President Obama tells the Washington Post, "the most important thing we did this year was to ensure that the financial system did not collapse." And here we had thought it was "the mild-mannered man who runs the Federal Reserve" who was responsible for that.
Seriously, you have to think carefully about the assumptions underlying the president's statement, because they are pretty remarkable. First is the idea that the "financial system" is or was so fragile and in such bad shape that it was vulnerable to "collapse," an assumption that is open to question.
Even if it's true, it doesn't exactly inspire confidence for the president to go around saying it. Second, and closely related, is the idea that if Mr. Obama hadn't done what he did, the financial system would have collapsed. That is an assertion that is impossible to prove, because of what Lawrence Summers correctly calls "the difficulty of constructing a counterfactual and knowing what would have happened without intervention."
Finally is the notion that it is within Mr. Obama's power to prevent a collapse of the financial system. It's not a power of the executive branch that is enumerated in Article II of the Constitution, but it is nevertheless a theme that Mr. Obama has picked up from President Bush's treasury secretary, Henry Paulson, whose book, to be published February 1, is subtitled "Inside the Race to Stop the Collapse of the Global Financial System."
Mr. Obama held over Bush-era economic officials such as "the mild-mannered man who runs the Federal Reserve" and Timothy Geithner, so it's not totally surprising to see him buy into this story line. But the notion that it is politicians and central bankers who are all that stands between ordinary Americans and a cataclysmic collapse of the global financial system elevates the politicians and central bankers at the expense of entrepreneurs or actual bankers, businessmen, or investors.
It also tends to absolve these same central bankers and politicians from responsibility for creating the crisis in the first place. And it creates a pretty low hurdle for declaring success. So what if the unemployment rate is 10% and the federal deficit is somewhere around "$1.6 trillion, or 11.2 percent of GDP, the highest level since World War II."
We should all be relieved -- grateful to the president, even, in this view -- that at least we don't have a collapse of the global financial system on our hands.
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