The Political Economy of Bailout Nation
One consequence of handing out a $700 billion bailout, with the number $700 billion determined by the fact that “We just wanted to choose a really large number” is that it creates a new political and psychological anchor for all kinds of other special pleading. Take, for example, this tale of the looming auto industry bailout:
With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. “It seemed like a lot when we first started pushing this,” says Democratic Sen. Debbie Stabenow of Michigan, one of the bill’s sponsors. “Suddenly, it seems so small.”
And how did they come up with $25 billion? Well:
Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.
You can hardly blame the grasping hands from just trying to get as much cash as possible, but you can see here that the auto makers don’t have any real plan beyond getting as much bailout as they can and then hoping for the best. As a policy matter, it would almost certainly make more sense to bail out people — spend money on helping individuals adversely effected by economy trends to start their own businesses, relocate to places where their skills are in demand, gain new skills, or even just make ends meet during a difficult transition phase. Spending money to prop up failing firms prevents their considerable assets from being redeployed in productive ways. But as the article indicates, once you start handing out giant bailouts it becomes increasingly difficult to say “no” to the next politically powerful constituency that wants some bailing out.
33 Responses to “The Political Economy of Bailout Nation”
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September 25th, 2008 at 9:20 am
The only acceptable auto industry bailout would be to assume their health care costs–which the government should do wonderfully, then hold it up as a model for national health insurance.
September 25th, 2008 at 9:21 am
“A billion here, a billion there, pretty soon you’re talking about real money.” — Everett Dirksen
September 25th, 2008 at 9:33 am
‘Hey y’all, we’re real sorry, but we can’t help you actually get universal health care because we’ve decided instead to give all the money directly to the biggest insurance companies, in exchange for some sort of fake rules which no one will care about.’
September 25th, 2008 at 9:35 am
We’re making exactly the same mistakes the Japanese made to usher in their decade of economic stagnation. Good old USA- the nation that’s forgotten nothing and learned nothing.
September 25th, 2008 at 9:43 am
$25 billion for the auto industry? Sure, why not. $1 billion in extra funding for transit? Dream on.
September 25th, 2008 at 9:49 am
Hey Matt, that pic you’ve got up there is the former GM World Headquarters. They abandoned it over a decade ago to move into downtown Detroit’s Renaissance Building. The building in the pic is now known as Cadillac Place and it’s home to hundreds of State of Michigan bureaucrats.
September 25th, 2008 at 9:52 am
I say we do ‘em up like AIG, take an 80% stake, retool the production lines, and have them start churning out rail ties and trolley cars.
Or whatever we decide we need. I mean, why not? US automakers are irrelevant anyway, and if we’re looking at socialist-level investments we might as well reap Beijing-level gains.
September 25th, 2008 at 10:07 am
El Cid raises a point I’ve been pondering a lot: why hasn’t the healthcare industry hopped onto this bandwagon? They certainly haven’t been shy about demanding governmental aid in the past, and with the $$$ being thrown around these days, it seems like you could actually design a bit of corporate welfare that actually had some very large progressive impacts.
For example, one progressive (though incremental) idea for healthcare reform is a national high-risk pool. In that system, government basically provides its own coverage to soak up high-risk, and therefore expensive-to-cover, individuals. In effect, large numbers of people who are either uninsured or “captive” to private plans (b/c if they dropped their current plan they would never be able to get other private coverage) get government health insurance. Several states have experimented with this scheme, but the economics are pretty prohibitive at the state level, so the programs don’t work as well as they should. But as long as we’re throwing hundreds of billions of dollars around, it seems like a national risk pool should be doable.
The liberal creds of a program like this would be great. Preexisting conditions are a major reason for both uninsurance (for people who have lost coverage) or skyrocketing out-of-pocket costs (b/c a plan can’t drop a sick person but it has certain abilities to raise rates). A government system would also likely have mechanisms to improve affordability. But it actually seems like AHIP would totally love this too! The insurers would get to offload their “toxic assets” (in the form of people with expensive-to-treat conditions) onto the government, while keeping their profitable folks. At the same time, liberals get a trial run for a government healthcare system that could be used to show off improvements in quality, management, and efficiency. And, of course, many more people would be getting care.
