Categories
Economics Financial Crisis

The Public Purpose of Bailouts

[digg-reddit-me]As in the financial crisis generally, the executive branch, the media, and the Congress have all focused on the corporations whose brands are at stake rather than the people affected. This is understandable. Stalin’s famous aphorism that a million deaths are merely a statistic, while a single death is a tragedy, can be adapted to economic hardship as well. A million bankruptcies by individuals are a mere statistics, while the bankruptcy of a famous brand such as Chrysler or Citibank is a tragedy, affecting each of our lives – as signs come down, commercials stop airing, and the products and services we receive now have a different branding.

But saving a brand name should never be the business of our government. In a government intervention into the market, a brand name might be saved – but this should never be a policy goal. Yet, this is precisely the manner in which this question is presented to the public: Should the government bail out Citibank? Or Chrysler? Or Starbucks? Framed in this manner, the answer should always be, “No.”

The real issue concerns the proper role of government in a market economy.

In this crisis, the issue of how involved the government should be in the economy has largely been resolved. “Do nothing,” doesn’t seem to be a realistic option in the midst of a crisis. In times of panic, we are all Keynesians. The unwinding after the crisis promises to re-ignite a fight about the proper role of government in the economy.

The real issue at the moment then, is the follow-up question: how to balance market forces and stability in a market economy – and specifically, in the midst of this crisis. Mitt Romney, in a New York Times editorial that proved especially influential, made the case for why our current system can effectively deal with the bankruptcies of the Big Three Automakers. Paul Krugman took what has become the consensus liberal view: if only we weren’t already in a credit crisis, bankruptcy would be a good option.

For the past year, this has been the argument – with the same people sometimes switching sides depending on the particular company. Capitalism inevitably involves creative destruction – but in the midst of a crisis of confidence, any destruction becomes seen as potentially catastrophic, as the collapse of Lehman Brothers demonstrated.

But government intervention should avoid saving corporations. The government should, when it intervenes in the market, strive to change the forces at work rather than to inject money into corporations themselves.

Corporations, whose primary purpose is to amass wealth by any means available for their owners, and who always manage to simultaneously amass wealth for the managers, cannot be trusted with public money. There is no public purpose to such profit-making. The public value of a corporation comes from it’s incidental activities – the means by which it is able to amass it’s profits. By bailing out General Motors, the government would be giving it’s money away for no public purpose. But the government does serve a public purpose by keeping General Motors’ factories churning out cars.

Within that distinction lies the difference between outrageous abuse of taxpayer funds and a valid public purpose. The more difficult question is how to avoid the abuse while serving the purpose.

The Bush administration has failed to do this – which is why there is fresh outrage at every million dollar junket by AIG executives or private jet ride by auto executives.

Continue reading “The Public Purpose of Bailouts”
Categories
Life National Security New York City The War on Terrorism

The American People, Properly Informed

For those of you that don’t know, I take the Long Island Rail Road into Manhattan every morning to work. I always get in the first car at my station. When I take the subways, I go from Penn Station to Times Square to Grand Central Station, where I get off to go to the Chrysler Building where I work.

So, reading that a Qaeda group wanted to attack the LIRR during this holiday season hit close to home:

The FBI’s source reportedly told agents of an al Qaeda-connected group’s desire to place bombs or suicide bombers inside the first and last Long Island Rail Road commuter cars and detonate them as the train entered Pennsylvania Station in Manhattan, also used by the Washington-New York-Boston Amtrak system and the New York City subway.

It’s the particulars that are chilling. That and the scare headlines – which were quickly eclipsed by the massive terrorist attack in Mumbai. But it’s not as if I am going to let such a threat change my life, my routine. The article also included a number of caveats – including a suggestion that the FBI wasn’t sure this had moved past the planning stage.

But it seems to me that making this potential means of attack public is quite a positive service, and suggests that maybe the national security infrastructure of the United States finally has figured out the lesson it had failed to learn after September 11:

The federal government cannot be everywhere. The best defense of our way of life, of our institutions, of our government, of our people is the American people themselves – properly informed.

