After reading Lee’s recent post voicing skepticism about the Fed’s roughly $700 billion bailout plan, I saw this Politico article about similar skepticism popping up elsewhere.
I’m not sure what I think, but I’m concerned that if the government doesn’t step in, the consequences for middle class Americans could be devastating for many years. The “fundamentals” of America may be strong — if, like John McCain, you use the word “fundamentals” to mean “the American worker” — but the American worker may end up on the street if the American financial systen collapses and credit evaporates, causing severe strain for businesses already struggling with high gas prices, rising health care costs, etc.
It’s scary and distasteful to think that taxpayers would suddenly take on nearly $1 trillion in bad debt — but Americans have already spent roughly $1 trillion on an unnecessary war in Iraq. The question is, isn’t it scarier and more distasteful to imagine the unemployment rate reaching 10 or 15 percent, to think of 401K accounts failing, etc?
This is a mess. So much for “the era of big government is over,” as President Bill Clinton once said.
As George Stephanopoulos said today on “This Week, “the era of big government is back.”
I agree that we should not allow our financial markets to be destroyed. As our economy is currently organized, individuals, small businesses, and large businesses depend on lines of credit for their daily survival. The skepticism of many political commentators and reputable economists is not directed toward the concept of a bailout as such. Indeed, those who are on the left have always argued that the market cannot be “trusted” to optimize outcomes on its own. No, the concern is with the specific character of this bailout, its failure to address (according to many) the root causes of our problems, concern that it may not do what it is supposed to do (end the financial crisis), and the rule-of-law defying framework within which $700 billion ($2333 for every man woman and child in this country) has been given to ONE MAN, the SecTreas. These are not insubstantial problems. We can take another path if we choose to defy the bipartisan consensus that has formed around the Paulson plan. It should be opposed, I think.
Comment by Lee — September 21, 2008 @ 5:45 pm
Again, for the sake of debate, I will challenge some of your points.
First, the bailout shouldn’t address the root causes of our problems. We SHOULD address the root causes of our problems, but that is not the purpose of the bailout, as I understand it. The purpose of the bailout is to prevent economic catastrophe. If the politicians in Washington start adding measures to the bailout plan to address root causes, it will require lengthy, complex debate over regulation. This is where the partisan wrangling might stall things.
Second, I don’t understand why the bailout plan wouldn’t stop the financial crisis. I can understand why it wouldn’t acheive other goals — such as addressing the crisis’ root causes — but everything I’ve seen in the media tells me the people involved in this plan — Treasury Secretary Hank Paulson, Ben Bernanke, congressional leaders, etc — all believe it is crucially important that the plan work. So I have to ask: Is your concern that the plan won’t work based on a conspiracy theory about why the people behind this plan are putting it forward? Or are you saying that Paulson et al may be sincere in their efforts to stop the crisis but may just be going about it in the wrong way?
Thirdly, does this plan actually violate a law? Or does it simply violate our preference for a system of checks and balances? Because if the plan is illegal, it can be challenged on legal grounds — and it must be opposed on those grounds. If, on the other hand, the plan is technically legal, we shouldn’t “cry wolf” and say it defies the law when really it doesn’t.
Finally, I would say this: It would obviously be great if we could all get everything we want. But if we frame our position as “opposing” the plan that’s on the table, we’re being obstructionists and risking catastrophe. In other words, I think we need to be positive, rather than negative, about the plan, saying the plan SHOULD include X,Y and Z — rather than saying we oppose the plan because it doesn’t include X,Y or Z.
Because if we (and by “we” I mean Americans generally) oppose the plan and we manage to kill the plan and then catastrophe ensues as a result, it will be partly our fault.
It’s all well and good to say your skepticism is not directed at the concept of a bailout as such — but the reality of the situation is that legislation may need to be passed within the next two weeks, which doesn’t leave a lot of time for squabbling over details.
So here’s my question to Lee and anyone else who wants to chime in: If the plan doesn’t change between now and the end of this week, and it comes to a vote, would you urge your representatives in Congress to support it? Or would you urge them to vote against it, risking the possibility of economic disaster in exchange for the possibility that a better plan will arise?
Comment by Ian — September 21, 2008 @ 10:27 pm
It appears that Obama is willing to take the risk.
http://thecaucus.blogs.nytimes.com/2008/09/21/obama-no-blank-check-on-bailout/
Comment by Ian — September 21, 2008 @ 10:37 pm
Here is why I like the idea of a quick and clean bailout plan being passed, even if it doesn’t include everything it should include: It gives Dems a simple narrative that’s also accurate: The Republicans almost caused the greatest economic disaster this country has seen since the great depression — until the Democratic Congress intervened and saved the day.
Here is what I don’t like about Dems fighting the proposal: It gives Republicans an opening to blame Democrats if things go badly.
These likes and dislikes of mine are all based on assumptions that the bailout plan will work as it should without any horrible side effects, and the consequences if the government does nothing would be catastrophic.
Comment by Ian — September 21, 2008 @ 11:20 pm