Elizabeth Warren and Moral Hazard

HuffPo is reporting that Tim Geithner has expressed opposition to Elizabeth Warren’s nomination to head the Consumer Financial Protection Bureau — a department that she helped create.
The article isn’t sourced well — it comes from an unnamed “source with knowledge of Geithner’s views” — and in response to the report Michael Barr, Assistant Treasury Secretary and one of the leads on the Financial Regulation reform, has said on the record that “I think Elizabeth is absolutely terrific…I believe and Secretary Geithner believes that she’s exceptionally well-qualified to run it.”
Whatever the reality is, however, it’s worth pointing out that Elizabeth Warren really would be a superb choice — and not because there aren’t other talented bureaucrats to pick, but because there aren’t others quite so visibly talented, quite so publicly forceful.
In issues of governance, visibility matters. It’s not just about having a fighter, but knowing that you have a one, that counts.
Representative democracy works on trust between citizens and their elected officials: we vote them in and then basically trust them to defend our interests as we return our focus to the tasks of our daily lives. We have newspapers and watchdog groups to help us overcome the knowledge gap between us and our government, but that gap is always there; even the most engaged citizen must acknowledge that on any given issue his information and time resources are limited; that there are dozens of complex factors at play; and that perceived failure — like an insufficiently small stimulus package; a health care reform bill without a public option; a financial regulation regime without clear capital cushions; a bailout that solidified the power of the Wall Street incumbents; the persistence of Guantanamo and extraordinary rendition, and so on — might be either a failure of will or of competence on the part of our leaders, or it might be, otherwise, a failure on his part to understand the complexity of the issue at hand — or a combination of both.
Like banks, governments are characterized by “moral hazard”: the people making the choices aren’t the ones living with their consequences.
Any honest liberal is forced to ask, of the Obama administration: How hard are they pushing? Are the administration’s shortcomings failures of will? or are they they best policies possible, given the constraints of the moment? The answer is somewhere in between, of course. But where? We have to analyze the facts and make our judgments and make our arguments, but it’s never possible to know exactly: how hard are they pushing?
Thus, the benefit of having a fighter in the administration is the benefit of trust; you know that there’s a fight going on at the top. In the case of Elizabeth Warren, you know her position in that fight. You can trust that a given outcome in a given case was pursued in good faith, and hard won. There might be a dozen reasons for failure, but it wasn’t — you know — a failure of will.
And in a democracy, that trust is a very good thing to have.
Photo credit: CNN

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