Obama’s Nobel Headache

Traditionally, punditry in Washington has been a cozy business. To get the inside scoop, big-time columnists sometimes befriend top policymakers and offer informal advice over lunch or drinks. Naturally, lines can blur. The most noted pundit of mid-20th-century Washington, Walter Lippmann, was known to help a president write a speech—and then to write a newspaper column praising the speech.

Paul Krugman has all the credentials of a ranking member of the East Coast liberal establishment: a column in The New York Times, a professorship at Princeton, a Nobel Prize in economics. He is the type you might expect to find holding forth at a Georgetown cocktail party or chumming around in the White House Mess of a Democratic administration. But in his published opinions, and perhaps in his very being, he is anti-establishment. Though he was a scourge of the Bush administration, he has been critical, if not hostile, to the Obama White House.

 

COVER STORY: THE ECONOMY

Obama's Nobel Headache

Evan Thomas

Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right.

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In his twice-a-week column and his blog, Conscience of a Liberal, he criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that Obama "has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing. It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street."

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?

The Obama White House is careful not to provoke the wrath of Krugman any more than necessary. Treasury officials go out of their way to praise him by name (while also decrying the bank-rescue prescriptions of him and his ilk as "deeply impractical"). But the administration does not seek to cultivate him. Obama aides have invited commentators of all persuasions to the White House for some off-the-record stroking; in February, after Krugman's fellow Times op-ed columnist David Brooks wrote a critical column accusing Obama of overreaching, Brooks, a moderate Republican, was cajoled by three different aides and by the president himself, who just happened to drop by. But, says Krugman, "the White House has done very little by way of serious outreach. I've never met Obama. He pronounced my name wrong"—when, at a press conference, the president, with a slight note of irritation in his voice, invited Krugman (pronounced with an "oo," not an "uh" sound) to offer a better plan for fixing the banking system.

It's possible that Krugman is a little wounded by this high-level disregard, and he said he felt sorry about criticizing officials whom he regards as friends, like White House Council of Economic Advisers chair Christina Romer. But he didn't seem all that sorry.

Krugman is having his 15 minutes and enjoying it, although at moments, as I followed him around last week, he seemed a little overwhelmed. He is an unusual mix, at once nervous, shy, sweet and fiercely sure of himself. He enjoys his outsider's power: "No one has as big a megaphone as I have," he says. "Aside from the world going to hell, it's great." He is in much demand on the talk-show circuit: PBS's "The NewsHour" and "Charlie Rose" on Monday last week, ABC's "This Week With George Stephanopoulos" this past Sunday. Someone has even cut a rock video on YouTube: "Hey, Paul Krugman, why aren't you in the administration?" A singer croons, "Hey, Paul Krugman, where the hell are you, man? We need you on the front lines, not just writing for The New York Times." (And the cruel chorus: "All we hear [from Geithner] is blah, blah, blah.")