I guess this is the most frustrating part of this bailout. It seems like this amount of money could be spent in ways that still prop up big private companies, while also benefiting the public. But instead we’re getting no-strings-attached giveaways to the banks (who resolutely refuse to accept homeowner benefits) and the automakers (who are actively HURTING the country with their carbon emissions).
September 25th, 2008 at 10:16 am
The Falklands war cost England 1.19 Billion USD by M. Thatcher’s estimate. The population of the Falklands at the time was 1820 people. The UK could have given each resident 64,000$ (this was 1982, don’t forget) for the cost of “winning” the Falklands.
The US bailout of 700 Billion is enough to give each adult in the US over the age of 19 $3100 as a sorry-for-fucking-up-your-future and it would probably win a little more political credibility than this circus.
Companies that sink themselves are not fit. Let a species that is actually viable fill the biological niche. Oh wait… that was an evolution analogy… Sorry.
September 25th, 2008 at 10:19 am
Regular people will get a bailout when regular people legitimately threaten to destabilize our economy and society without one. If Americans were blockading traffic intersections in lower Manhattan, or marching into the Capitol to conduct sit-ins, or organizing mass strikes, then Congress and the economic elite would feel the need to appease us. If we’re just going to sit here compliantly, however, we’ll get nothing but scraps.
The New Deal wasn’t designed to save us from Capitalism — it was designed to save Capitalism from us.
September 25th, 2008 at 10:27 am
This is such a f*cking disaster. Rich gets it right in #1. I suppose it can only be expected that if we are no longer going to be a free market capitalist country, we would go in the WRONG direction.
September 25th, 2008 at 10:56 am
Get a clue, Matt. People are small enough to fail.
September 25th, 2008 at 11:10 am
I’m reminded of the lyrics of “Everything Counts” by Depche Mode:
The graph on the wall tells the story of it all. Picture it now. See just how the lies and deceit gained a little more power. Confidence, taken in by a suntan and a grin.
The grabbing hands grab all they can. All for themselves after all. It’s a competitive world. Everything counts in large amounts.
September 25th, 2008 at 3:32 pm
About that “You can hardly blame the grasping hands” etc.
I keep reading pundits and bloggers who say things like this in the course of making some other point. The general thought has the form “you can’t blame so-and-so for .” It always trips me up. Why can’t I blame them? Shouldn’t people be held to standards of decent behavior? Isn’t it a shameful act to ask for something you patently don’t deserve, or to exploit a national crisis for private advantage?
September 25th, 2008 at 6:19 pm
VoteNoBailout.org
September 30th, 2008 at 11:49 pm
“Non-American (there are quite a few of us) Says:
Companies that sink themselves are not fit. Let a species that is actually viable fill the biological niche. Oh wait… that was an evolution analogy… Sorry.”
Actually the automakers’ actions display Darwin’s Origin of Species findings quite nicely . We mistakenly think evolution is some type of advancement that favors the fittest/strongest. Actually, Darwin explained how a species best suited to thrive “in its environment” will indeed thrive there, regardless of whether it is the strongest/smartest based on objective measures. We need to be clear on what environment our automakers exist in. It is a hybrid socio-political-economic environment, not exclusively an economic market-share & profitability environment.
Confusing? Well imagine an office where butt-kissers are rewarded and cherished despite their incompetancy. Guess who will come to thrive via large numbers in such an office? It wont be the competant non-buttkissers.
October 8th, 2008 at 10:22 am
Who is speculating about how our political economy will look post bailout when we will have about three banks, Fed with trillions of dollars to dispense to friends and a Congress and population who won’t understand their roles in this new confusing world? Will the democratic process have any meaning when the purse and power are trying to run the country without interference from we nincompoops? I don’t see that the general population will have the clout to insist on better health or security coverage when private and public debt and wars to win overwhelm the public good (whatever that is). What is the 21st century political philosophy?
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