By letting us know, the government is treating us as adults rather than children – and betting that a few million people paying extra attention is worth something.

Categories
Domestic issues Economics Financial Crisis The Opinionsphere Videos

How the Media and the Politicians Failed to Understand the Detroit Bailout

Al Gore, in his book, Assault on Reason, described a media and political focus on “gotcha” journalism, on gaffes, on irrelevancies and personal scandals, on the Freak Show – rather than a focus on long-term issues, on character, and on principles as one of the major factors that has led to our current crises. “News” coverage is dominated by questions of whether this or that politician has a mistress (he probably does) or whether this or that entertainer is secretly going out with this or that sports star. Our news has become tabloid.

If, as the drafters of our Constitution believed, a well-informed citizenry is essential to the proper functioning of any nation, then our nation clearly cannot be functioning properly.

This lack of good information, this focus on the trivial over the significant, was evident when the CEOs of Ford, Chrysler, and General Motors went to Washington to beg for handouts. As Jon Stewart sagely observed in a pox-on-all-your-houses bit:

Unable to understand the actual problem, Congress seizes on tangential details for grandstanding purposes.

[Cue tape of various Congressmen expressing various types of outrage in semi-novel ways regarding the fact that each CEO flew to Washington in a separate private jet.]

The media coverage did manage to convey a few things:

  1. All these big shot CEOs travel by private jet.
  2. The Big Three automakers support, directly and indirectly, some 2.5 million American jobs.
  3. These American car companies made a big mistake by focusing on gas-guzzlers on the assumption that oil prices would remain low indefinitely.

Everything else was clouded in some confusion – not all of which is the media’s fault. Many economists asserted that they would normally want the government to avoid bailing out these automakers, but in this economy, believed the government must act. Some opinion-makers blamed the automakers troubles primarily on union-negotiated legacy costs – on the various deferred wages and other forms of deferred compensation the automakers entered into contracts to provide. But what seemed lacking from either the Congressional hearings or the media coverage was any serious and sustained attention to the problems themselves.

Categories
Law National Security

Why do we care about international standards?

Why do we care about international standards? Because for more than one hundred years, beginning after our own Civil War, the United States has been at the forefront of setting international standards for the conduct of warfare….These are not simply “diplomatic” or”foreign policy” issues; the US military and our Defense Department were at the forefront of developing these standards….Surely one of the most basic rights is the right to be treated humanely and in accordance with legal rules.

John Bellinger, legal advisor to Secretary of State Condoleeza Rice, in a memo to policy-makers in the Bush administration on July 17, 2005, according to Barton Gellman in The Angler.

Categories
Barack Obama Domestic issues Economics Energy Independence Environmental Issues Green Energy

Nuclear versus Wind

Alex Tabarrokat Marginal Revolution points out the downside to wind power at those times when “the market value of the power is zero or negative.” He points out a story of how wind farmers in Texas were actually paying the council in Texas that regulates the electric grid to take their electricity so that they would be eligible for tax credits. 

Certainly this is ridiculous – but I don’t think the only conclusion to take from this is that we need nuclear power plants. Tabarrok acknowledges that the reason the market value of power is so long in certain locations is the poor state of our energy infrastructure – which loses a large amount of energy that is transported over long distances. He writes that nuclear plants would be as clean as and less expensive than “costly and inefficient transport networks.”

But he doesn’t deal with the issue of nuclear waste – which makes nuclear power far from clean. He doesn’t discuss – and you can see why as this is just a short blog post – the positives of having a more flexible energy infrastructure.

Whether nuclear is the only feasible option comes down to two questions Tabarrok doesn’t address:

  • What is the cost of upgrading our energy infrastructure?
    This New York Times piece by Matthew L. Wald doesn’t make it seem as if the problem requires new technology as much as an upgrade of a very old system: “The basic problem is that many transmission lines, and the connections between them, are simply too small for the amount of power companies would like to squeeze through them. The difficulty is most acute for long-distance transmission, but shows up at times even over distances of a few hundred miles.”
  • Do you have a long-term strategy for dealing with the radioactive pollution generated by nuclear reactors?
    To date, I don’t think there are any good solutions to this.

