Bailouts

Angry Americans Confusingly Hate Both Bailouts and Bailouts

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New Yorker financial columnist James Surowiecki, who can be very smart when talking about microeconomics, is less than very smart when talking about macroeconomic politics. At least that's the case in this new column, on "The Populism Problem," which posits that "this new populism has stitched together incompatible concerns and goals into one 'I'm mad as hell' quilt." Excerpt:

Easy on the eyes, though

The bailout of the auto industry, after all, was as unpopular as the bailout of the banks, even though it was much tougher on the companies (G.M. and Chrysler went bankrupt; shareholders were wiped out, and C.E.O.s pushed out), and even though the biggest beneficiaries of the deal were ordinary autoworkers. You might have expected a deal that helped workers keep their jobs to play well in a country spooked by ballooning unemployment. Yet most voters hated it.

Well, yes. They have also continued to hate, as Tim Cavanaugh has been pointing out since at least the summer of 2008, bailing out underwater homeowners. Could it be that rewarding failure with taxpayer dollars is just widely and persistently perceived as unfair and unwise? Especially when the country's media and governing elites continue to pat these confused little Americans on the head and tell them to swallow their medicine?

Similarly, the failure of free markets during the financial crisis might have led people to think that the government should be more involved in the economy. Instead, the percentage of Americans who think government is trying to do too much is higher than it's been since the late nineties.

Without wanting to, as the president would say, "re-litigate the past," was not the government significantly more "involved in the economy" in September 2008 than it was it was in September 2000? I'm not just talking about budgets here (though it's true that the federal budget increased from $1.8 trillion in 2000 to $2.9 trillion in 2008)–I'm talking specifically about regulation of the financial industry. According to our columnist Veronique de Rugy's calculations,

adjusted for inflation, [regulatory] expenditures for the category of finance and banking were cut by 3 percent during the Clinton years and rose 29 percent from 2001 to 2009, making it hard to argue that Bush deregulated the financial sector. […]

In eight years, Bush increased the federal government's regulatory staff by 91,196 employees. Clinton cut it by 969.

Here's a helpful chart:

One fish, two fish, red fish, blue fish

I sincerely do not understand how it is supposed to automatically follow that a crisis spurred in no small part by cheap government money and loose-credit government lending incentives is supposed to make us conclude, after eight years of massive government growth on all levels, that the problem was the insufficient involvement of government. I'm open to persuasion on specific acts of deregulation (like the repeal of Glass-Steagall) or non-regulation (as in the trading of certain derivatives) or sideways-regulation (as in the seemingly capricious changes to various reserve requirements for financial institutions), but it is rare to hear about such tangible policies anywhere near blanket statements about how "the government should be more involved in the economy," and rarer still to see much analysis of how malfeasance took place under regulators' perfectly empowered noses.

At any rate, I could see where it might appear "confusing" to some people that the American people are upset about jobs, yet don't seem inclined to support the federal government's top-down schemes to save or create them, but I expect more from Surowiecki.