Stiglitz says that banks may be postponing writing down loans because they are waiting to see what sort of bailout they might get from the government

Arnold Kling has this:

"Mark Thoma gives us Joseph Stiglitz and Martin Feldstein being interviewed by Charlie Rose. I listened to it last night, and I found it so chilling that it adversely affected my sleep. Two issues stand out.

1. Both of them are keen on re-working mortgages. Neither of them mentions non-owner-occupied housing or any of the other issues that make re-working mortgages extremely difficult. At one point, Stiglitz says that banks may be postponing writing down loans because they are waiting to see what sort of bailout they might get from the government( THIS HAS BEEN MY POINT ). But he doesn't draw the obvious conclusion that government interference is the problem, not the solution.( NO. THE INDECISION HAS BEEN THE PROBLEM. A CLEAR ANSWER WOULD SETTLE THE QUESTION ONE WAY OR THE OTHER. )

2. Both of them are keen on trying a big stimulus. Stiglitz says that everything done so far has been a failure, but again he doesn't draw the obvious conclusion. Instead, he says we have to try something bigger and different.( MY OPINION IS THAT IT SHOULD SOUND AND BE SOLD AS BIG, BUT NOT ACTUALLY BE THAT BIG. IN OTHER WORDS, DO IT IN STAGES. FOR EXAMPLE, OVER TWO YEARS, AND TAKE A LOOK AT HOW IT'S PROGRESSING BEFORE COMMITTING THE SECOND HALF. REMEMBER, WE ARE STILL IN A CALLING RUN FOLLOWED BY A PROACTIVITY RUN. ONLY GOVERNMENTS HAVE THE RESOURCES TO STOP THESE EVENTS. THE PEOPLE MUST BELIEVE THAT GOVERNMENT WILL COVER THE LOSSES IF IT HAS TO. OUR JOB THEN IS TO SEE THAT IT DOESN'T. ECONOMISTS DON'T SEEM TO KNOW A LOT ABOUT HUMAN BEINGS. )

I was reminded of the Battle of the Somme, one of the worst policy blunders of all time. Having experienced nothing but failure using offensive tactics up to that point, the Allies decided that what they needed to try was....a really big offensive( OF COURSE, PEOPLE ARE SAYING THAT IF A LITTLE DEREGULATION HAS LED TO THIS CRISIS, THEN ONLY AN IDIOT WOULD ADVOCATE MORE DEREGULATION. THIS IS ONE OF THOSE DOUBLE-EDGED SWORD TYPE OF ARGUMENTS. PEOPLE NEVER TIRE OF USING THEM, EVEN THOUGH THEY USUALLY CUT BACK. ). Just as Feldstein and Stiglitz pay no attention to the on-the-ground the housing market, the British generals ignored the impact of machine guns on men advancing over open fields.

My guess is that in 1916, anyone who doubted his own ability to direct an enormous offensive involving hundreds of thousands of soldiers would never have made it to general. Similarly, today, anyone who doubts the ability of a handful of technocrats to sensibly allocate $800 billion would never make it into government or the mainstream media. ( MAYBE. BUT THERE ARE GOOD ARGUMENTS ON BOTH SIDES. )

How many people will have meaningful input in determining the overall allocation of the billion stimulus? 10? 20? It won't be more than 1000. These people--let's say that in the end 500 technocrats will play a meaningful role in writing the bill--will have unimaginable power( THEY ALREADY DO.). Remember that what they are doing is taking our money and deciding for us how to spend it( NO. IN OUR GOVERNMENT, THEY ARE OUR ELECTED REPRESENTATIVES. IF YOU DON'T LIKE WHAT THEY'RE DOING, THEN RUN AGAINST THEM. ). Presumably, that is because they are wiser at spending our money than we are at spending it ourselves( NO. WE HAVE GOVERNMENT FOR MANY REASONS, INCLUDING IRENIC ONES, AS VON MISES ARGUED. FRANKLY, IT'S NOT ABOUT WISER, BUT WHO'S IS IT TO SQUANDER. THE WISER ARGUMENT IS DUBIOUS.) .

The arithmetic is mind-boggling. If 500 people have meaningful input, and the stimulus is almost $800 billion, then on average each person is responsible for taking more than $1.5 billion of our money and trying to spend it more wisely( FORGET WISER. YOU'RE NOT THAT SMART EITHER. IT'S ABOUT WHOSE MONEY IT IS TO USE. ) than we would spend it ourselves. I can imagine a wise technocrat taking $100,000 or perhaps even $1 million from American households and spending it more wisely than they would. But $1.5 billion? I do not believe that any human being knows so much that he or she can quickly and wisely( THAT'S NOT THE ARGUMENT. GOVERNMENT ISN'T BASED ON WISDOM. THE MONEY THE GOVERNMENT SPENDS IS FOR GOODS AND SERVICES WE WANT THEM TO PROVIDE. PERIOD. ) allocate $1.5 billion.

Once again, I am very happy that we are not fighting World War I. The Paulson/Obama offensives may be squandering resources, sowing confusion in households and businesses, and creating large financial imbalances. But they are not sending young men charging into machine guns."( THAT'S WHY IT'S ALSO BETTER THAN 1968. I'M ANGRY ABOUT HOW MANY OF OUR SOLDIERS HAVE BEEN LOST IN THESE TWO WARS, BUT VIETNAM WAS MUCH MORE COSTLY TO US IN TERMS OF LIVES. )

Kling must not believe that we're in a Calling and Proactivity Run, which is worse than any other current scenario, including large deficits, precisely because it is not possible to tell where they will stop, and how much wealth will be destroyed, and how many unemployed there will be at the end of them. I choose the relative certainty of inflation and a large budget deficit, as opposed to waiting for a Calling Run and a Proactivity Run to end. That's a road that can lead to serious social dislocations and disruptions. However, only Martin Wolf seems to agree with me.