I've been thinking about this election a lot lately (obviously). This is a given for a political junkie such as I :-), but its amazing the kind of nation we've become politically speaking. Its especially unnerving what has become of the Republican party and the general political consensus.
Today, in the Washington Post, there are two articles that really sum up two of the most monumental events, both occurring in the last decade, both that continue to shape the political forces in America today particularly so in the Republican party.
Here Robert Samuelson (who actually does not vote by the way and is not affiliated with either party because he believes that voting interferes with his impartiality as a journalist) wonders what would have happened if we would have saved Lehman Brothers.
In the article he lists the events that happened immediately after and because Lehman was allowed to fail:
"-- Credit tightened. Banks wouldn't lend to each other, except at exorbitant interest rates. Rates on high-quality corporate bonds went from 7 percent in August to nearly 10 percent by October.
-- Stocks tanked. After its historical high of more than 14,000 in October 2007, the Dow Jones industrial average was still trading around 11,400 before the bankruptcy. By October, it was about 8,400; by March 2009, 6,600.
-- Consumer spending and business investment (on machinery, computers, buildings) -- together about four-fifths of the economy -- declined sharply. Already-depressed vehicle sales fell a third from August to February.
-- Employment collapsed. Five million payroll jobs disappeared in the eight months following Lehman's collapse. The unemployment rate went from 6.2 percent in September to 9.5 percent in June 2009.
Lehman's failure had dire consequences because it suggested that government had lost control. No one knew which financial institutions would be protected and which wouldn't; AIG soon received a massive loan. Uncertainty rose; panic followed."
All of this happened during the Bush administration and much of what Obama has done in response to this crisis is more of a continuation than a departure. But people are getting punished politically for their votes on TARP and on the stimulus.
Robbert Robb suggests that the way for Schweikert to beat Mitchell (which so happens to be my congressional district) is to emphasize his votes on this issue in particular:
"However, at this point in our country's history, we just cannot afford a congressman who occasionally votes no on small things, such as mostly meaningless budget resolutions. Instead, we need a congressman who will vote no consistently on big things, such as a $700 billion bank bailout, an $800 billion stimulus spending spree, and a trillion dollar health care plan"
I know Robb is speaking strategy here, but its depressing nonetheless. I grant you, the last two items listed are more controversial, but I know of no serious economist (and I read and follow many) who will defend the case that the bank bailouts were a bad idea. So, in essence the way to beat Mitchell is to ride the wave of unjustified populist anger.
Which is why Samuelson's article is so important. Not only was TARP absolutely necessary, we could have rendered it moot if we would have stepped in earlier and more aggressively. And greater intervention early on would have been much less costly then the situation we currently face (considering the massive amounts of GDP we are missing out on because of our unemployment rates).
I didn't mean to spend so much time on this point because I do have another. It is 9/12, marking the day after the ninth anniversary of the terrorist attacks.
Fareed Zakaria talks about our successes attributed to Bush's first responses to the attacks that have basically marginalized and weakened the terrorist threats in Afghanistan. The world is in a much better place, but we are left with something else:
"So the legitimate question now is: Have we gone too far? Is the vast expansion in governmental powers and bureaucracies -- layered on top of the already enormous military-industrial complex of the Cold War -- warranted? Does an organization that has as few as 400 members and waning global appeal require the permanent institutional response we have created?
I've been asking these questions for a few years now and described our 'massive overreaction' in a 2008 Newsweek essay but with little effect. During the Bush years, there was a reluctance on the left to acknowledge that the administration could have done anything worthwhile to counter terrorism. The far greater problem is on the right, where it has become an article of faith that we are gravely threatened by vast swarms of Islamic terrorists, many within the country.
This campaign to spread a sense of imminent danger has fueled a climate of fear and anger. It has created suspicions about U.S. Muslims -- who are more assimilated than in any other country in the world. Ironically, this is precisely the intent of terrorism. Bin Laden knew he could never weaken America directly, even if he blew up a dozen buildings or ships. But he could provoke an overreaction by which America weakened itself."
And to me, this is what the Republican party, at least rhetorically, has been reduced to. Look at the issues their candidates bring up over and over again: HB1070, the mosque at ground zero, and anger over the bank bailouts and "out of control government spending".
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7 comments:
"I know of no serious economist (and I read and follow many) who will defend the case that the bank bailouts were a bad idea"
Scott, what do you mean by "serious economist"? Does it mean "mainstream economist"? Or "economist with certain credentials", or "that writes in certain media"? Or maybe, "economist that isn't joking"?
Sean, I think "serious" is maybe the wrong word, but I think there is a general consensus among economists that the bank bailouts were necessary to prevent a complete economic collapse.
I know there are a few "serious" outliers. I should have re-phrased this with more nuance.
The next sentence after this I regret as well. The populous anger is not unjustified. It is definitely justified, just misdirected (in my view).
