October 4, 2008
The Art of the Possible
Several long-time commenters to Big Lizards have decried the Paulson-Bernanke rescue package. The line of argument is that, instead of a massively statist approach (we certainly agree on the description), we should have allowed the "free market" to correct itself.
I agree, this would have been a very much better approach -- if we had a free market to begin with. But we don't; we have a mixed socialist-free market, and that is what we will have for the forseeable future. So in the real world, the claim of the naysayers is that "We should have allowed the socialist-statist-populist-quasi-free market to correct itself."
Perhaps they have confidence that such a bizarre hybrid is capable of self-correcting; I do not.
We all agree, I think, that the crisis of the frozen credit markets was created by ham-fisted government intervention; but this does not logically imply that the solution is for government to just back off and walk away. I have been using the following analogy; you can dispute whether the analogy is accurate, but at the very least, it will tell you why I, myself, believe we needed further government intervention (intelligently, this time) rather than just letting the entire economy go on autopilot in whatever direction it chooses:
Imagine you are the anaesthesiologist during coronary bypass surgery. Halfway through the operation, you realize, to your horror, that the surgeon performing the bypass is a buffoon who doesn't know what the hell he is doing. He has already screwed up the operation, and the patient is starting to die.
Obviously, the first step is to remove the dolt from the operating theater. All right; you do that. It takes a little muscle, but you get the imbecile out of the room. But now what do you do?
The critics of this plan say that you should simply turn off the lights and walk away, letting the patient's own biology resolve both his original problem (coronary occlusion) -- and also the new problem that his chest cavity has been surgically opened up and is still gaping wide. He is attached to a heart-lung machine, and the bleeders are temporarily clamped.
I say that the intervention by the admittedly incompetent heart surgeon has created a situation where, no matter how he got into this position, the patient will die if somebody doesn't take over the operation, fix the problem, and finish the bypass, including closing the patient up. In other words, even though the patient's worst problem was actually created by the previous "ham-fisted" surgical intervention, nevertheless, the patient need further surgical intervention, or he will die on the table.
If I am right that our current financial situation resembles my operating-room analogy, then it is certain that you cannot solve this crisis by backing away and allowing the (socialist-statist-populist-quasi-free) market to work a fathomless miracle in the next few months.
I believe my analogy is accurate; if you disagree, tell me why. But don't simply wave the magic wand of the "free market" when we have no free market in the first place.
I absolutely agree with y'all that if we had a freer market -- specifically, if GSEs like Fannie and Freddie had not agreed to buy up questionable mortgages (or MBSs) to relieve banks of their basic lending responsibilities; if the government had not forced banks to lend money to people who could not afford to pay the mortgage; if the SEC had not forced the stupid "mark to market" rule onto the banks -- we would not be in this situation in the first place.
But having gotten there, we cannot solve this crisis by just walking away. Once we resolve it, as I believe the rescue plan will do, then we can, we must, take steps to reintroduce market forces into the housing market: We must reward borrowers with good credit and keep out those seeking a mortgage on a house that they cannot afford.
It sounds harsh, but some people are so poor -- or so irresponsible -- that they're really fit for nothing but renting... and sometimes not even that.
But the remarketization of the mortgage industry is a long and gradual process; it will take many years. There is no royal road to fiscal sanity.
But that is a long-term issue that cannot be resolved in the same breath as fixing a credit crisis that threatens to bring the entire economy crashing down around our ears, destroying fools and wise men alike with undifferentiated abandon.
We're stuck with using government intervention to resolve the issue, and government intervention necessarily includes politics. But what kind of intervention?
Otto von Bismark shrewdly remarked that "Politics is the art of the possible." What he meant is that it's all well and good to come up with the perfect plan (from your perspective) to solve some crisis; but no plan is "perfect" that does not include garnering the necessary votes to be passed.
In this case, as in so many others, the best is enemy of good enough: No matter how beautiful, simple, and obvious is your plan, if you cannot get enough votes to pass it, it's completely useless.
While the Republicans have many wonderful plans that utilize the market much more effectively than this one, none of those plans will be passed by a Democratic Congress. To paraphrase a former secretary, we go to the vote with the Congress we have -- not the Congress we wish we had.
Ergo, our syllogism:
- We must do something; we cannot simply walk away and hope for the best;
- That "something" must include significant government intervention in and interference with the market; the situation is already too "fouled" up to allow us the luxury of avoiding interventionism;
- Whatever that something is, it must be acceptable to at least a handful of Democrats in the House -- and to at least eleven Senate Democrats to avoid a filibuster.
The Democrats are not going to roll over for us; thus we cannot enact a significantly more market-based plan. The core of the Paulson-Bernanke plan is as good as they'll let us get, and we're by and large stuck with it. Our only option is to chip away at the garbage around the edges added by liberal Democrats.
