Archive for September 28th, 2008
I’ve written extensively about the economic crisis we’re facing in blogs for a long time. Since I started this blog, in May, I’ve written about (in chronological order): Oil Denial, America in Decline, America and the Troglodytes, Future Uncertain, Decade of Illusions, The Economic Storm, What Me Worry?, China’s Century, Economic Collapse, Financial Crisis Worse Than Terrorism, Ideology and Economics, and Schadenfreude in Europe. To me, the most pressing and important issue of the day is not Iraq, Iran, health care, or any of the things politicians talk about the most. I’m worried that our economy may be in for a severe and deep crisis, one that will affect all of us, perhaps profoundly.
The current plan to bail out mortgage backers is creating a lot of controversy. On the one hand, it’s probably true that if the bailout plan fails stocks could plummet below 8000. That would decimate retirement accounts, personal investments, educational investments, and tighten credit to the point that it could unleash another Great Depression. Given how weak our economy is in terms of our current accounts deficit, this could also see a decline in value of the dollar, causing the crisis to spiral in on itself. The result is frightening, and explains why so many politicians are in a tizzy over this, and why intense popular opposition to the bailout plan isn’t pushing the politicians to line up strongly against it. Perhaps those in really unsafe districts will vote against it, but otherwise, it’s almost certain to pass in some form.
Looked at that way, the bailout is a no-brainer to the extent that it is better than doing nothing. However, not only are there other possible paths to take, but there are other perspectives on this. I’ll leave the exploration of alternative paths to other pundits or bloggers — and there is a lot being written out there, especially in economics blogs. What interests me is the other perspective, that this is less a practical economic issue, but an ethical one.
This view has proponents on both the left and the right. On the left it’s noted that common folk and mortgage holders themselves aren’t getting bailed out — people are losing health care, homes, and the capacity to pay for their childrens’ education because of the crisis. The people who will benefit from this massive socialization of a huge sector of the economy are the cream of the capitalist crop. They are big Wall Street investors, those who run the financial engine of the country. So while the Democrats try some things to benefit community action groups or others besides the wheelers and dealers, much of the country takes a cynical eye to a government that takes care of the elite, while ignoring the middle class.
On the right there is a more basic ethical argument: people should pay for the consequences of the decisions they made. This is true for individual home buyers who should have realized that a massive continuous boom in housing values could not last, and for big banks who should have understood the immense risk they were undertaking. Indeed, since 2003 a drumbeat of warnings have been made about the economy and the housing boom. They were brushed aside as “so much doom and gloom,” the kind of prophecies made often in the past, but which never actually came true.
The pro-bailout group responds with a utilitarian ethical argument: just measure the societal harm done by letting the economy collapse with the cost of a bailout which ultimately, as Senator Obama noted in the debate Friday, could earn the government a profit. This is not just a handout but actual government taking over huge chunks of the financial sector, meaning that if things bounce back, it might not be costly. Calculate the probable utility and compare the likelihood of different scenarios, and you get a pretty strong utilitarian argument for swift governmental action.
Of course, both the left and right argue that this is a limited calculation. First, it’s based on assumptions about the future by the same government bureaucrats and legislators whose miscalculations allowed this crisis to happen. Second, what about the signal this sends — government will step in if need be, so why not do the same thing again if there are short term profits? This isn’t as strong an argument as it sounds, since despite the bailout most of the ‘winners’ of the last decade’s financial boom will still be hurt tremendously by all this, but it’s worth considering. Finally, shouldn’t the wishes of the American people be taken into account, and a broader based response that isn’t focused on Wall Street be considered? The Federal Government says we don’t have time for that, we need direct action. But no one knows for sure what will happen.
For me there is a deeper concern. This crisis was caused by our materialist excess and our consumerism (oh, and I’ve been posting on that too: Consumerism and Fascism, Carnival Consumerism, Consumer Cathedral, The Core/Void, and The Selling of the President). We are addicted to stuff, and we are addicted to debt. Our material wants have overcome everything, we have morphed into an excessive consumer society where values and social concerns are second to individual interest and a desire for more. To the extent that a bailout addresses the symptoms of this problem, but not the underlying cause, the problem is likely to continue. Addressing the cause and changing the culture might be better served by allowing the markets to run their course — but that could also set up authoritarian and Bonapartist reactions, as Americans could be shocked and angered by the sudden and deep collapse — just a couple years ago we considered ourselves top of the heap, the “winner” of the Cold War, the invincible and necessary power. The fall would be so hard and so fast that people might react with anger and irrationality.
Luckily, I’m in no position to impact whether or not the bailout is chosen, so I’ll not get upset either way. These decisions are being made by others based on their experience and beliefs. All I can do is observe and comment. But unless we as a society figure out a way to address our excessive consumerism/materialism, our dependence on oil, and rethink what our society is all about, this problem will linger, regardless of the decisions made on the bailout.