History is Happening Now

The NYT has posted the leaked text of the government’s proposed bailout plan.  This plan, in effect, gives near dictatorial economic powers to the Secretary of Treasury, giving him upwards of $700 billion of taxpayer money — our “hard earned” money, which fair weather libertarians (aka Reagan conservatives) would regard, if it were being used to help poor people, as having been “stolen” by big government — to dispense more or less as he pleases.

Secretary Paulson “is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States” and to enter “into contracts, including contracts for services… without regard to any other provision of law regarding public contracts.”

Secretary Paulson’s decisions “pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”  In other words, Congress is again pooping on the rule of law. The Secretary will have these powers for “two years from the date of enactment of this Act.”  Apparently, in order to save us from our financial crisis, no one can question or review the decisions of our new economic Great Leader.

Beyond the rule of law issues, Paul Krugman has this to say about the proposed bailout plan:

The Treasury plan… looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

And there’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.

Based on the little we know, and on Krugman’s assessment, I think we have some good reasons to believe that this bailout plan, especially as compared to similar past plans (say, the S&L bailout or Sweden’s financial crisis), may be bad for the economy and for the American taxpayer.  At the very least, there should be a detailed public debate about what course we want to take, what sort of bailout plan we want, and what taxpayers can expect to get for their bucks, not to mention public oversight.

As this financial crisis expands, I more and more have a sinking feeling in my stomach about where this is headed.  Will this financial debacle begin to affect the regular economy?  Will interest rates on credit cards go through the roof, effectively cutting off the credit lines upon which Americans depend for their high standards of living?  Will borrowing, to buy a car or to purchase capital, simply become impossible, for individuals and small businesses?  Is this economic crisis simply a liquidity crisis, basically a crisis in confidence in the markets, or are there more fundamental problems yet to be revealed?  I am beginning to wonder whether I should have majored in something more useful in college, like farming or cobbling.

I have been traveling for several weeks and have thus not had much time to compose proper responses to the amazing developments in the election and our economy.

In little more than a week, Obama has overcome the post-Palin “bump” to secure a five point lead over McCain.  All indicators suggest that he is going to win this election–do we owe Kos an apology for doubting his all-knowingness?–though these indicators may prove illusory.  I find it remarkable how much my mood has been pegged to the polling numbers.  The prospect of a McCain-Palin administration is so horribly unpalatable to me that any indication of the ticket’s strength hits me in the gut.  Why he has lost his post-convention and post-Palin bump is something of a mystery to me.  Are voters so fickle-minded that they abandoned Obama in droves only to change their minds less than a week later?  What’s so hard about choosing between the candidates?  Their positions on a host of issues are crystal clear, it seems to me, even if our media has no interest at all in covering these differences, except in the most superficial way.

One explanation for the shift is that the meltdown of our financial system has punched through the bullshit of personality-based politics.  The economy has been traditionally strong turf for Democrats, with some justification.  Fortunately for Obama, McCain has backed himself into all sorts of rhetorical corner w/r/t the economy.  Gaffe after gaffe–the economy is “fundamentally strong,” etc.–re: which the Obama campaign has rightly hit him hard.  The fact is, the Republican hatred of regulation and government is, as far as I can tell, partly what has caused the present financial crisis, though I am open to evidence making the opposite case, or laying some of the blame w/ the Clinton administration.  Whatever the causes of the crisis we should note with some interest that when the chips are down our present Republican administration has proven itself to be more interventionist and statist than a Democratic administration would ever be allowed to be.

A Democratic administration that nationalized (or as Paul Krugman put it de-privatized) Fannie Mae would be regarded as well nigh crypto-communist.  A trillion dollar purchase of bad debt from the private financial sector using our tax dollars would be held up as evidence of liberalism’s love of “big government” and the nasty “nanny state.”  Always remember, ye true-hearted libertarians, no Republican with any proximity to real power (ignoring the blogging blowhards and talk radio types) actually believes in non-intervention by government, either in principle or in practice.  No one except maybe Ron Paul, who has the virtue of consistency, though the consequences of Paulite economic policies would be a terrible disaster for the American people; a President Ron Paul would be non-interventionist for about thirty seconds before those who hold real power in this country forced him to spend our tax dollars in exactly the same way that President George W. Bush is spending them.  Talk of the menace of “big government,” from Reagan on, is only a sort of rhetorical bludgeon Republicans use to crush Democrats in elections and to destroy much-hated social welfare programs.  We live in a country that demands market discipline of its poor, but lavishes massive taxpayer subsidies and bailouts to those sectors of the economy that “cannot be allowed to fail,” though said sectors are allowed to do whatever they want, unsupervised, up to the point of their failure.

To be clear, I don’t think these bailouts are a bad idea.  They may be necessary to prevent our present liquidity crisis from going nuclear.  We need an economy with a functional financial system.  But these government bailouts are a sort of emergency-room economics.  What we need is an economics of preventative medicine.  What needs to be regulated isn’t some big mystery, as far as I can tell.  No regular reader of Krugman’s NYT columns, which expounded on the housing bubble at significant length before it collapsed, could honestly claim so.  What is more odious to me is the hypocrisy at work in Republican paeans to small government, and the sometimes reflexive desire of liberals to defend themselves against such attacks by preemptively saying how much they love the free market and how capitalism is the only true path to national virtue and prosperity. 

Liberals should be unashamed to repeat the following mantra:  the free market is a disaster, for us and for other countries.  Not even Republicans, it should now be obvious, trust the free market.  The economic success of the US since the end of the Second World War is a testament to the power of planned economies that couple direct government investment and protectionist industrial development policies and welfare safety nets to tightly regulated markets.  This is, it should go without saying, not a synonym for centrally-planned command economies where the government decides how many tubes of toothpaste will be manufactured in a particular year. 

So:  the free market is a disaster. 

And:  government is (sometimes) the solution to our economic problems.

Now everybody–