I understand that the plan that Congress enacted and the president signed on Friday sticks in the craw of many of you; it gags in my own throat. But we live in a real world, not Fantasyland; there simply is no other plan that can actually pass the 110th Congress.
(And if you think we can just wait a few months until the new Congress is sworn in, I can almost guarantee you that you'll like the 111th even less than you like the 110th.)
This deal was quite literally the best we could get enacted into law... and it was much, much better than doing nothing. So we had no choice.
Face it, gentle readers... you cannot put your foot down when you're stretched over the barrel.
Hatched by Dafydd on this day, October 4, 2008, at the time of 10:09 PM
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The following hissed in response by: BarbaraS
You are right, Dafydd. There was nothing else we could do. It is amazing the number of people I have heard say we should just leave it alone and let the market adjust itself. If some of these people had ever lived during a depression they wiould sing a differnet tune. I have and the despair that ruled most of the country was terrible. I didn't care how much money it took to straighten up the market. The alternative was too scary to allow to happen. Hopefully this will work. If not, then God help us.
The following hissed in response by: Dick E
I agree with your line of reasoning and your conclusion.
But you asked for input as to whether your analogy is accurate.
I think you’ve demonstrated my college logic professor’s point that argument from analogy is always, by definition, invalid (in a strictly logical sense). In this case, the bypass patient will certainly die if not tended to in very short order. On the other hand, given enough time our current financial crisis would most likely heal itself -- we might have to endure a Greater Depression in the meantime, and it might take WW III to snap us out of it, but we would at least have laissez faire purity. How nice.
Maybe a better -- but no more logically valid -- analogy would be an illness that is treatable, but only with a medication that has very nasty side effects. Then let’s say that, left untreated, the body will eventually rid itself of, or otherwise cope with, the illness, but only after years of debilitation, unemployability and financial ruin. Sometimes it’s better to take your medicine.
The following hissed in response by: snochasr
I see nothing wrong with your analogy, but why not extend it just a bit? Here you have this unlucky patient, and you cannot simply leave him to his own devices (or even his and yours together). So, what you do is to bring in ANOTHER buffoon of a surgeon, and tell him to perform whatever operation he thinks best?
The solution isn't to leave the patient alone to die, but unless you can get a /competent/ surgeon on the job, he will die anyway. If we can't get some competence in Congress, we're doomed.
The following hissed in response by: BigLeeH
I don't see why you need to reach for a new analogy when a perfectly useful one is already in play. Our situation is comparable to a mildly-religious Hindu stuck on a desert island with nothing to eat but Boehner's crap sandwich. We can refuse to eat the sandwich and hope for reincarnation, or we can take the position that a smear of pasteurized DemoCrap(r) won't kill us and the bread may well keep us alive until we finish braiding a fishing line.
It is galling, though, that the manufacturers of of "ALL NEW! Extra Chunky! DemoCrap Interventionism" are planning to feature us in their adds on the dangers of pastrami.
The following hissed in response by: BarbaraS
I think there will be a massive turn over in congress at the election. People are too angry for this not to happen. I hope it is not only the republicans who are replaced though. The democrats seem happy with their crooked representatives. How many are under indictment now? Republicans seem to think their representatives should be pure and above reproach like Caesar's wife.
The following hissed in response by: Dafydd ab Hugh
If we can't get some competence in Congress, we're doomed.
No arguing against that!
The above hissed in response by: Dafydd ab Hugh at October 5, 2008 12:06 PM
The following hissed in response by: Pam
Dafydd, I looked at the Battle ground poll and McCain id down by 4. Look it over if you can.
It looks like McCain lost ground with Republicans over the bailout. If that is true, then that might not be so bad if he can get them back. The question is can he get them back?
Maybe, Palin can if McCain cannot!
The following hissed in response by: AMR
I did not want the bailout, but I was fearful that without it our citizen's, who are not used to having to endure sacrifice, would panic and we would see our country fall into a state of anarchy.
The above hissed in response by: AMR at October 5, 2008 4:53 PM
The following hissed in response by: Consul-At-Arms
I've quoted you and linked to you here.
The above hissed in response by: Consul-At-Arms at October 5, 2008 11:27 PM
The following hissed in response by: Karmi
Government has been spending and intervening for way too long, and now – with this bailout – they have been further empowered. BTW, the “patient” has been dead for a long time, and a new doctor isn’t going to help this dead “patient” one bit. That’s akin to beating-a-dead-horse…so to speak.
Can America recover from this? World History would say ‘NO’. With at least a third of Americans working to end capitalism and “White America,” I would probably place my bet along with World History.
The above hissed in response by: Karmi at October 6, 2008 12:17 PM
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