A third question might concern the safety of nuclear power plants. But I think this threat – whether of a meltdown due to terrorism or error – is largely overstated.

Categories
Barack Obama Conservativism Domestic issues Health care Political Philosophy

Health Care’s Place in Obamanomics

This tidbit from James Pethokoukis’s blog over as USN&WR makes me want to read Douthat’s and Salam’s new book:

Another interesting healthcare reform option is highlighted by Ross Douthat and Reihan Salam in the book Grand New Party. Uncle Sam would require individuals and families to put 15 percent of their income into health savings accounts. If you run out of money before year-end, the government steps in. If you don’t, you get the money back or it rolls over into a retirement account.

This idea seems to have promise – though without seeing the ancillary details, there are some glaring issues with it on process grounds, even as you can see the proposal working out ratehr well under most circumstances in the world. It seems to penalize those with families, by reducing their retirement funds; those without an income would not have to face the trade-off that seems essential to their system working – choosing between retirement savings and health care; and preventive medicine would seem to be discouraged, although it is seen by most wonks as the surest way to reduce overall health care costs. Why get a regular check-up if you’re depleting your retirement savings to do so?

The plan seems designed mainly to tackle two political problems – the lack of health insurance for many Americans; and the moral hazard of having unrestricted access to health care. It’s rather ingenious, even if I’m not sure that the second factor should be taken too seriously. People want to avoid going to the doctor – or at least I do. This policy almost seems designed to create a massive sociological experiment. Aside from short-term medical emergencies, people would be forced to create health care and retirement strategies that balanced their long-term financial needs with their short-term health care decisions. Should I get the botox, or save more for retirement? Should I schedule this regular check-up? Should I spend money on these various preventive steps and live longer – or save more so I can spend my fewer years in a splendid retirement?

I’m sure it’s worth checking out the book just to see what other ideas Salam and Douthat have to reinvigorate conservatism.

But for now, Obama’s plan – or some variation between the rather similar Clinton, Obama, and Edwards plans – is the right way to go. It’s the shortest route to improving our current mess.

The core problem we need to solve though isn’t that our health insurance system as currently instituted is flawed, but that health insurance as the primary means of dealing out health care is flawed. Politically, the Obama/Clinton/Edwards path of patching up the current system is the only feasible one at the moment – to improve the status quo marginally. But there are far too many perverse incentives – for health insurance companies, for patients, for doctors in a health insurance system.

Of course, James Pethokoukis has greater things on his mind than our rotten health care system. He seems to be concerned that if Obama is able to pass a program that actually gives substantial benefits to Americans, it will move America to the left. Which is why he has now declared that it is the responsibility of the Republicans to stop this idea or face destruction. After all – the average American hasn’t seen much improvement in their lives as a result of the government in a long time. His theory is, once a competent liberal is able to pass a plan that substantially improves a problem in the lives of many Americans, then people will abandon the anti-government rhetoric of the conservative movement and abandon the program of incessant and regressive tax cuts.

The fear of socialism lingers like a spectre.

So, Pethokoukis proposes Republicans do anything they can to stop “Obamacare,” in order to save themselves. His little speech reminds me of a football coach trying to psych his team up for the game. But he’s playing with fire.

In light of this market disaster, this financial earthquake, some necessary changes are required to be made to our grand social bargain. Free trade is a good thing – but it creates chaos in it’s wake. The financial crisis is just the latest symptom. Obamanomics is a pragmatic, liberal approach to treating the core disease – which is not free trade or globalization, but destabilization. Obamanomics does not ideologically prescribe government intervention as Reaganomics proscribed it. Rather, it is a series of pragmatic first steps. It does not have as it’s goal the creation of some Great Society as previous versions of liberalism did; and it also does not merely try to find a Third Way between the Left and Right as Clinton did.

