The $7.4 Trillion “Savior”

Note that what offends most people to date about the bailout isn't merely that there was a bailout (so many of us don't want anyone, the banks, Detroit's failed auto makers, the building industry, state governments, cities, all of whom already are seeking bailouts from the federal government), but that the money was misused in some cases with AIG (given money while Lehman Brothers, for example, was allowed to fail, and banks as recently as this weekend have failed, such as Downey Savings and Loan where I used to work when I was in the LA area several years ago).

As a book I've been enjoying puts it, I'm among those who "want things to work themselves out on their own." Most Americans would approve of some intervention, so the next thing to do is to wait and see what else Washington will do, in addition to reading about this on my own for inspiration as well as for education.

In normal circumstances I'd prefer to see our tax system reformed and go to a consumption tax (a VAT, not a personal expenditure tax, which is horrifyingly more intrusive and meddling than the hated income tax we have now). A carbon tax to mitigate true air pollution, not phony global warming fears, would make sense as well (and could be played with to see where it would begin to reduce actual motor vehicle fuel consumption -- $4.00 total price for gasoline is not high enough to produce this result among the public at large; it would have to be higher) but this would cripple the economy at this time (the fuel price spike initiated the slump, don't forget) and remember that near the start of Japan's deflation, Japan implemented a consumption tax. Uh-oh. (Also take note: Japan's vast public works spending didn't cure its deflation any more than our New Deal cured our Great Depression. World War II and the related inflation and additional deprivation that was ended after the war is what cured our Great Depression.)

Too bad about Ben Stein. If you ever have the chance, Mikkel, look at two books by him. The most important and useful is "Financial Passages." It contains good life-cycle financial advice (even if you may be puzzled by all the references to locations in the Bay Area and LA metro area). The other, which applies to an economy with substantial inflation, is "Moneypower."

By looking at the evidence I have become convinced that the New Deal did not cure the Great Depression. However, I feel that by laying down massive amounts of infrastructure -- combined with the purging of bad bets that the Depression naturally accomplished -- it did provide the necessary framework for the reinflation to have constructive benefits and led to productivity surges. I think people have a fundamental misunderstanding of the role of government expenditures in infrastructure -- whether material or intellectual -- and the timescales it should be focused on.

I will have to check out the books to see what he says, most of the stuff I've heard from him has been awful. He is one of the people that has been completely clueless about the extent of the current problems. (Although to be fair I think nearly all economists are because their idea of "normal" is messed up.)

Make no mistake, the New Deal was our third revolution after the first (in which our nation was formed) and the second (the Civil War). Since the 1930s and a perceived need for "someone" to act during the Great Depression, we've commonly replaced our legitimate constitutional federal system with an incrementalist change toward a de facto unitary state with Washington taking on a national rather than federal government character. That's what so many people want, and that is what we are getting. At least we in the USA were relatively lucky in the 1930s compared to what happened in Europe during the depression years (and the aftermath of the First World War, which shattered the nature of the world prior to that time -- World War II simply completed the change to the modern world). We have had a modern welfare state in place of our federal republic (the 1964 election was an effective referendum on this and on the New Deal and we know the results of that election) and since the 1930s a [mis]use of that government to engage in cheap vote-buying populism ("we will tax and tax, spend and spend, elect and elect"). Lost in the current concern about the economy and widespread presumption that it is acceptable for Washington at least to try _something_ to forestall deflation or achieve a recovery from the slump is the still-extant concern that the wrong message about this and about the election (which was negative toward the GOP, not rushing in favor of leftism) will only fuel excessive ambition among those in Washington once interventionism in large part begins (the current financial bailouts do not qualify -- they are just giving money piecemeal to a few favored institutions and I suspect more bailouts will be done from now until January in order that the Bush people get rid of the money before Obama's team can get their hands on it and use it differently). At this point we have to wait and see first just what Obama's team is going to do.

"Financial Passages" is worth your time and attention even if you aren't impressed with Ben Stein otherwise.

"... I suspect more bailouts will be done from now until January in order that the Bush people get rid of the money before Obama's team can get their hands on it and use it differently ..."

Ha! Real life just confirmed my suspicions! Even if it's needed for serious assistance, it's suspicious. The most up-to-date news can't get any "better" than this.

"Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering asking for the money. "

http://www.bloomberg.com/apps/news?pid=20601103...

I hate to say it, but from my perch I am desperately hoping that everything fails so quickly that we can’t keep trying to save it. At least then we will be faced with reality in a way where we can work towards something positive, instead of spending the next 30 years merely trying to pay off the excess of the last 30 and not moving forward at all.

I confess, I'm not really sure what to think about all this spending to dig us out of this hole. It certainly seems to me that some significant portion of our previous spending contributed to our current position in the hole. It's a scary consideration.

But I have to further confess, the portion quoted above frightens me even more. It strikes me as a fantasy to believe it can all just crash--and then we will suddenly be able to "work towards something positive" (and seriously, that is so vague it's meaningless) without having to spend "the next 30 years merely trying to pay off the excess of the last 30".

It's a fantasy, isn't it? The past excess is still present, in terms of the debt.

It frightens me that I'm not immune to this sort of fantasy myself.

It frightens me to see the subsequent behavior of the executives of AIG. (And I'm not immune to the resentment anyone feels when those idiots--and they had to be idiots to get to that point in the first place, right?--spending hundreds of thousands of dollars pampering themselves because the bailout had been stressful for them. It makes me want to go buy a pitchfork. It makes me want to hone the spikes of my pitchfork until they're really, really sharp.)

That Bloomberg article you've linked to makes it seem--to me, at least--much more complicated than you do.

Do you really know enough to hope it all just falls down?

It depends what you mean by "suddenly." It is a fantasy to believe that it will be easy, and I think that if we do crash we are in for a decade or more of extreme hardship. On the other hand, it is exactly the same concept as triage during a disaster. During small scale disasters the smart thing to do is separate people into groups based on the severity of their injuries and to put the most resources on those in the worst shape to try and save them even if it means ignoring people that would normally get attention. As people that have moderately severe injuries aren't treated, they get better or worse and if they get worse then they get attention. During a massive disaster though, it is a given that you don't have enough resources to really help the ones worst off, and trying to just guarantees that all the people that could have been saved will get worse and to the point where it is impossible to save them too.

So when I say I hope things get worse quickly I don't mean that I want there to be a collapse. I mean that I view the situation as a nuclear bomb detonation but the focus is still on the worst casualties that are doomed instead of the millions that could be helped given a better shot of not dying...and their interventions are working just enough that it gives them confidence, and blinds them to the bulk of the suffering. I am saying I hope something major happens to wake them up and start using resources to help the people on the edge: increase food distribution, public transportation, heating, unemployment insurance, housing, etc. Otherwise they will wake up one day and realize that by focusing on the worst cases, they missed helping the rest.

Since being a freemarket capitalist no longer leaves me a place in this world, I have decided the best course of action for me is to now advocate the nationalization of all major financials and industrials. Let Barney Frank be in charge.

I'll join the IBEW, eat slim jims and beer for dinner and watch sitcoms and football games each evening.....and look for the opportunity to go on disability pay.

I figure it will take another 30 years for all of that to implode..........but by then I should be dead so let's go for it.