Bailout: The Final Bill

I don’t think our Congress has faced a more important decision than whether or not to pass the bailout bill in decades, perhaps longer. (Summary here; CBO analysis here.) To state what is beyond obvious: it is incredibly important to set aside our preconceptions, whatever they may be, and really think hard about whether to support this bill or not. If you’re easily alarmed by predictions of disaster, think long and hard about how long it will take to pay this off. If you’re inclined to think that experts telling you that you need to fork over large sums of money are necessarily wrong, go back and listen to the audio clips near the end of my last post. Look at the graphs and the pictures. Think hard.

The costs of being wrong, in either direction, are staggering. This is not a time to leap to conclusions.

It is also, in my judgment, not a time for those of us who are not professional economists to imagine that we can sort things out without expert advice. I have read some bloggers who have no background in economics or finance, who are nonetheless sure that there is/is not a crisis, or that the bill under discussion obviously is/is not necessary. We’re lucky enough to live at a time when experts provide good analysis very quickly. We should use it.

(Note: of course I’m not suggesting that anyone mindlessly defer to experts. I just think that questions like: what is likely to happen if we don’t pass this? are more likely to be answered correctly by people who knew what the TED spread was before a few months ago. It’s a judgment call, and one that requires a fair amount of sophisticated knowledge. I am of course trying to understand it as best I can. But I am not under the illusion that I could arrive at a view I feel real confidence in on my own. I feel sort of the way I might if I had to decide between two courses of action, each of which might turn out horribly, and which was right depended on the solution to some completely novel problem in theoretical physics. I might end up solving that problem all by myself, despite the fact that I last took physics in high school, but I’d be a fool to count on it, and an even bigger fool if I simply assumed that the totally awesome solution I just thought of was necessarily right.)

In considering the opinions of experts, it is of course important to restrict oneself to their opinions on the present bill. Thus, the Chicago economists’ letter is not relevant at present: it concerned the plan Paulson proposed, which is now dead.

The problem, of course, is that the experts are divided. For instance: Paul Krugman (and again), Brad DeLong (as of Saturday, but the outlines were clear then, and he has not taken it back), Lawrence Summers (ditto), and Mark Thoma think it should be passed, though none of them seems particularly enthusiastic. Nouriel Roubini is against it, and while Dean Baker hasn’t expressed an opinion on this particular draft, if his earlier comments are any guide, I imagine he’ll oppose it.

For my part, I support it. There are a lot of people who I respect who are genuinely worried that we might be on the brink of a serious depression, and who think this would help avert or mitigate it. But I hate this.

It also seems to me to be really important to keep my anger focussed where it should be: partly on the people whose deals got us into this mess, but much more importantly, on the legislators who failed to do their jobs, or who allowed themselves to be seduced by idiotic economic theories which were, as it happened, in the interests of powerful lobbies.

We’re obviously going to have to pass some serious regulation to prevent this from happening again. I’m happy to postpone that: I think the next Congress is likely to do a better job in any case. They are also likely to pass some real assistance to homeowners; again, while I’d rather this happen now, since people need help now, I think the next Congress is likely to do a better job.

We will also have to have some serious deficit spending. Regulation might prevent the next disaster, but it will not help with this one. I’m normally a deficit hawk, but I have absolutely no problem with the idea of rebuilding a whole lot of infrastructure if it helps us head off the problems that are surely coming.

Which is all to say: I support the bailout, but I do not imagine for a moment that it will do more than mitigate the damage, or that we will work our way out of it without a whole lot more work, and a whole lot more pain.