The key factor in understanding Obamanomics is that it does not force it’s values in the hoped for end result, but instead in the processes of getting there. Rather than imagining a perfect world and attempting to bring America to this goal, Obamanomics tries to improve what is already here, especially by instituting processes that inherently reflect core values like transparency, accountability, fairness, a long-term strategic orientation, and an aversion to government coercion.

Categories
Conservativism Politics The Opinionsphere

Honoring William F. Buckley Jr.

When one declares oneself to be a conservative, one is not, unfortunately, thereupon visited by tongues of fire that leave one omniscient. The acceptance of a series of premises is just the beginning. After that, we need constantly to inform ourselves, to analyze and to think through our premises and their ramifications. We need to ponder, in the light of the evidence, the strengths and the weaknesses, the consistencies and the inconsistencies, the glory and the frailty of our position, week in and week out. Otherwise we will not hold our own in a world where informed dedication, not just dedication, is necessary for survival and growth.

William F. Buckley Jr., Feb 8, 1956, National Review, as cited by Kathryn Jean Lopez at The Corner yesterday without a hint of irony.

On this day after what would have been William F. Buckley Jr.’s birthday, it’s worth reflecting on the man’s legacy. I am not the proper individual to evaluate Buckley’s legacy completely – but I think it’s accurate to say that Buckley is one of the dozen intellectuals who has most influenced my life. I take from him lessons both positive and negative – from his wonderful, timeless, definition of conservatism as standing athwart history shouting, “Stop!” to his determined resistance to Brown v. Board of Education.

There are a number of things that struck me about Buckley – his confidence, even arrogance; his style, almost delicate; his incredible life – from spy to magazine publisher; his magazine – brash, often wrong, generally provocative; his intellectual force, especially in that book which introduced me to him, Up From Liberalism. But what struck me most of all was that he was sensible. I mean that as the highest compliment.

He opposed Brown v. Board of Education, as poor of a decision as that might have been, for sensible reasons – in an attempt to preserve a system of federalism and social harmony. He opposed liberalism for sensible reasons – preferring the status quo to attempts to remake humanity. When liberalism became overripe and overreached – he was there condemning it. When conservatism became corrupted and overly ambitious, he was a voice of warning.

Buckley was not always right – but he was generally sensible – and it’s hard to expect more in a public intellectual.

Categories
Uncategorized

Blog down

My blog was down over the weekend, so I wasn’t able to pre-schedule my Monday posts as I usually do.

Not to fear – posts will begin again tomorrow.

Categories
Politics

To maintain independence, eat Chipotle at your desk

Andrew Sullivan gives some advice to the liberal establishment:

One of the biggest problems the intellectual right has had, in my view, is the cozy camaraderie of its think-tank culture. Those great lunches build friendships and relationships within the context of ideology. And so it becomes socially very hard to break with that ideology when necessary. The conservative intellectuals are too friendly with one another, too civil, too social…

Eat Chipotle at your desk, my ex-friends. And be rude more often.

Categories
Barack Obama The Opinionsphere

Jonah Goldberg is Shocked

Jonah Goldberg is a partisan hack – and I mean that with all due respect.

In this post today, Goldberg points out that Obama seems to be making a number of sensible appointments to major positions, none of which mark a radical change from the status quo – but all of which, from Obama’s perspective, will be improvements. You would think that Goldberg’s first reaction would be approval – as Obama is not turning out to be the radical that Goldberg had feared he would.

But no.

Goldberg instead channels his inner imaginary radical liberal who is outraged that Obama is going back on what his imaginary liberal thought was a promise of radical change.

He concludes:

It will be interesting to see how long Obama’s charisma can paper over reality.

But what his inner imaginary liberal should have realized – and what most real liberals did realize – was that Obama was not a radical or a leftist. By change, he didn’t mean revolution.

But Goldberg desperately wants to be right about something – reality be damned.