Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign season that gave us the House Republicans’ know-nothing rejectionism, John McCain’s mindless railing against “greed and corruption,” and Barack Obama’s detached enunciation of vacuous bailout “principles” that allowed him to be all things to all people.
Now clarity is emerging. The fault line is the auto industry bailout. The Democrats are pushing hard for it. The White House is resisting.
Underlying the policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.
Treasury Secretary Henry Paulson is willing to stretch the meaning of “bank” by extending protection to such entities as American Express. But fundamentally, he sees government as saving institutions that deal in money, not other stuff.
Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the cascade effect of mass unemployment leading to more mortgage defaults and business failures (as consumer spending plummets), in turn dragging down more businesses and financial institutions, producing more unemployment, etc. — the death spiral of the 1930s.
What drivel. The fact that the bailout is unconstitutional, immoral and uneconomic eludes the neo-conservative Krauthammer, so he is reduced to drawing meaningless distinctions. Here is a particularly rich bit of disingenuousness:
The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House.
You mean like to industries with former CEO’s who head the Treasury Department? Those sorts of lines?
I thought this was a fine article and not drivel at all. It very clearly states the political positions of the actors involved.
You may not like those positions, but they are what they are.
a) Greed (‘[i]avaritia[/i]’ is one of the classic seven “mortal” sins.
b) Unions exist in order to extort higher than market-clearing wages from employers.
c) It is the greed of UAW labor that has nearly killed American automakers. American labor is competent, reasonable, dedicated, and enthusiastic. cf Toyota plants in the USA. UAW labor is not. It is greedy.
d) The UAW is a major contributor to Democrats. More than major, really. The putative bailout of Detroit is intended to maintain UAW position and power. Krauthammer is correct.
Therefore, congressional Democrats wish to support the sin of greed with our money, in order to maintain their own flow of cash.
Next question.
[i] No government would let the electric companies go under and leave the country without power. [/i]
Electric companies do not share banks’ vulnerability to runs. They fund themselves mostly with stock and intermediate- to long-term bonds. Debt coming due during the next year funds only one-eighth of total assets. Thus electric companies do not have the same financial fragility as banks. If the electric power system were in danger, it would almost certainly be for nonfinancial reasons (e.g., war, terrorism, superhackers, or natural disasters).
_ _ _ _ _ _ _ _ _ _ _ _ _ _
[i] The government must save the financial sector lest credit dry up and strangle the rest of the economy. [/i]
More specifically, the government must take care lest widespread bank panic result in a catastrophic contraction of the money supply. That is what occurred in 1932-33 and turned a recession into the Great Depression.
Bart [#3]: Do you ever apply similarly deterministic political analysis to your Republican friends?
It was a commentary by Steve Forbes while the bailout was being debated which convinced me that the “utility” view of the credit and banking system required the system to be protected from collapsing.
The proposed extension of the bailout to all sorts of failing entities, specifically, Detroit auto firms, is beyond its scope. These companies have made years and years of poor decisions and have knuckled under to UAW pressure, and these things have led them to their present positions. They should be allowed to go into Chapter 11 and reorganize. There are other companies with UAW contracts who have managed to avoid the worst pitfalls (Caterpillar, among others).
There’s no question that if GM goes into Chapter 11 the UAW will be weakened, and this has got to be a large part of Congressional Democratic thinking in wanting to prevent it. The UAW is a big supporter of the Democratic Party. I think using public money for this purpose would be bad for the country, both immediately and in terms of precedent. (Yes, I didn’t think the Chrysler bailout was a good thing, even though it ended up making money, by reports.)
Krauthammer’s analysis is really very good and I encourage commenters to “read the whole thing.”
Irenaeus #5, I agree with you. This is politics, and making this a morality play is a stretch. But I do think here we are toying with expanding the role of government in ways we would live to regret.
The sad thing is that both parties believe in big government just in different ways. Between the both of them the Constitution is in shreds, little more than meaningless words on a scrap of paper.
#3, however corrupt most labor unions have become, they did not begin that way. Have you forgotten coal mines, sweatshops, company scrip, company stores? Unions were the way virtual slavery was finally abolished in the workplace, after the Civil War enforced its abolition in civil society as a whole. Like most or all the works of man, we have corrupted something that had a good befinning.
Brother Michael,
Krauthammer is of that school of political thought that has convinced the Republican party that the best way to win elections is to run as the consummate Democrat. In other words, at the end of the day, we are going to be debating which overseas crusades we should be launching and who should be first with their snout in the public trough. Wall Street is every bit a bloated, corrupt “industry” with a big dose of OPM syndrome as the Big Three. Krauthammer’s distinctions are meaningless.