"I Know That You Want The Candy"
Kevin Drum seems to have found this Joe Nocera article about the need to pass the bailout plan quickly convincing. I find it, if anything, anti-convincing. It’s emblematic of the continuing efforts of Wall Street’s allies to bully opinion leaders into the belief that passing a $700 billion bailout is the only viable option rather than persuading us that it’s a good idea. Key to this, a tactical Nocera heavily engages in, is acting as if the only basis for disagreeing with this proposition is populist anger at the spectacle of a bailout. Then you acknowledge the populist anger and the validity of the underlying emotions, but say that nonetheless we need to be rational and do this.
So far so good, but surveying the scene I’m seeing hundreds — hundreds — of perfectly sober-minded economists who simply don’t think that this is a good idea. At the same time, I’m seeing tons of sober-minded experts who believe that Sweden, when faced with an analogous situation, came up with the solution of temporary nationalization of the relevant institutions and that we ought to go for a Sweden-modeled solution. I haven’t heard Hank Paulson, Ben Bernanke, or anyone else even begin to offer me a persuasive argument that their model is better than the Swedish model. At the same time, their model is more friendly to the financial interests of Wall Street players. So opposing the Paulson Plan on the grounds that we need a Swedish Plan isn’t an example of wanting to harm the overall economy for the sake of spiting Wall Street; rather, preferring the Paulson Plan is an example of wanting to harm the overall economy for the sake of being more generous to Wall Street.
I understand that Wall Street players want candy from the government, but since free candy isn’t the only solution to the crisis, I don’t see why it’s a solution we should opt for:
Indeed, Nocera has moved beyond even trying to argue that the plan he favors is a good plan. Rather, he says we need to pass it even though it’s bad because we need to act really quickly. His evidence for this consists of citing things like “Washington Mutual was seized by the government. The markets may not be as panicked as they were last week, but with every passing day, the situation is getting increasingly dangerous.” But Washington Mutual’s depositors are fine. We have a perfectly adequate procedure in place to liquidate insolvent depository institutions. Yes, WaMu’s shareholders got wiped out, but so what? Again, I can see perfectly well why bank owners might want us to spend $700 billion in an unfair and ineffective way in order to preserve the value of their investments. But I’d rather put their investments at risk than spend $700 billion in an unfair and ineffective way.
The idea that the scale of the crisis somehow makes responding to the crisis with a bad plan desirable is weird. The financial jam-up is a very big deal. Which is all the more reason to respond to it effectively rather than just spewing money around to give the markets a psychological shot in the arm.