The Crisis Is Over, And We Wasted It

Rahm Emanuel reportedly has a doctrine: Never let a serious crisis go to waste.  His point is a good one – vested interests usually block change across a wide range of important issues in the US, and a major financial/economic crisis provides an opportunity to bypass or breakthrough those interests in order to introduce meaningful and substantial change.  Emanuel listed (from the 1:40 minute mark) five priority areas for change: health care (cost control and expansion of coverage), energy (independence and alternatives), taxes (fairness and simplicity), education (fundamental changes to effectively train the workforce), and financial regulation (transparency and accountability).

The financial crisis is abating – although the economic costs continue to mount and new problems may still appear (ask California or Ukraine).  At least among the people I talk with on Capitol Hill, there is a very real sense that business is returning to usual; certainly, the lobbyists are out in force, they want what they always want, and it’s hard to see many of them as seriously weakened.  How much progress have we made on any of Emanuel’s priority areas or, for that matter, along any other public policy dimension that was previously stuck?

The charitable answer would be: this is still a work in progress and you cannot expect miracles overnight.  True, but Rahm’s Doctrine (as Larry Summers apparently calls it) says that you should implement irreversible change while you still have the chance.  Tell me if I missed something, but has there been any breakthrough of any kind?  Was it wrapped up in the fiscal stimulus?  Is the credit card bill a bigger blow to vested interests than we have so far recognized?  Has there been some secret progress on healthcare (although than a vague and apparently deniable pledge drive)?  Were the bank stress tests more subtle than meets the eye?

We discussed this issue on Bill Mayer’s Overtime segment from about the 2:20 minute mark on Friday.  Jon Meacham just interviewed President Obama and came away with no clear sense of where the President is really pushing to make fundamental change – although Jon and Bill nicely summarize where he is compromising (from about the 4 minute mark of Overtime).

On financial sector issues, the lobbies look stronger than ever.  “You can’t recover without us” appears to be a winning slogan for big banks and their appointees.   Tough financial regulation may still appear later this year, but it looks like an uphill struggle – and there is no sense that the administration even wants to break vested interests in this sphere.

Perhaps Rahm’s Doctrine was overly optimistic as a broad aspiration, but at least on the financial front some tangible opportunities went to waste.

About Simon Johnson 101 Articles

Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management. He is also a senior fellow at the Peterson Institute for International Economics in Washington, D.C., a co-founder of, a widely cited website on the global economy, and is a member of the Congressional Budget Office's Panel of Economic Advisers.

Mr. Johnson appears regularly on NPR's Planet Money podcast in the Economist House Calls feature, is a weekly contributor to's Economix, and has a video blog feature on The New Republic's website. He is co-director of the NBER project on Africa and President of the Association for Comparative Economic Studies (term of office 2008-2009).

From March 2007 through the end of August 2008, Professor Johnson was the International Monetary Fund's Economic Counsellor (chief economist) and Director of its Research Department. At the IMF, Professor Johnson led the global economic outlook team, helped formulate innovative responses to worldwide financial turmoil, and was among the earliest to propose new forms of engagement for sovereign wealth funds. He was also the first IMF chief economist to have a blog.

His PhD is in economics from MIT, while his MA is from the University of Manchester and his BA is from the University of Oxford.

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