Stimulus v. Banking System Triage

From Krugman at NYT:
"...there’s widespread public confusion between the fiscal stimulus plan — which should, on its face, be very popular — and the bank bailouts, which are deeply (and understandably) unpopular. Spending on infrastructure commands broad support; rescuing bankers from the consequences of their own folly, broad revulsion.

And the Obama administration hasn’t done much to make the distinction — and the result is much less public support for the stimulus plan than we should have.

The Bush administration was brilliant at linking really elitist stuff to small middle-class benefits — pay no attention to the huge cut in the top marginal rate, look at those child tax credits! — as a way of getting its agenda through. Right now, the Obama administration seems to be doing the opposite: dragging down its pro-worker stimulus plan by creating a linkage in peoples’ minds to the outrageous bank bailout."

TW: I agree with Krugman's basic point that there is a tendency for many folks to lump the banking system carnage and the associated attempts to address it with the "stimulus" initiative. I disagree with his belief that the stimulus enjoys universal support because a significant minority believes tax cuts are a better means to address the demand collapse than spending initiatives. There is also a much smaller minority of pollyannas who refuse to believe the demand contraction is sufficiently bad to require any strong measures.

The banking system issue is even more convoluted, nebulous and ultimately damaging and costly than the "stimulus" issue. Where there is confusion there is opportunity for political obfuscation and grandstanding in particular by lumping the issues together.

The Republicans did that with the original TARP negotiations in October. While TARP is flawed, I challenge you to find a mainstream economist who felt "nothing" should have been done at the time. We still have a functioning banking system which is an accomplishment that should not be dismissed. It is also a status quo that is subject to change.