It’s a big day for bailouts, and there’s too much happening for us to look at any of it in depth. But here are five quick thoughts.
First, I guess the Republicans deserve some credit for opposing this one. But geez, where were they before? Actually, let’s take a moment and answer that seemingly rhetorical question. In early 2008, before most people knew the economy was tanking, they were in favor of a stimulus. In late 2008, when the tanking was obvious to everyone, they were briefly against the TARP, but when some more pork got thrown into the deal a bunch of them crossed over and supported it. Now, after even more tanking, they are suddenly against spending any money at all. They’ve got the right answer here, but they’ve stumbled upon it pretty haphazardly. It’s hardly a compelling case for intelligent stewardship, and I am sympathetic with those who find the naked partisanship of their recent pretense of fiscal discipline repelling. If they really believed in fiscal discipline, we wouldn’t be in this mess.
Second, the fact that Democrats now accept tax cuts tells us something significant, namely that tax cuts no longer promote capital formation. Back in the old days, when Americans saved and government lived more or less within its means, cutting taxes meant that government spent less and people saved more. Both those effects were good for the economy because they made capital available for productive investment, and productive investment produced jobs. But now, Americans don’t save, so putting more money into their pockets is just an indirect way of giving it to Wal-Mart. And government doesn’t rein in its spending when tax receipts go down; it just borrows more, which actually discourages productive investment by setting up the government as a competing bidder for those funds. So congratulations to the Democrats for all the tax cuts in the bill. It’s the logical follow-up to the Republicans’ conversion to free-spending during the Bush years, and it makes both parties officially wrong-headed on both of the things they used to fight over. Who says we haven’t had more bipartisanship in this administration?
Third, the 2009 deficit, even without this stimulus, is projected to be $1.2 trillion. Passing the stimulus will put it a lot closer to $2 trillion, even if we literally can’t spend all the money in that bill fast enough to put it in the 2009 deficit. And then there are the entitlement liabilities that we keep off-budget. I’m sure Republican candidates will try to use multi-trillion-dollar deficits to their advantage in the 2010 elections, but it is well to remember that the $1.2 trillion base from which we’re starting, along with much of the entitlement problem, is from the eight years of the Bush administration, mostly with a Republican Congress. In my view, deficits of this size ought to be used in 2010 by all challengers against all incumbents, regardless of party. If we don’t wind up with at least 400 freshmen in the House after the 2010 elections, we really need to have our heads examined.
Fourth, it seems to me we are unquestionably in the middle of a Lay’s potato chip problem with these rolling bailouts: No one can eat just one. I think that as recently as October, and possibly as recently as today, it would be credible for the government to say that it will not do anything to “save” or “rescue” or “restore” the bubble economy of 2007. The fire sale would commence, our social safety net would kick in, and prices, wages, and employment would all find a new and sustainable equilibrium. What is not credible is for the government to say that it will do one stimulus, but no more; one TARP, but no more; and that means that the economic course on which we have embarked is one of radical uncertainty in which the distinction between equity investing and gambling is vanishingly small. And for those who still think all we need to do is consume, I would point out that the same goes for big-ticket purchases like cars and autos. If you go buy a house today, then whether that works out for you depends not just on the actions of countless other anonymous buyers and sellers, but also — and perhaps primarily — on what a relatively small number of people in Washington will decide they need to do to “fix” the economy over the next 2 or 4 or 8 years. Unless you’re psychic, you’re gambling.
Fifth, the details of the next bank bailout are apparently being pushed off until tomorrow, but there’s no reason to delay buying your “NO BANKER LEFT BEHIND” car magnet. You know you’ll want it, so order it now. (The site that offers them leans strongly to the left, so now that the left wants to give money to bankers you never know when this sticker might disappear.)