Paul Krugman begins this morning's column this way:
So here's the situation. We've been through the second-worst financial crisis in the history of the world, and we've barely begun to recover: 29 million Americans either can't find jobs or can't find full-time work. Yet all momentum for serious banking reform has been lost. The question now seems to be whether we'll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable.
Krugman says he would be satisfied with the House bill, but that the need to bring moderate Democrats and at least one Republican on board in the Senate could lead to a severely watered-down bill, in particular one without a Consumer Financial Protection Agency. Instead of accepting such a deal, he says:
In summary, then, it's time to draw a line in the sand. No reform, coupled with a campaign to name and shame the people responsible, is better than a cosmetic reform that just covers up failure to act.
Krugman recognizes that this is structurally different from what he said about health care reform. In Larissa MacFarquhar's recent profile of him in The New Yorker, discussing health care, he said, "There's a trap I've seen some people fall into -- you let your vision of what should be get completely taken over by what appears possible right now -- and that's something I'm trying to avoid." Now he's avoiding it.
I generally enjoyed that article. For one thing, I remembered that Krugman and I had a similar perspective on the 2008 Democratic primary (Obama was the most conservative of the major candidates and spouted a lot of "feel-good stuff about hope and dialogue and reconciliation"); both of us supported Edwards, although he switched to Clinton when Edwards dropped out and I switched to Obama.
For another, there's something else we have in common. Explaining why, after the fall of the Berlin Wall, he didn't set out to consult to post-Communist or developing countries, Krugman says, "I know what Jeff [Sachs] does and I couldn't do it. Taking transport planes, living on yak meat for days -- no. But I do write faster than anybody. You've got to figure out what you should be doing."
Anyway, getting back to this morning's column -- I'm with Krugman. There are certainly things that would probably make it into a compromise bill that are better than nothing. Resolution authority would be better than nothing, although far from a perfect solution. Systemic risk regulation would be better than nothing -- though perhaps not much better, depending on who is in charge of it. But frankly without the CFPA and without a real solution to banks that are too big to fail, it seems to me we will have avoided solving the biggest problems.
If we want change, someone has to be willing to stand up for it. If you want to win a negotiation, you have to be willing to walk away. If you can't do that, you will get rolled on every issue. The Democrats need to force the Republicans to make a public choice on the CFPA, instead of negotiating against themselves and taking the issue off the table. Voters will be upset if Congress does nothing about the financial system, but the Democrats should have the courage to point out why they couldn't pass anything. Taking a stand on consumer protection should not be that hard a position to take.
Cross-posted from The Baseline Scenario