Worrying About Downside Risk


By Joe Campbell
January 26th, 2010

Ezra Klein points out a fundamental aspect of his this White House approaches problems, especially in comparison to George “drain the swamps,” “deficits don’t matter” Bush:

The White House thinks a lot about downside risk. Nationalization might have had the opportunity to be better policy than muddling through, but if it went wrong, everything would blow up. Similarly, there’s a good argument for nominating someone more concerned with employment, but if a bad election and some congressional opposition force them to let go of Bernanke and then the markets freak out and the Republicans hold up the new Federal Reserve nominee which further circumscribes the Federal Reserve’s ability to act and further unsettles the markets, that could be a seriously bad scene.

You can see this in the Afghanistan decision, in the form the health care bill took, in their overall legislative approach, and in their national security policy. They make changes slowly, gradually – very aware of the potential downsides of their actions – while making the case against the status quo.

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