Friday, September 19, 2008

Bailout

I say "aye" to the proposed national debt bailout - and a big shout out to Rep. Barney Frank, one of its early authors, who has been a prescient early voice on the need for a big solution to a big problem.

This is not like bailing out an automobile maker (a bad idea) - this is rescuing the whole economy from the disappearance of credit. As we learned in 1930, it is very difficult to restore credit once it has collapsed. Better to avert the collapse.

Why should the taxpayers pay? First they may not have to pay quite so much as everybody fears. As we saw during the S&L bailout of 1990, the government acquires a lot of assets too in these bailouts. The big scary headline numbers describe only one side of the ledger. The net cost is unknowable today, but will almost certainly be fair less.

Second, this is a crisis in which many millions of Americans are implicated as part of the cause, as well as part of the solution.

Mortgage debt expanded to enable (1) uncreditworthy buyers to buy homes they never should have bought via subprime loans and (2) middle-class Americans to finance more consumption than they could afford via home equity loans.

We all created this mess together; we're going to have to work our way out of it together.

The great theme of the next half decade or so is going to be debt repayment, both for Americans as individuals and for the US collectively.

Americans consumed too much in the Bush years. They will consume less in the years ahead. In other words, even if the US is able to avoid a recession - the next little while will sure feel like a recession.

A couple of subsidiary thoughts, one directed at liberals, the other at conservatives.

1) Even before today's crisis, it was reckless and irresponsible to be proposing large new social-welfare schemes on the verge of the baby boomers' retirement. It's about to become nightmarishly difficult to pay for the social programs the US already has got. The last thing anybody should be considering is adding more - and that goes double now that the US has acquired this additional burden of repaying much of the excess private consumption that occurred in the 00s.

2) As readers of Comeback and attendees at my speeches both know, I have been hammering hard for some time on the theme that the Bush economy did not deliver many benefits to middle-class Americans. One reply I often hear to this observation is that I'm looking at the wrong numbers: True, median incomes did not rise much between 2001 and 2007. But consumption did! Americans were living better ... and was not that the important thing? Of course Americans were financing that consumption via higher home debt. THe bill had to arrive sooner or later, and now it's here. I  hope that with the bill also arrives greater wisdom, and especially an improved recognition on the right that facts have to be acknowledged, not explained away. 

09/19 09:31 AM