Regarding February’s stimulus package, some commentators said it was too small, some said it was too large. In truth, it was both. It was too small by itself to return us to full employment, to knock out the recession. In order to bring us back to full employment, we would need a boost to spending several times as big. And yet, at the same time, it was too large to guarantee that we avoid losing the confidence of our international creditors. If they stop buying our bonds, US long-term interest rates could rise sharply. (China — the largest holder of US Treasuiy securities — has already begun to ask questions about the value of US debt.) But Obama struck an appropriate balance between these two competing concerns.
People are angry about the big bonuses that are still being paid to those in the financial sector who got us into this problem. Entirely understandable. But don’t forget that, from the beginning, the goal was to prevent a depression in the general economy. That has been accomplished. You don’t punish someone who has been smoking in bed by allowing the resultant fire to burn down the block. The Administration and the Fed always admitted freely that helping some undeserving financiers would be an undesirable but necessary side effect of the rescue plan. And do you remember all the pundits who warned that the rescue could not work unless the banks were temporarily nationalized? Or all the cynics who dismissed claims that the Treasury would recoup a share of the budget costs as firms like Goldman Sachs repaid their loans with interest? Are readers no longer interested in what were red-hot controversies just a few months ago?