Is It Too Easy to Criticize Bailouts?


Hedge fund manager Mark Dow wrote a controversial article this week.

The title said it all: "It's Time To Tell Paulson, Bernanke, And Geithner: You Were Right And We Were Wrong -- Thank You For Saving The Economy."

The Fed and Treasury have been viciously criticized for both stoking the bubble and bailing out the bad actors when the financial system fell apart. A lot -- maybe most -- of that criticism is deserved.

But there's a backseat-driving element here. It's much easier to criticize from the comfort of your living room computer than it is to sit at the head of the table during Federal Reserve policy meetings making decisions that will affect a $60 trillion global economy. And Dow's main point is, I think, spot on: The financial system was stabilized, and every major bank from Goldman Sachs to Bank of America to (just recently) AIG has repaid its bailout funds.

Last week, I asked famed Stanford economist John Taylor -- who has worked in the Treasury Department and is an influential monetary-policy economist -- if it's easier to criticize policy than it is to actually conduct it. Here's what he had to say (transcript follows.)

John Taylor: "I think there's no question that actually doing policy is difficult, and you have to put yourself in the policymaker's shoes as much as you can when you're criticizing and you're constructive in your criticism. But for example, there's always heavy pressure to bail out. That's one of the most difficult things for a policymaker to do is to see the situation and say, No, we can get through this, but with a more sensible, steady as you go policy.

My colleague here, George Schultz, tells many stories about when he was Labor secretary or Treasury secretary, having to do that and things worked out for the better. So there's no question about it. when I was in the Treasury, we had questions about bailing out of countries and we're very concerned about how high [unclear] official sector had been in this mode of bailing out Russia, bailing out Mexico, Argentina and then it caused a huge amount of problems in emerging markets, and so one of the biggest things that we tried to do then -- It would have been 2001 or 2002 -- was to change that. And it required saying "no." I know how difficult it is, but also having alternative plans in place that you could point to, so I agree with you 100%.

But I don't think that means that you shouldn't criticize. Our civil society in this country is so valuable to have, and the more of it I think the better off we have. Of course it has to be as informed as possible."

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