Assuming, as we surely must, that a bailout is coming; the question before us is whether it should come quickly, as Republicans insist it must, or later "after deliberation" as Harry Reid and the Democrats argue it should. Thomas Sowell makes a very good case (and one, frankly, that had not occurred to me) for haste. Why? It’s not just that we need a bailout to avoid disaster; there’s an additional incentive to quick action. While the adage "haste makes waste" applies to normal people and normal institutions, we’re talking about Congress . . . and a Democratically controlled Congress at that. In Sowell’s words:
Whenever there is a lot of the taxpayers’ money around, politicians are going to find ways to spend it that will increase their chances of getting re-elected by giving goodies to voters.He also offers some thoughts on the morality of the bailout; answering both those critics who attack it as wrong because they believe it rewards and, therefore, encourages irresponsibility and those who attack it as rewarding the irresponsible wealthy (Wall Street) but punishing to the weak (people losing their homes because they can’t pay their mortgages):The longer it takes Congress to pass the bailout bill, the more of those goodies are going to find their way into the legislation. Speed is important, not just to protect the financial markets but to protect the taxpayers from having more of their hard-earned money squandered by politicians.
Financial institutions are not being bailed out as a favor to them or their stockholders. In fact, stockholders have come out worse off after some bailouts.The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not.
We do not need a replay of the Great Depression of the 1930s, when the failure of thousands of banks meant a drastic reduction of credit-- and therefore a drastic reduction of the demand needed to keep production going and millions of people employed.
But bailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos. It makes political sense only to people like Senator Dodd, who are among the reasons for the financial mess in the first place.
The markets have waited all week. They can wait some more, and here's a bunch of smart economists who advocate doing just that.
economists against haste
The MSM is trying to portray the bailout as inevitable, while Congressional phones are ringing off the hook, as constituents scream "NO"! There are a lot of ways to pump liquidity into the market, and it doesn't have to go straightaway to the big banks. Iraq War + $1 trillion + bailout = 1/3 of our GDP. And if you've watched Bernanke and Paulson, their answers are non-answers; they don't have a clue. Let them look at the books and try to value things correctly, first. This isn't just household budgeting, and it's that much more important to get it right, and it shouldn't be a foregone conclusion.
But Sowell may be missing the forest for the (Christmas) tree. It's the essentials of the plan that count, not the sleazy favors, which we'll have to live with as a part of the administrative state's Congress.
Ken, you're right. The essentials of good government are more important than the money spent around the edges. But how to get closer to G.G.? I suppose the question then is whether they're more likely to get the essentials right (or closer to right) if they move quickly or if they're more likely to get them right if they wait and allow the room to fill with ever greater and ever more urgent demands.
One thing I think is certain: the longer they wait, the more politicized it will all become, the louder will be the cries for relief from every imaginable quarter and the more strident will be the arguments for the "justice" of their claims. It cannot be good to allow that to go on unless you imagine that now is the time for a national catharsis on social justice and authentic constitutionalism. And who will make that argument to our satisfaction? Imagine months of political debate about who deserves what amount of bailout and why . . . Pandora couldn't orchestrate it any better. If the deal is done, the debate over goody getting is (at least more plausibly) over. It will be easier to make a plausible argument that it was an exception rather than a new rule. Closing the box will still be a tough sell . . . but it won't be impossible.
The bailout is inevitable. What's left is the arguing over the details, which is not an unimportant debate.
Let's do soemthing fairly quickly, but lets not give Paulson a blank check for $700 billion.