Somebody once observed that if you laid all the economists end to end, they wouldn’t reach a conclusion. We see this stereotype epitomized when it comes to government loan guarantees. Back on May 12, an economist who was quite a fan of the program wrote this about the DOE’s loan guarantees for renewable energy projects, to show that the critics who went on and on about the “scandal” of Solyndra were really going overboard:
I haven’t weighed in on the JPMorgan stuff….But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case (actually I don’t wonder — they won’t).
The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.
And JPMorgan is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of too-big-to-fail. There have been government losses on these programs, and will be in future — and misbehavior like what seems to have happened here feeds such losses. And as best I can tell, JPMorgan’s story looks a lot more like actual malfeasance.
But of course JPMorgan wasn’t doing do-gooder liberal stuff like solar, it was just engaging in financial tricks of little or no social value. That makes it all OK.
In contrast, on June 15 we can quote from this economist, who is quite wary of the abuses introduced by government loan guarantees:
George Osborne, the architect of Britain’s austerity policies, has just done an about face (without, of course, admitting it). Jonathan Portes has the goods: he points out that the assumptions under which the UK government’s new policy of subsidizing private investment — including infrastructure investment! — through loan guarantees makes sense are exactly the same assumptions under which debt-financed government spending on, say, infrastructure makes sense.
So why funnel the money to private corporations via loan guarantees rather than simply doing the obvious and restoring the huge cuts that have recently taken place in public investment?
One answer, of course, would be that doing that would be an implicit admission that the Cameron government has just wasted two years doing exactly the wrong thing. It has, of course, and apparently realizes its mistake; but presumably the government hopes that privatizing the process will confuse enough people that it can escape blame.
But let’s also note that funneling funds through the private sector offers an opportunity to lavish favors on friends. Now, to be fair, so does government contracting; but that’s a familiar enterprise, with well-established rules and safeguards in place. This will be something new, which may make it possible to slip in some big giveaways that nobody notices.
So as you can see from the title of this post, it sounds to me as if Osborne has come up with a new wrinkle in policy that I hereby dub Crony Keynesianism — doing policies whose logic calls for government spending, but take the form instead of incentives to favored private-sector interests.
From a macro point of view, even crony Keynesianism is better than continued destructive austerity. But we should be aware how basically strange it is, and how subject to abuse.
With such divergent views, it’s no wonder people don’t trust economists…