News & Criticism

$8.5 Trillion and Counting

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The L.A. Times on Sunday updated the numbers on 2008's historic (and historically awful) round of bailouts, and came out with a shiny new figure: $8.5 trillion. It's a useful piece of journalism, so I almost hate to complain, but the lead-paragraph framing is really annoying:

With its decision last week to pump an additional $1 trillion into the financial crisis, the government eliminated any doubt that the nation is on a wartime footing in the battle to shore up the economy. The strategy now -- and in the coming Obama administration -- is essentially the win-at-any-cost approach previously adopted only to wage a major war.

What a godawful mix of imprecise, played-out metaphors ("wartime footing," "battle," "major war") and couldn't-possibly-be-accurate absolutism ("eliminated any doubt," "win-at-any-cost approach," "only"). As in the inaccurate, propogandistic usage of "rescue" over "bailout," this paragraph conveys the impression that the financial crisis can be likened to a finite, singular goal, one that can be accomplished if only you marshal enough resources. Neither are true. Globalized economies are organisms that evolve constantly, not stationary mountains that can be climbed with enough sherpas. And by definition, not all government interventions into a national economy get you closer to the goal of allaying a capital-C Crisis, particularly when key elements of said Crisis (politicized lending practices, moral hazard caused by federal guarantees, cheap monetary supply, mark-to-market accounting rules) were caused by…government intervention!

Anyway, the rest of the article is actually about that latter conundrum, which is another reason to read it. Here is a section devoted to sanity:

Once the financial crisis eases, higher interest rates and soaring inflation will be risks. If they materialize, they could dramatically increase the government's borrowing costs to meet its annual debt payments. For consumers, borrowing could become more expensive even as the price of everyday items rise, holding back economic growth.

"We could have a super sub-prime crisis associated with the meltdown of the federal government," warned David Walker, president of the Peter G. Peterson Foundation and former head of the Government Accountability Office.

My only quibble there being with the word "if," since we will have bailout-triggered inflation, mes amis.

And here's a quote that scares me:

"You just throw everything you have at the problem to try to fix it as quickly as you can," said David Stowell, a finance professor at Northwestern University's Kellogg School of Management. "We're mortgaging our future to a certain extent, but we're trying to do things that give us a future."

As the economics journalist Amity Shlaes told Nick Gillespie in a January 2008 interview, such kitchen-sink problem solving, and the uncertainty it creates, certainly prolonged the Great Depression. A selection from that interview:

Both the Hoover and Roo­sevelt administrations (but especially the Roosevelt administration) were so unpredictable. That hurt the economy very much, and when I went back and saw the extent I was astounded. Uncertainty is a factor that I thought needed to be explored. There were lots of people who said, "I will not invest 'til I know what's going to happen."

During the Depression, you heard the phrase "bold, persistent experimentation" all the time. We've been taught that was good. Somebody had to do something, was what we learned. But what I saw was this enormous cost, especially during the second half of the 1930s.