There was a story on the radio today that very clearly focused my attention on what is wrong with the Paulson bailout plan.
The story’s intended focus was that “despite the fact that everyone who knows anything about this is predicting dire consequences if the bailout plan is not passed, many Americans are reacting emotionally and writing to their representatives to oppose it.” The idea is that Congress is afraid to act and “do the right thing” because these idiots back home who don’t understand the “high-fangled goins’ on” on Wall Street are sending in angry emails by the thousand. The implication clearly being that anyone who objects to this plan will wind up screwing themselves in the end, with the unstated underlying assumption that there are only two choices: approve this plan or prepare for another great depression.
That is the story that I get from every direction.
It reminds me of an old saw from the 1950s: “what’s good for Detroit is good for America.”
It wasn’t true then, and its not true now. What is happening is that some people got greedy, they took a gamble and they lost. As a result the market will correct. It will be ugly. It will hurt. But it will pass. Better just to get it over with and move on. That is the nature of capitalism. We thought you understood that.
Part of the problem that has not escaped the ignorant emotional folks down on “Main Street” is that the Paulson bailout has been cooked up in such a breathless, panicky manner, by Secretary Paulson, who himself as a former Chairman of Goldman Sachs, has been personally involved in, if not responsible for some of the issues under discussion. The man shows up on the hill with a three-page document that says “never mind that we’re in the middle of two different wars. Give me $700 billion now and don’t ask any questions.” Don’t tell me it didn’t happen. I saw it with my own eyes on C-SPAN. It happened to be on the TV at the sandwich shop where I stopped for lunch from work.
But really, its deeper and much worse than that. The real problem is that this claim essentially amounts to an admission that the very same free market capitalist economic theory that has dominated Washington as well as Wall Street since Ronald Reagan was president is just plain wrong.
While the purely idealistic free market theory as articulated by Milton Friedman and many others has certainly been proven wrong, or at least potentially unstable and unacceptably hazardous by recent events, the bailout as framed by Secretary Paulson is wrong on an even more basic level: it is immoral. Its not a matter of complex financial schemes, derivatives, and off-balance sheet transactions, as dubious as all of those concepts are.
This plan rewards error. It punishes prudence. It utterly and completely flies in the face of the fundamental principles of capitalism, not to mention the rhetoric we have been listening to from these same people for the past three decades.
When a working mom down at Wall-mart can’t afford health care for her sick kid, and looks to her government for help, that’s Socialism. Well, then, what the hell is this bailout plan, then, if not Socialism?
But even that’s not the point. Hundreds of economists have written open letters to Congress as well as the mainstream media, even former Treasury Secretary O’Neill has written that the Paulson plan is ‘stupid’ and ‘wrong’ and that there are many more prudent and deliberate alternatives that will help to work to calm the markets, without this proposed nationalization of the banking industry, without debate, and without guarantee of success anyway. Rather, the Paulson plan doesn’t really nationalize the investment banking industry, but only its losses. Its preposterous!
After all these years of job losses and wealth concentration, middle class Americans who pay the lion’s share of taxes are supposed to just swallow it when all these so-called “fiscal conservatives” find their own bills coming due. These assets are liquid. Simply not at the price that certain parties wish they were. If we believed in market forces, we’d allow the market to determine the value of these junk mortgages. And now if we the people don’t trust the market to properly value these assets, then its ignorant, if not unpatriotic, and maybe not even legal, for us not to give these poor investors a helping hand. Never mind how many of these investors may not pay the taxes that will fund this proposed bailout, or even how many of them may be former clients of Secretary Paulson himself.
But worst of all, after implicitly shredding free-market economic theory, this story then proceeds to attack basic democratic theory. Democratic theory holds as its fundamental axiom that the ultimate wisdom lies with the people (to paraphrase De Tocqueville). The impression I got from this story was that folks writing to their representatives in Congress to express their opinion were not exercising their responsibilities as members of a functioning democracy, they were fools who “just didn’t get it” and were acting “irrationally” perhaps seeking “revenge.” These were the words used. Maybe some enlightened elite should just take over and relieve us of all this worry, since we are all so ignorant of these complex economic issues.
But that’s not all of it either. Consider that as we now know, this administration falsified evidence that drew us into an unnecessary war, and after they have used falsehood and scare tactics to erode our constitutional freedoms in H.R. 3162, the so-called “patriot act,” the press and Congress seemed to do penance for a year or so and say, “we were fooled.” But when they come and we hear the same drumbeats, the same urgency, the same claims that “there’s no time to think, we must act! give me unfettered power and a blank check drawn on your children’s inheritance, right now!” And the American people will be paying the bill for the rest of their lives.
As Sen. Byron Dorgan said, “never buy anything from a man who’s out of breath.”
No. The American people are not ignorant, emotional fools who need to be “educated” in order to accept this proposal “for their own good.”
Rather, they are outraged at this preposterous sham that undercuts the most basic assumptions that hold our society together. And they believe, as I do, that we will all live to regret passage of this plan as we now regret ever having trusted this administration in the past.