Doug Thompson

Standing corrected on bailout
By Doug Thompson
I got some very valid criticism a few weeks ago from somebody called joe2baba on the Free Weekly’s website.
I’d written about the finance-sector bailout. Put simply, I confused political necessity with economic necessity. The distinction is important.
Apparently, I’m not as immune to blurring the two as I thought.
I’ll let joe2baba speak here, albeit with some polishing:
“More than 150 economists signed a letter saying this sellout was a bad idea. It is a bad idea because it is not $700 billion. There was no cap in the legislation. It is 700 billion at one time. This is money we DO NOT HAVE we will completely destroy the dollar. When that happens the party is over as we will not be able to borrow a dime… You can you say goodbye alternative energy, goodbye Social Security, goodbye Medicare and Medicaid, can you say goodbye to our infrastructure
“You have swallowed hook line and sinker the illogic that we simply had to do ‘something’.
Economically, I agree with the rest of the post, which says that we ought to let the market punish the people who messed up. That kind of “natural selection” is what should happen. Capitalism is efficient because it is ruthless.
So I concede the point. When a captain lets his ship an iceberg, he should go down with the ship.
That leaves us with a problem, however: The ship’s passengers.
If we can find a way to leave the captain aboard all by himself, I’m all for it.
If we can find a way to leave the wheeler-dealers with all the damage and debt, I’m all for that too. The trick is to do that without freezing up credit for everybody from the state government in California to, say, some guy named Joe who wants to buy a plumbing business in Ohio.
You can make an argument that bailouts only postpone the final reckoning. You put off the crisis but that it only makes it worse later.
The argument’s already been made that the bailout will ruin the dollar, taking everything else down with it.
So here’s the only real difference between joe2baba’s opinion and mine: I think we ought to try. Even Warren Buffett, the most trusted capitalist left, is in favor of doing something.
However, I freely admit again that I mixed up politics and made it sound like economics, and that was a serious error on my part. I got caught at it. Politically, it’s necessary to do something. Economically, it’s not. We might be better off in the long run to let this poisonous debt pass out of our system. We have the certainty of short-term pain if we do.
Maybe I’m just flinching from the pain. Maybe we can’t avoid it. But maybe we can, and we have a lot of people including Buffett who say we ought to try. It is not, however, in the strictest possible definition of the term, necessary.
The bailout problem is getting much, much worse too. Now the auto industry is clamoring for rescue. So if you go my way and say some bailout is necessary, where do you stop?
I have a really hard time swallowing an auto bailout when I’ve replaced the transmission in my mini-van twice. This is after having parts pop off of two previous American-made cars of mine.
The toughest call to action I’ve seen is from Steve Pearlstein, the Pulitzer Prize-winning economic columnist. He argues for a sort of managed bankruptcy for automakers:
“Only a bankruptcy court can reduce the burden of pension and health benefits to 600,000 retirees that are slated to cost the companies $90 billion over the next decade.
 “Only a bankruptcy court can override the state laws that make it difficult and expensive for Chrysler and GM to pare back a combined network of 10,000 dealerships, about 10 times more than Toyota has in the United States.
 “And only a bankruptcy court can impose on members of the United Auto Workers pay and benefit packages comparable to those paid at the nonunionized plants of foreign manufacturers that have been stealing market share from the Big Three for decades.”
The Republicans are for the corporations and the Democrats are for the United Auto Workers. Looks like we’re sunk.