E.J. Dionne: If both sides are upset, is Obama right?

WASHINGTON - The great mystery of the Obama administration's economic agenda is whether its signature marriage of boldness and caution will prove to be a Goldilocks recipe that gets things just right, or a Rube Goldberg approach of unimaginable complexity and uncertain purpose.

Without question, President Obama's tax and budget proposals are daring, and his unwavering commitment to passing health care reform this year is both honorable and gutsy.

But his plan to bail out the banks reveals a deference to the existing financial system, deep worry about further unsettling an already troubled market, and a devout hope that the economic situation is not as bad as some economists, notably Nobel Prize winners Paul Krugman and Joseph Stiglitz, fear.

As for the auto industry, Obama has stepped in aggressively to take effective control of General Motors by forcing out CEO Rick Wagoner. He told Chrysler it must merge with Fiat or die.

But all these moves are in a context of caution about the ultimate purpose of the government's actions. Obama placed strict limits on how long the federal government's funds will be available to prop up the companies, and made clear that his only goal was to rebuild them to compete in the marketplace.

Some administration officials feared that this dual-track approach might win it support from absolutely no one, since it gave the domestic industry less help than its supporters hoped for but involved far more intervention than most free-market advocates could stomach. The better-than-expected initial reviews suggested that in the short term, the administration's tightrope act had worked.

Describing what Obama is up to leads quickly to sentences freighted with contradictions. He wants to regulate the market more tightly in order to save it. He thinks big government is required now if we are to return to a less-restricted economic system later. You might say that he is using collectivist means to capitalist ends.

The most important is over whether some of the major banks are solvent or insolvent. Treasury Secretary Tim Geithner believes that the toxic assets in their portfolios are temporarily undervalued in a bad economy. This means they will be worth more when the economy improves, which in turn means that the banks aren't really broke. Krugman, the New York Times columnist who has emerged as Geithner's most prominent critic, thinks the banks are insolvent. He believes that the economy will improve more slowly than Geithner does and sees many of the toxic assets as "trash."

Therefore, Krugman thinks a temporary government takeover of some of the banks is inevitable and will ultimately get the economy moving more quickly. Geithner thinks a takeover will be more difficult than its supporters allow and might slow economic recovery. He prefers the more cautious approach of having government and private investors buy up the toxic assets before considering more radical steps.

The other two disagreements follow from the first. Critics of the administration plan (notably Stiglitz) believe it involves government subsidies for private investors that are much too large and will leave taxpayers far too exposed. And there is a difference in sensibility: Geithner simply has more trust in the working of the financial system than does Krugman, who recently criticized the administration for being "in the grip of the market mystique" and for overrating "the prowess of the wizards" who perform the market's "magic."

Stiglitz is right to worry about the subsidies in the administration plan and Krugman has good reason to fear that the administration is too close to Wall Street's view of reality. But the core question of whether the banks are insolvent is maddeningly difficult to resolve. If Geithner is correct, he will move us to recovery with less disruption. If he's wrong, he will waste a lot of taxpayer money before eventually reaching the Krugman solution. My heart is with the Nobel critics, but my head hopes that Geithner is making the right bet.

That's the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.