Geithner: The Good and the Ugly

The Treasury Secretary conducted an interview with my friend Larry Kudlow this week. There was some good, and a whole lot bad with that interview.

First the good.

Treasury Sec. Geithner wants the capital gains and dividend tax to increase to only 20% instead of going to 39%. Here is Tim in his own words:

"Well, let me tell you what the president's going to fight for and propose. We're going to make sure that we extend and leave in place tax cuts that will go to benefit more than 95 percent--not just of individuals in this country, but of businesses across the country. We think that's good policy, good for the country, sensible policy. We're going to make sure that we keep at 20 percent the existing rates on dividends and capital gains. We think that's good policy, too."

It's not great to have taxes on capital or dividends increase at all but you have to like the direction the administration is going on this one.

Now for the Ugly. 

Geithner said, "I think this economy is healing. We're repairing the damage caused by the crisis. We're growing, and we've been growing now for 12 months now. We've had six months of sustained growth in private sector jobs. Coming out of the last recession, it took us almost two years before we had a sustained set of month-to-month increase in private sector jobs, so that's very encouraging. I think the most likely thing is you're going to see an economy that is growing at a moderate pace, hopefully strengthening over time. And this growth now you're seeing is being led by business investment, by exports, by manufacturing."

By saying that the damage to the economy was caused by the crisis shows his complete misunderstanding of the entire situation. Geithner blames the damage to the economy on the crisis. But it wasn't the credit crisis that caused the damage it was the credit bubble leading up to the crisis. He believes that by spending more money he can alleviate the crisis and therefore assumes the economy is on the road to recovery. He completely ignores the genesis of the problem. That is why he honestly thinks the economy can continue to grow. And that is why we are doomed to repeat the past.