Sinners in the Hands of an Angry Blog

… worse idea.

Libertarians who are dogmatically opposing the bailout and citing Vernon Smith’s criticism of the Paulson plan should note that Smith also signs onto academic mainstream’s increasingly accepted call for bank recapitalisation: “Treasury action should focus on providing capital to individual banks and mortgage companies in return for debt, convertible bonds and equity and warrants to be negotiated.”

From a political perspective, I think Obama was a pretty clear winner of this debate. He parried all of McCain’s attacks, got in a few digs of his own, and came across as both approachable and in command of the facts. McCain seemed a little bit senile. On policy, though, Obama was extremely disappointing.

I’m not a fan of Obama’s health care plan, but that’s no surprise. I don’t generally like Democrats’ health care plans. And his answers on Iraq, Afghanistan, and Pakistan were sharp and I largely agreed with them. However, what made me wince was any time the subject turned to foreign policy anywhere other than the Middle East.

First we had the Rwandan genocide question. In essence, Brokaw asked whether Obama believed in preventative war for humanitarian purposes. And Obama basically said yes. With the usual liberal throat-clearing about working with allies, he appears to believe that if large numbers of people are getting slaughtered anywhere in the world, the US military has a moral obligation to intervene.

I don’t agree with that, but it’s a pretty standard liberal line so I’m not too outraged about it. The answer that most disturbed me, though, was the Russia question. John McCain had said that the United States should be willing to declare war on Russia to protect the soveriegnty of Georgia and Ukraine (that’s what NATO membership means). Brokaw asked Obama if he agreed, and with more throat-clearing, Obama basically said that he did.

This is insanity. Georgia is a tiny country directly adjacent to the Russian border. If Russia decides it wants to conquer Georgia, it can do so in a matter of days, and there’s not much we can do about it. The only way we can hope to prevent it is by making it clear to the Russians that we’ll launch a full-scale war on them if they impinge on Georgian sovereignty, and of course that could lead to a full-scale war with Russia. And while I certainly sympathize with the Georgia’s 4.5 million people, it’s reckless to risk a continent-wide war that could kill hundreds of thousands of people in order to protect it.

More disturbing than this particular example is the picture it appears to paint of Obama’s foreign policy views. As far as I can tell, Iraq is the only war that Obama is against. Maybe when he says he opposes dumb wars, what he really means is that he opposes wars prosecuted by dumb presidents, and since he’s a smart guy that doesn’t apply to him.

In any event, I think anyone expecting the Obama administration to be less hawkish than the Bush administration has been will be sorely disappointed. Bill Clinton was reasonably hawkish, and the atmosphere of public hysteria about foreign threats has ratcheted up considerably since then. I expect Obama’s foreign policy to be more sensible than George W. Bush’s was because Obama’s a more sensible guy. But in terms of broad strategic doctrine, there’s every reason to think Obama will continue the Reagan-Bush-Clinton-Bush legacy of promiscuous military intervention abroad. We’ll have different wars, and maybe slightly smarter wars, but I don’t expect we’ll have fewer wars.

Man, Arnold Kling is on a roll lately:

Big Finance and Big Government have much in common. Both are coveted by Harvard graduates. Both are characterized by an arrogant sense of entitlement and importance.

Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people’s money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from “Goldman Sachs” to “U.S. Treasury,” and everything else continues as it was. It’s just that it becomes a lot more difficult for ordinary people to opt out of using the elite’s money management services.

I’ve long believed that a lot of what goes on on Wall Street is basically a scam. Many hedge funds, mutual funds, and other Wall Street institutions are based on the premise that they can help their customers get better-than-average market returns. This is basically false. Yet the average level of financial literacy is low enough that there are tens of millions of people who are willing to pay outrageous fees for their “services,” diverting thousands of talented people away from productive work and into basically useless jobs picking stocks on Wall Street.

Until this year, my attitude was that this was regrettable but not a public policy issue because nobody was forced to invest in any particular Wall Street firm, just as no one is forced to buy the crap they sell in late-night infomercials. But now our government has gone from tolerating these institutions to actively propping them up with our tax dollars.

Which I think is not only a bad idea on its merits, but I think it also might be an occasion to take inventory of the way libertarians talk about Wall Street. Perhaps we should start talking about Wall Street in the same terms we use for Archer Daniels Midland, Freddie Mac, and developers who focus on large projects using eminent domain. These are (or were in the case of FM) nominally private firms whose profits flow primarily from a privileged relationship with the state. It now looks likely that in a few years, the largest Wall Street firms will be in the same category. In which case a little bit of populist Wall-Street-bashing might be just what the doctor ordered.

So most of our legislators agreed that the bailout plan was bad and so didn’t vote for it the first time.  So they decided to make it better… by adding a bunch of extra costs:

It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called “income tax for the wealthy.”

