A Time to Move Quickly

U.S. Treasury Secretary Henry Paulson voiced the anxiety of the age when he announced a $700-billion U-turn on November 12, abandoning a plan to purchase mortgage-backed securities from troubled banks and committing instead to use the congressionally approved bailout money to inject capital directly into the banks by acquiring equity stakes in them. The stock market fell 411 points, or about 5 percent, that day.

“I will not issue an apology for changing the strategy when the facts change,” Paulson defended his decision. “We had to move quickly.”

His shift in tack raised more questions than answers. But Paulson had concluded that the original bailout plan would not work. Something different had to be done. And fast. He did not have the luxury to conduct a thorough analysis of competing alternatives. He had to choose what he believed, if only in theory, to be a better use of resources.

The RAND experts who, in our cover story, present their suggestions to the new U.S. president find themselves in an analogous position. They would be the first to acknowledge that their recommendations have not been subjected to rigorous cost-benefit analyses. But they see current policies as being far from optimal. In many cases, something new must be attempted without delay to make better use of the vast amounts of money being spent.

The RAND experts call for strategic shifts that they believe, if only in theory, will offer America a better deal. They cannot assert what is the single most cost-effective way forward. But a sense of urgency propels them. If they could speak in one voice, they might echo Secretary Paulson: “We have to move quickly!”

—John Godges