Who's Right and What's Left?
One of the most interesting developments in the current financial crisis is the coalition of the left and right against the center (or what should probably be called the center-right, but I'll just call the center for simplicity.) Some on the right oppose the $700 billion bailout because it undermines market incentives. Thus, KY Rep Sen. Jim Bunning made this pitch: "It’s financial socialism, and it’s un-American." Meanwhile, on the left, there is marked skepticism for a plan that allocates billions to investors and nothing to people who have lost their homes, even as it radically undermines the possibility of other government programs, such as health care.
The media have tended to portray those who favor the bailout in its current form as a pragmatic departure for a generally conservative Bush Administration. But of course it is no such thing. Between the wars in Afghanistan and Iraq, the massive tax cuts, and the addition of the prescription drug benefit, the Bush Administration has been anything but fiscally conservative.
That said, the description of the bailout as "socialism" is somewhat off target. It might better be described as crony capitalism. The main problem with the proposed bailout is not that the government would end up running the economy; Sec. Paulson would almost certainly spin off or outsource the management of the junk assets the govt acquires. After its effect on all other government spending, the main problem is that the bailout would dramatically undermine the discipline of the market. Although it wouldn't make much difference in total cost to the taxpayers, I would include in any package a very high wealth tax on corporate CEOs, hedge fund managers, and others who who made tens of millions of dollars while creating a mess for shareholders. Such effectively retroactive taxation would satisfy the Constitution's minimal requirements for civil retroactivity. Of course, as some on the left argue (e.g., here), that still doesn't justify the bailout, but it would at least somewhat reduce the distorted incentives going forward.
Finally, the people, i.e., Paulson and to a lesser extent Bernanke, who are urging Congress to act quickly or risk meltdown are issuing a self-fulfilling prophesy. "The markets need to know we're fixing the problem right now, or we'll have an irreversible credit freeze and economic death spiral," they say. And then, surprise surprise, when Congress is slow to act, credit tightens and the Dow falls.
Posted by Mike Dorf
The media have tended to portray those who favor the bailout in its current form as a pragmatic departure for a generally conservative Bush Administration. But of course it is no such thing. Between the wars in Afghanistan and Iraq, the massive tax cuts, and the addition of the prescription drug benefit, the Bush Administration has been anything but fiscally conservative.
That said, the description of the bailout as "socialism" is somewhat off target. It might better be described as crony capitalism. The main problem with the proposed bailout is not that the government would end up running the economy; Sec. Paulson would almost certainly spin off or outsource the management of the junk assets the govt acquires. After its effect on all other government spending, the main problem is that the bailout would dramatically undermine the discipline of the market. Although it wouldn't make much difference in total cost to the taxpayers, I would include in any package a very high wealth tax on corporate CEOs, hedge fund managers, and others who who made tens of millions of dollars while creating a mess for shareholders. Such effectively retroactive taxation would satisfy the Constitution's minimal requirements for civil retroactivity. Of course, as some on the left argue (e.g., here), that still doesn't justify the bailout, but it would at least somewhat reduce the distorted incentives going forward.
Finally, the people, i.e., Paulson and to a lesser extent Bernanke, who are urging Congress to act quickly or risk meltdown are issuing a self-fulfilling prophesy. "The markets need to know we're fixing the problem right now, or we'll have an irreversible credit freeze and economic death spiral," they say. And then, surprise surprise, when Congress is slow to act, credit tightens and the Dow falls.
Posted by Mike Dorf