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Friday, January 30, 2009

Pragmatistism Primed: We Can't Know What Works

The goal of the pragmatist is to dispense with abstract principles in favor of brute action in an effort to do “what works”. I submit that there is another level of pragmatism that I will dub pragmatism “primed.”

Pragmatism primed consists of being so disintegrated intellectually that in addition to dispensing with principles in favor of that “which works” you dismiss the possibility of being able to determine if the action does indeed “work”. This is apparently what is happening to the auditors at the GAO who have been tasked with determining whether or not the “bailout” programs are working.

WASHINGTONWe may never know whether the government's $700 billion bailout of the financial industry worked, according to a new report from congressional auditors.

That's because it will be impossible to sort out which of the recent rule changes and spending programs have made a difference, according to the report released Friday by the Government Accountability Office.

…."Even with more time and better data, it will remain difficult to separate the impact of TARP activities from the effect of other economic forces," the report said.

Notwithstanding the fact that it can be proved that government intervention in the economy has caused the crisis and further intervention is exacerbating the crisis, you might think that the fact that the pragmatist auditors admit they can not know whether the “action” is working might give some pause to taking further action. Of course, not – it is reason to take more actions. In fact, their recommendation is to take action about determining whether the action is working. Let’s dub this type of action "meta-action" or “action about actions.”

"We continue to believe that additional action is needed to better ensure that all participating institutions are accountable for their use of program funds," the GAO said.

The report also said Treasury had "taken important steps" to address nine recommendations from the earlier report, which included calls to improve communication about the bailout and hire staff to oversee it.

But Treasury "has yet to fully address eight" of the recommendations, the report said.

"The lack of a clearly articulated vision has complicated Treasury's ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP," the report said.

Should we wait for the meta-action to give us some data about the performance of these actions or at least wait for a "clearly articulated vision" before we take any more action?

Officials have been considering several programs, including a government-run "bad bank" that would buy up trouble assets clogging banks' balance sheets, and additional guarantees against losses like those granted to Bank of America and Citigroup. Additional capital injections also are possible.

Since these plans could cost more than the $350 billion remaining from the $700 billion bailout, Treasury may have to ask Congress for more money to help stabilize the financial system.

The administration also has said it plans to spend $50 billion to $100 billion of the remaining money to help homeowners facing foreclosure.

Administration officials said they expect an announcement on these plans sometime next week.

Well, they are going to wait a week. That is a lifetime for a pragmatist primed.

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