(Guest post by Greg Forster)
Since I’m on the subject of the lack of decent standards for public debate in America (see below), could supporters of the bailout please observe a moritorium on the following practices?
1. Attributing to opponents of the bailout, without citation, the position that a general economic crash or depression would be “no big deal,” or not as bad as the bailout. As far as I can see, the most common argument against the bailout seems to be that no general economic crash will occur. You may disagree; you may even have difficulty taking that position seriously. But to say that they’re cool with destroying the American economy is really a pretty obvious straw man. (Except, of course, in those rare cases where you actually do catch somebody saying that a depression would be no big deal, as here. But attributing that view to opponents of the bailout generally seems to me to be clearly false.)
2. Calling opponents of the bailout “irresponsible,” as several people did in The Corner last night. Of course, the position that a new Great Depression would be no big deal would indeed be irresponsible – if opponents of the bailout held it. But they don’t. As I understand it, they think financial markets will take a sizeable hit, as a natural result of bad investment decisions made by the major Wall Street firms under prompting from two decades of really bad housing policy in Washington, and then life will go back to normal. They further think (again, as I understand it) that the bad decisions made during the housing boom are going to have economic consequences regardless of what we do, and it’s better for those consequences to fall quickly on those who deserve them than to spread them out over all of society and have them take a long time to clear. (And that’s to say nothing of the opportunity the bailout bill offers for the authors of the old bad housing policies to enact new bad housing policies as part of the bailout.)
Let me be very clear that I have no opinion on the merits of the bailout itself, and I’m glad that it’s not my job to have one. It seems to me – and I’m no finance expert, so I welcome correction if I have this wrong – that the argument for the bailout goes roughly as follows:
1. We are in a financial panic.
2. During a financial panic, markets don’t price assets rationally in the short term (this is what I think is meant when people talk about assets being basically sound but having a “liquidity problem”).
3. If nothing is done to correct this irrationality, panics escalate into general economic crashes.
4. During a panic, the Treasury Department (or some other government entity) is able to price assets more rationally than the maket in the short term, and thus it can avert a general crash by buying the assets and then selling them off after the panic has subsided and markets are rational again.
Now, all of these are, at bottom, claims about empirical facts. And I lack the factual knowledge to say whether any of them is true or false. People whose opinion I respect are falling on both sides of the fence. And I have no pressing need to sort through all their arguments to figure it all out. So I’m content not to have an opinion.
But if I did have to choose, I’d start by looking at which side is treating the other side more fairly. It’s a pretty good rule of thumb (though not infallible) that the people who are in fact right are going to be more confident they have truth on their side, and you can tell who are really confident they have truth on their side by looking at who’s afraid of a fair exchange of ideas.