaders can work together to pursue bold legislation – but will they do it now?
The legislative examples I cited as products of divided government
had another shared attribute: They occurred during times of economic
growth and relative stability. For the past 30 years, our economy
enjoyed strong growth in gross domestic product and asset-price
appreciation, both of which were fueled, unfortunately, by increasing
It is of course easier for politicians to make hard choices when the
economy is growing and Americans feel economically secure. Americans are
beginning to pay down their debt, a necessary course – but deleveraging
is a headwind that results in slower GDP growth, slower asset-price
appreciation and higher sustained unemployment. The result is more
insecurity for American families and a more challenging political
While there are no magic bullets to pierce this debt overhang,
pro-growth economic policies could help make the adjustment less
painful. So which policies should our leaders embrace?
Washington must start by acknowledging that our society is overly
geared toward consumption rather than savings and investment. This was a
fundamental component of the 30-year leveraging cycle we just
concluded. Consider that consumer-device pioneer Apple has a larger
market capitalization than technology infrastructure giants Microsoft,
IBM or Cisco. Our political leaders lecture Asian economies that they
should consume more and save less to facilitate a global economic
rebalancing – but they should also be working at home toward reorienting
our society to savings and investment.
When government taxes an activity, society gets less of that
activity. Hence we tax cigarette and alcohol purchases. Those make
sense. We also tax income and savings. Don't we want people to work and
save more? Temporary measures such as the one-year payroll tax reduction
in the tax cut compromise do not change long-term behavior.
Imagine if President Obama announced a plan to permanently replace
income taxes with a consumption tax. Such a plan could be
revenue-neutral. It could be combined with elements from the fiscal
responsibility commission's thoughtful proposal to reform entitlements
as part of a grand bargain to make our economy more competitive,
accelerate the necessary adjustment toward savings and investment, put
us on a path to fiscal solvency and – importantly – help create jobs.
Pundits would wail that this is naive. The president's political
advisers would warn that this is risky. All would be correct. But we are
facing a multi-year adjustment period, a "new normal" that many
economists agree includes sustained high unemployment. The country needs
bold economic leadership. It is time to stop allowing political pundits
to chip away at courageous ideas with risk-averse incrementalism. Our
country, economy and political system need a shot of adrenaline to spur
Given its record debt and spending commitments, the United States
can't afford to waste the next two years. We must hold our political
leaders accountable and demand that they work together. The proposal
from the president's fiscal commission and the tax-cut compromise are
promising starting points. But they are not nearly enough. Success
should be defined as enacting major structural reforms to improve our
economic competitiveness – and our leaders must answer to the American
people if they fail.