More thoughts
It should be clear that, well, I'm not clear on where I stand on the newest bailout bill. Arguably it's better than Paulson's blank check, but it seems marginally worse than the one that failed earlier in the week.
The saddling of the bill with random pork projects is regrettable, but to be expected. Lord knows I don't care for not including additional protections for homeowners. And I'm still bothered they didn't give bankruptcy judges the ability to adjust mortgages.
That said, the Republican counter-proposal championed by Paul Broun and others in the House of Representatives, seemed to be fatally flawed to me.
I was bothered by the tone of the discussion (namely that we had to do something), but then again I was also persuaded by the very real economic crisis at hand. While Wall Street certainly did screw this whole thing up, it's imperative to note that the personal investments of millions were taking vicious hits for something they didn't do wrong at all. And the long-term, much bigger problem was that credit would stay frozen, businesses couldn't make payroll and we zoom toward skyrocketing unemployment and banking collapses.
This thing ain't pretty, and I ain't terribly happy with it, but it seems to be what we're stuck with now.
The saddling of the bill with random pork projects is regrettable, but to be expected. Lord knows I don't care for not including additional protections for homeowners. And I'm still bothered they didn't give bankruptcy judges the ability to adjust mortgages.
That said, the Republican counter-proposal championed by Paul Broun and others in the House of Representatives, seemed to be fatally flawed to me.
I was bothered by the tone of the discussion (namely that we had to do something), but then again I was also persuaded by the very real economic crisis at hand. While Wall Street certainly did screw this whole thing up, it's imperative to note that the personal investments of millions were taking vicious hits for something they didn't do wrong at all. And the long-term, much bigger problem was that credit would stay frozen, businesses couldn't make payroll and we zoom toward skyrocketing unemployment and banking collapses.
This thing ain't pretty, and I ain't terribly happy with it, but it seems to be what we're stuck with now.
posted by Jmac at 5:20 PM
1 Comments:
We keep saying that our economy runs on credit, but can that go on forever? How exactly is this rescue plan, even if it does EXACTLY what it is claimed it will do, going to keep our credit problem from spiraling even further down the drain later on down the road.
If a person has racked up 30k in credit card bills, it really doesn't do much good to give them 30k so that they can pay it off and then go 30k more in the hole.
The key assumption in modern economic analyses, made by most academic economists and popular pundits alike, is that a "healthy" economy = people spending money.
A healthy economy is an economy where people's real wealth increases. Their monetary holdings improve in terms of purchasing power. What they do with their money, whether they spend it or save/invest it for a later time, is really immaterial.
Certainly, people can't gain real wealth without buying and selling going on, but the notion that, at all costs, we must "stimulate" people to go out and spend money is mistaking a weak symptom for a cause.
In certain circumstances, the best thing to do is NOT spend very much of your money. In other economic circumstances, the best thing to do IS to spend money. There is no rational argument for an a priori "spending is always good" principle. It all just depends.
But what we have done is assume that spending is necessary. And so, if people are running out of money to spend, we encourage them to get credit. And then, when the credit starts to run out, we now want to give them more.
We cannot live on credit forever. When people borrow and borrow and borrow, eventually the bubble is going to burst. Gravity makes things fall when you drop them. Men and women have different genitalia. If you set your hand on fire, it will cause damage to your skin. Live in the real world.
So what do the politicians do? They decide to "just do SOMETHING!" I say, "Don't just do something, stand there!" Where is gridlock when you really need it? The "solution", our "rescue," is to somehow make the world stop spinning and make it possible to go right back to borrowing large amounts of money without first paying for our previous borrowing. Where does all this magical money come from, anyway?
Answer: we "print" it (digitally as well as paperly). So now we "rescue" our economy by flooding it with more dollars. Which means that inflation will keep getting worse, and prices of things like food and gas will keep going up more than they already have. All these financial institutions that will supposedly be able to survive now and go back to giving people credit are not going to have as much credit to offer as they did before anyway, because the value of the dollars they are lending will have decreased thanks to the infusion of money we are putting into the system to magically "pay" for all these bad mortgage investments.
The answer to too much credit is when the market makes us all cool it for a while by restricting access to credit. This "retraction" is neither good or bad. Almost every situation has two sides, economically. But, again, we are committed to the ideal that we should always be "expanding" economically, with more and more money being borrowed and spent, world without end amen.
Again, there are two sides to this. If credit (and the money supply overall) would contract for awhile, then our economy would recover as quickly as it could (though it would still be painful for a lot of people for a while, but welcome to life, and I personally am feeling it badly myself so please no insinuations that I'm some fatcat heartless capitalist, or whatever). It would recover as credit resources were slowly rebuilt and invested carefully in only the most promising projects.
We have over-borrowed and over-spent as a whole country. Many of the things people have been borrowing and lending money for have now proven to be economically unviable. The quickest and best response to this is simply to let those misallocated funds be liquidated, as they eventually must. You cannot just keep borrowing and spending. The money has to come from somewhere, and if the government just starts kicking money in to hold up the teetering lenders (who are, yes, holding up teetering borrowers) then all you're really doing is devaluing the money in the system and increasing the hardship all the more.
Instead, we are trying to tell people that the dream of eternal credit can keep on happening. You don't have to wake up yet. Maybe not (IF this bill even does what it is supposedly able to do), but we will have to wake up one day. The window is open (bending meatphors!), the cold air is in our lungs, and our throat just gets scratchier the longer we sleep. The longer we wait to "adjust" for our earlier wild borrowing, the more it's going to hurt. But let's put it off to another day. The democratic way!
But, hey, the politicians "did something." So aren't they wonderful? And the prez candidates (esp. Obama, who is going to win) can act like they have helped lead the nation in this troubling time, and let the later fallout be worried about another day (welcome to democracy; the rewards go to candidates who can make themselves LOOK good for the current election cycle only).
Meanwhile, McCain was handed a gift of a wildly unpopular bill that most Americans opposed (even if some of their opposition was based on misunderstanding). Obama went right along with it, but he has no choice as a Democrat with economic advisors who presided over much of the mess in the first place. McCain also would have to distance himself from some of his circle, but he could do it less painfully, and he would be playing up to the conservative/libertarian base in doing so. There were a lot of potential votes on the table this week for McCain, as all he had to do was take the lead in OPPOSING this legislation (no matter what his personal beliefs on it actually are), and instead he just left them there.
Of course, this is not a mystery. McCain, like almost all politicians, wants to RULE. He has ambitions, here. He doesn't want to win power over a country that he's then not allowed to control. Econoimc non-interventionism and "we have to take our lumps, but it's the best way long-term" kind of thinking would weaken the vision of the presidency that he aspires to in the first place. He wants to be a great leader, shrouded in glory, looked to to solve all problems. Like all politicians who have come before him.
So, he supports the bailout. The sky will fall, ah!!!!! We are all gonna die!!!!! Oh, thank goodness, it passed. I'm sooo relieved. Now Obama can go back to kicking your butt, McCain. Lot of good that did ya, huh?
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