By now it’s abundantly obvious that no one of any consequence—with the dubious exception of Newt “Kiss of Death” Gingrich—has been following my analysis of the current economic situation. Either that or I’ve been singularly unprescient. In any event, the things that I said were going to be happening don’t seem to be happening, and the Paulson Plan, duly larded with “Cover My Ass” provisions for the right and left, seems destined for passage.
Or not. Republicans in the House have just voted it down. Whether they’ll reconsider depends on how fast and how far the markets fall. Maybe next week we’ll know. This is fun, isn’t it?
I’ve been following at lot of the action through Greg Mankiw’s blog. Greg is a Harvard economics professor of the Milton Friedman persuasion—immensely bright and not at all averse to letting you know about that fact. In the early days of the “crisis”—say a week ago—Greg was definitely a skeptic—well, pretty much. Like Milt—like a lot of economist superstars—Greg’s a bit of a playa. He didn’t say that Paulson’s bailout scheme was a bad idea so much as he said that people he respected were saying it was a bad idea.
But that was the old Greg. Now there’s a new Greg, the “Hank Paulson is a very smart man and he knows a lot more about this than I do” Greg. In part, I suspect that simply reflects the growing feeling that Wall Street is just going to shit all over us if we don’t give them their damn $700 billion, and fast! They’ve already counted that money. Hell, they’ve already spent it! That was the cash they were counting on to get them through Christmas!
What’s actually in the bill may be moot at this point, but if you want to know, Henry Blodget at “Clusterstock” (is this some sort of joke? Dunno) walks you through it here. About the only add-on with actual teeth is the restriction on compensation packages for new hires (not existing employees) of companies that take federal assistance. Henry, clinging to conventional wisdom, thinks that this is a bad idea. How can you attract top, top talent without paying top, top salaries? But I’m thinking that they’re going to be a lot of “top, top” Harvard/Wharton/yadda-yadda-yadda MBAs looking for jobs on the Street these days. Besides, it’s the “top, top” people who got us into this mess anyway, right?
Afterwords
I was never a real Reagan hater, but those that were must be happier than they ever dreamed of being. The Ronnie Era notion of super-charged, super-efficient markets that never make a mistake has blown itself up in near-unbelievable fashion.
To get back to Greg, he does a little ass-covering of his own here, reprinting a letter from one of his many pals, who makes what I consider to be some good points:
“The U.S. has long been a beacon of free markets. When economic conditions turn sour in Argentina or Indonesia, we give very clear instructions on what to do: balance the budget, cut government employment, maintain free trade and the rule of law, and do not prop up failing enterprises. Opponents of free markets argue that this advice benefits international financiers, not the domestic market. I have always believed (at least since I began to understand economics) that the U.S. approach was correct. But when the U.S. ignores its own advice in this situation, it reduces the credibility of this stance. Rewriting the rules of the game at this stage will therefore have serious ramifications not only for people in this country but for the future of global capitalism. The social cost of that is far, far greater than $700 billion.”
Whether the Paulson Bailout goes through or not, I think we are just entering the woods, rather than exiting them. I am afraid that the “right” policies, like cutting/eliminating subsidies, tariffs, etc., will be just what the American people won’t want to hear. But people will be looking to Washington for “leadership,” which is good for the Democrats. And poor Sarah Palin is looking and sounding so last month. Don’t worry too much, honey. At least you’ve got a job.
