How Elite Opinion is Forged in a Time of Crisis, Bailout Division


U.S. News and World Report finance whiz James Pethokoukis, just a couple of days ago, knew that the financial disaster threatening us was such that Paulson's plan was a must—"It's time for shock and awe." Why, he'd even done the math (a bunch of wild guesses) to prove it–presenting two different scenarios, one with a "do-nothing" cost of $15 trillion over four years, and another of $26.8 trillion over four years.

Today, someone else, the folks at Global Insight, made some other wild guesses, as Pethokoukis notes:

Although the U.S. financial crisis is bringing sweeping changes to Wall Street, parallels to the Great Depression are overblown. The U.S. economy is far more resilient today, thanks to income support policies, federal deposit insurance to prevent banking panics, and flexible exchange rates. From 1929 to 1933, real GDP contracted 27%, prices fell 25%, and the unemployment rate climbed from 3% to about 25%. Even in our pessimistic alternative forecast, the peak-to-trough decline in real GDP is just 1.5% and the unemployment rate peaks below 7.5%.

Me: I'm sorry. Spending $700 billion (which is really $2.5 trillion since you are borrowing the money) to stop a recession—no worse that what we saw in 1990-91 (one quarter of -3 percent growth and one quarter of -2 percent growth) or even 2001 (one quarter of -1.4 percent growth)—seems nutsy. If they want to get this thing passed, Paulson and Bernanke better be more explicit about the risks.

The "me" in that block quote is Pethokoukis, not me. Now, Pethokoukis has had to think, talk, and write about all this stuff professionally for a while. Check his bio: He's

the money and politics blogger for U.S. News & World Report , where he writes the monthly Capital Commerce magazine column. Pethokoukis is also the assistant managing editor of the magazine's Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor's Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network's Kudlow & Company, Power Lunch, and The Call shows.

This is really not meant to bag on Pethokoukis. This sort of mathematized prediction of economic disaster is pretty much impossible to be sure of. Still, if he is able to have his firm and considered and mathematized opinion about what to do whiplash so wildly from day-to-day based on the last thing he heard, well, without overestimating the persuasive power of U.S. News and World Report, this is another reminder of how much of an absolute fantasy it is that the members of Congress, who generally don't have to spend much time thinking, talking, and writing about these matters on a sophisticated level, can make even half-educated guesses about how to best "manage the crisis."

The really sad thing is that, doubtless aware of that on some level, they are more apt to just agree to hand absolute power over to the likes of Paulson, and "making sure big financial institutions pay little price for their mistakes right now and tomorrow's another day" will remain the dominant imperative.