I have no problem with the anger over the out of control spending (in fact in many ways I share it), but I think it needs to be followed up with more clearly defined alternatives - something I don't hear clearly expressed enough from the Republicans.
The libertarians are different, they have a pretty consistent vision (one I don't share), but they have at least defended it consistently no matter how the political winds blow.
Sean, when I say there are a few serious outliers, I'm only assuming there are some, I honestly have not read a single article (outside some debates I've had with libertarian leaning friends) that has articulated the argument that government bailout of the banks were a mistake. What I'm looking for is for someone now looking back on the events that transpired to make that case.
I do understand there were some downsides of the bailouts - namely we've created a situation where the big banks have a bailout expectation where they are protected from failure even as they can keep their profits during boom times. This can lead to bad incentives and risky investments going forward.
But what were the alternatives? If a bank the size of Bank of America or CitiBank failed it would have been a painful nationalization of a big chunk of our banking system for many years.
Because of the FDIC we would be legally obligated to take these banks into receivership. If its a small bank, we've gotten quite good at breaking up their assets and transferring over to a healthier bank quickly.
But a massive bank? There's simply no historical precedence for allowing a bank the size of Bank of America collapse.
And a protracted nationalization of the banks would have been a much worse alternative than the one Obama pursued in my opinion.
And I think that has largely been the consensus among economists now we're largely away from the precipice.
But I'm totally willing to entertain alternatives if you have them.
I'm not going to pretend that I know what would have happened had the TARP not been passed. There are many economists who opposed the TARP; here's one list of economists who opposed it in its original incarnation. While that doesn't mean they opposed it all on principle, it likely means they disagree with the fear-mongering idea of "bread lines and cat food" Ben Smith referred to if nothing was done immediately.
I think the larger point is that the public is increasingly wondering, "how did it come to this?". How is it that we have a financial/political/economic system where the largest banks must be bailed out in order to save "the public" from a system that they (the bankers) and politicians created, perpetuated, and profited from? This quote from the Ben Smith article drips with irony:
"The policymakers who emerged shaken from a Sept. 16, 2008, briefing by Treasury Secretary Henry Paulson never managed to win credit for the apocalypse avoided from an American public furious at them for allowing the mess to develop in the first place."
If you want to read a piece that captures the spirit and feeling of much of the the Tea Party/independent/states rights' movement, read this.
Sean, I think I've seen this list before, both when it was originally sent out and again later when I was arguing with another libertarian leaning friend of mine who used it in a similar way that you're using it now. I also remember that the Congress rejected the first bailout proposal (that I think this letter was targeted at), but when the stock market dropped even further as a result, Congress was convinced to past the second version. I'm not sure if these economists were also convinced.
But now two years have passed since then and we have a lot more data now. There's been a ton of journalism and analysis, many articles and books written.
And it seems to me that there's been a general consensus built up that something like the bailout was necessary. But I'm very interested if you have access to some analysis that provides a convincing case that the bailouts were unnecessary.
I haven't gotten through your last article yet (its pretty long). I've read a lot about the tea party, and I've recently blogged about them too.
I'm not sure I agree with everything in this article, but I'm also not sure its worth getting into my specific disagreements.
But generally, I think the tea party perspective has its merits and can be a good thing for society if they learn to channel it correctly.
I hope they don't view their mission too expansively. I think their viewpoint represents a significant but still minority portion of the American population and I think that will become more obvious as they push their way into political power.
If they are able to make rational arguments about parts of the government that need to be stripped away and are willing to do as part of more comprehensive legislation that includes pieces they aren't happy with but represent priorities that other parts of American society desire. I think they can be an important political force that will end up doing a lot of good.
So far, I'm not sure if they are positioning themselves to be willing to compromise in such a way however.
You're focusing more on the trees; I'm focusing more on the forest.
Anyone who forecasts specifics that would have happened had TARP not gone into effect is probably guessing (at best). Even the Fed/Moody's forecast was of 7% lower GDP growth sans TARP. But the difference is that without TARP, the losses would have been realized and we'd likely be back on the road to recovery. Instead, we've had 2+ years of furiously fighting to avoid the necessary repricing of assets through all manner of subsidies, spending, borrowing, and money printing. And the uncertainty of the economic landscape will likely continue for years given what we've done and continue to do.
I don't agree with everything in the Codevilla article I linked to either; that's not the point. The point I'm making is that there is a sense that things are unraveling, and have been unraveling for years. All this despite the continual march in the growth of government over the past several decades, regardless of which party has been in power.
We don't need just tinkering of current policies; we need more basic trust in people, in local communities (as you've blogged about), and in decentralized solutions. This requires a shrinking of government. Government's essential role is to provide basic protection of rights; but as Codevilla describes, government has usurped the role of the family. People increasingly look more to government for security than they do their own families and communities. This culture needs to change in order for America to thrive again.
By the way, I think looking at the trees does have its place. But if one questions the opposition to programs like TARP and focuses on the details, one is bound to struggle to understand the reasons for the opposition.
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