Princeton's Alan Blinder confronts some knotty problems in After the Music Stopped: The Financial Crisis, the Response and the Work Ahead. On one hand, he's trying to explain exactly what happened in the crisis of 2008 and who was responsible. Much of that involves arcane matters of regulation, central banking and economics. Second, he has to communicate that to readers who really have no idea how mortgage markets, securitizations or central banking works, and that is captive of an array of found notions -- austerity, bailouts, conspiracies. Third, he has to try to do all that five years after the crisis itself, when memories have grown hazy and most folks just want to move on. He has in short written a book about economic policy for folks who neither know nor like economics or policy.
This is a commendable and worthwhile effort, one that his colleague Paul Krugman has been pursuing as well. Overall, he does a fine job explaining things, which is what you would expect. He adopts a tone like the most sociable guy at a cocktail party (meaning, he's not Krugman, who's the argumentative one in the corner), trying to explain, but doing so in an easygoing way that won't scare anyone off. He includes the occasional joke, and resorts to two age-old techniques of popular novels: the italic and the cliché. There are long stretches where he italicizes two, three or four words a paragraph, sometimes technical terms ("opacity"), sometimes single words he wants to stress ("higher expected inflation"), or parentheticals he's whispering to us ("It's ten o'clock. Do you know how much your house would rent for?"), sometimes just because he feels like it ("Did I say breakdown?"). And the clichés! Sure, Blinder is an economist not a poet, but he writes well enough not to indulge quite so eagerly in so many rank clichés. Wiley E. Coyote appears, and house of cards, and, of course, When the Music Starts, which as the title is probably acceptable. There are links in the chain and the KISS principle ("Keep it simple stupid," his italics) and "You Gotta Have Hope" and "Trying and Trying Again," not to say "No Exit," "Watching a Sausage Being Made" and "What's a Nice Economy Like You Doing in a Place like This?" (The latter are mostly chapter headings.) "Timing is everything" and "It's the Economy, Stupid" also show up. It's enough to make you take the gas pipe. Really.
This is not just an exercise in snarkiness. Rather, it speaks to what appears to be Blinder's real ambition, which dovetails with that of his publisher: Find the biggest readership possible, then convince them of your case -- a case that has to be simplified, streamlined and tarted up to make it palatable but one that is still rational. What's a few clichés and italics if you can accomplish that? What is that case? Well, that's a little hard to summarize, first because he deals not only with causes of the crisis, the crisis itself and the longer-range policies of the Bush and Obama administration and the Bernanke Federal Reserve to heal a frayed and sagging economy. He sums all that up in three questions covering causation, mitigation and salvation. He then offers seven villains -- the usual suspects -- and ends the whole thing with Ten Commandments for Regulators and a Seven-Step Rehab Program for Policymakers. It's a sort of sensible-shoes liberalism
He effectively covers most of the high points, though anyone who has been along for the ride can offer up topics he missed, skipped over or ignored. He doesn't really touch on global imbalances, for instance, which might lead him to be a little more critical of the Greenspan Fed's low-interest rate policy in the early 2000s. Generally, he goes pretty easy on the Fed, including both Greenspan and Bernanke, so much so that he gets annoyed, not to say mystified, when critics complain about the central bank gaining more power in Dodd-Frank. (Blinder, a Democrat, was a vice chairman of the Fed from 1994-1996. Actually, his discussion of unconventional Fed monetary policies and discord within the Fed Open Market Committee strike me as the best parts -- and the freshest -- if pretty challenging to someone who barely knows what a central bank does.) True, Bernanke did perform heroically, particularly after the decision not to save Lehman Brothers, which Blinder pins on Treasury Secretary Henry Paulsen, who he views as a Wall Street bounder out of his depths in policy-land. But what Blinder chooses not to emphasize is just how complicit the Fed was not only in ignoring signs of mortgage abuse, but in its longer-run deregulatory policy, particularly in banking, which helped spawn regulatory capture. Blinder, in fact, denies that the repeal of Glass-Steagall was a watershed event, "a major cause;" instead it was "an urban myth." He confesses that this is a "counterintuitive" view. Actually, it's not "counterintuitive" but contrarian; more importantly, he's right. The repeal of Glass-Steagall was important only as one example of a larger deregulatory mentality, which had its roots, at least in terms of regulation, at the Fed. Glass-Steagall was, at best, an accessory, not a perpetrator. He is also right that the failure to regulate derivatives, which sprang from that same mentality, was long supported by Greenspan and was one of the true disasters.
Given such a sweeping agenda, parts of this book are bound to seem a little like a warmed-over retelling, particularly if you've read any of the earlier books. Blinder attempts to inject some life into sagas like the fall of Lehman, or TARP or AIG, mostly by offering color commentary. He's contemptuous of absentee Bush, snide about Paulson, sympathetic about Geithner and curiously neutral on Greenspan. His commentary on the stimulus follows in the wake of books like Noam Scheiber's The Escape Artists. He's rough on Larry Summers ("Everyone knew Summers was brilliant; if you ever forgot, he was eager to remind you.") And his attitude toward Obama is equivocal. He's better than Bush, got dealt a bad hand, and was trying to be post-partisan and ambitious. He was, Blinder declares (sounding almost Krugman-like) full of naiveté and lacked focus. He and the administration failed to explain adequately what they were doing and as a result allowed the Tea Party and Republicans define issues like bailouts, deficits and austerity. In short, Obama failed politically.
Some of this may be true; it's certainly become the conventional wisdom. But it's a lot to expect the second coming of FDR. The administration was new, the internal stresses serious and, as bad as the crisis was, it wasn't the Great Depression. Even the economics were more debatable than Blinder lets on -- and the politics far, far worse. This really gets us to the heart of both book and crisis.
In effect, Blinder is trying to do what he argues Obama did not: lay out and explain rational reasons for why this was done or why that wasn't. But he runs into the same difficulties that confronted Obama. The very people Obama (or Blinder) needed to convince, probably weren't (or aren't) listening, or were (or are) listening to other voices, like Rush Limbaugh or Fox. Obama's confederates, his audience, much like those most likely to agree with most of Blinder's arguments, are already convinced -- they may even know most of this at a greater level of detail than Blinder is offering. Again, we're not talking here about a decision to go to war. We're talking about a financial crisis of surpassing complexity, one that both economists, central bankers and regulators mostly missed, and that posed a variety of counterintuitive demands, not to say extraordinary anxieties, on ordinary citizens. Blinder's colleague Krugman has confronted the resulting epistemic closure. He's railed again and again over the lunacy of austerity -- he did it again Friday -- but he has had, for all his efforts, nil effect on rank-and-file Republicans, many independents, and some Democrats.
And that's the tension that runs through "After the Music Stopped." It's a fine effort to reach out to the mass of people who never attended Princeton. But is anyone out there listening? And can they be reached?
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