What!  Now, don’t get me wrong — I love tax cuts.  But this bill isn’t a tax cut.  It is a massive (getting close to a trillion now!) spending increase.  Tax cuts combined with huge spending bills aren’t tax cuts.  They are future, bigger, tax increases.  This is like a sitcom where the husband walks in and says: “Honey, I know you didn’t like my plan to spend $700 on that new tv, so I’ve improved that plan by also taking a pay cut.  What do you think?”  In the sitcom the wife would slap the husband and a laugh track would play.  In reality, the Senate passed the bill, and I’m going to cry instead of laugh.  Let me repeat this for the last time: tax cuts without spending cuts are not tax cuts at all.  And tax cuts explicitly bundled with spending bills designed to help recover from an economic downturn that will undoubtedly also mean lower tax revenues for the future are really, really not tax cuts.

And then there are the predictable pork additions, either in the form of straight handouts or tax breaks to special interests.  Far too many to list here — but the overall picture is that the Senate rejected the bill designed to spend $700 billion in a wavering economy… because it didn’t spend enough.  Tax revenues were going to be down over the next few years anyway, and that’s what they chose to do?  Completely backwards.  

The other impact of this is that it shows up both presidential candidates.  Whatever they want to do if they get elected is completely off the table — because they won’t have any money for it.  Every single debate moderator needs to ask this question every time either of them proposes something that costs money: “But Mr. Obama/McCain, you voted for the $700 billion bailout and the tax cuts and handouts it contained.  Where will you get the money to pay for that?”  But of course they won’t, because that would make for a boring debate wherein both candidates just stare uneasily at each other because they don’t have anything to say.

Oh, but don’t worry — this whole thing will actually make us money!

Because of Senate add-ons, the bill’s initial price tag will be higher than the $700 billion that the Treasury would use to buy troubled assets. But over time, supporters say, taxpayers are likely to make back much if not all of the money the Treasury uses because it will be investing in assets with underlying value.

I think I remember this song… something about how the invasion of Iraq would pay for itself too!  The whole point of “troubled assets” is that no one wants them because they can’t make money off of them.  And now the government is going to buy up $700 billion of them en masse, without much analysis to see which are better than the others (simply impossible to on this magnitude) and is telling us we’re all going to make money on this?  I put the odds of this actually happening just below “Bigfoot existing” and just above “I ever see a dime of social security.”  There’s a joke picture floating around mocking the pre-Iraq-invasion WMD surveillance photos, pointing out the “toxic assets” of our enemies on Wall Street.  It’s becoming more true and less funny.

I found the protection against this scenario also pretty humorous:

The Senate bill is also similar in that it includes a number of provisions that supporters say would protect taxpayers. One would direct the president to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years.

How on earth do they expect this to happen?  The financial industry is in ruins and we must give it $700 billion dollars because they made bad investments.  But, if they don’t invest that $700 billion wisely and they lose money, we will make them cover any losses.  With what money?  I guess I found something even less likely to happen than the program making money.

The primary thrust of the bill better work.  Because if it doesn’t, our economy is not going to be providing enough of a tax base to support all this crap, and that means really bad news for the future.

Nobel Prize judges aren’t usually the people I criticize for expressing crude nationalistic tendencies — but here we see a form of it:

Speaking generally about American literature, however, he said U.S. writers are “too sensitive to trends in their own mass culture,” dragging down the quality of their work.

“The U.S. is too isolated, too insular. They don’t translate enough and don’t really participate in the big dialogue of literature,” Engdahl said. “That ignorance is restraining.”

This is the ultimate silliness: that of a “national character.”  It’s one thing to say “oh, Americans generally have characteristic X” — because you are speaking about an average individual you might happen to meet.  But when when we are speaking of a highly rarified group — Nobel Prize candidates in literature — it seems silly to imply that “culture” shapes the quality (as opposed to the content, which surely it does) of their output.  

If your “national culture” is truly a factor in the quality of literary work, what does this say about countries that have had fewer laureates than the United States?  Is their culture too an ignorant cesspool of non-literate philistines?  It seems acceptable to say about the United States — certainly it echoes conventional wisdom — but perhaps it is a bit too soon for Europeans to be turning up their noses at other people’s cultures.  India, for example, has not won the award since 1913 — maybe their National Culture is also too stifling and ignorant.  Doesn’t that sound just a bit offensive?

Maybe — just maybe — we should focus more on how these exceptional literary individuals reflect on themselves or humanity, instead of on their home nations.  Especially with global apolitical (theoretically) institutions such as the Nobel Prize or the Olympics, it seems like they should be pushing a vision that ignores the silly borders that petty politicians have erected.