Arnold Kling  

Revolt of the Elites

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My Current Feelings on the Bai... Public Opinion and the Bail-Ou...

I am getting ready to take a couple days off from blogging. If I could count on Congress to leave town now, I would put in an order to increase my holdings of stock index funds. But I'm going to hold off.

I am struck by how bitterly some commentators have taken the House vote against the bailout. The elite, including many conservatives, are appalled that House members would listen to their constituents rather than their betters. The title of Chistopher Lasch's book, The Revolt of the Elites, comes to mind, to characterize the feelings of the jilted establishment. David Brooks must be horrified.

At this point, those who voted against the bill, and have been called "unpatriotic" and other names, have nothing to gain by voting for a different version of the bailout. The press will hold them in contempt no matter what, so their best chance of saving face is to vote against any bailout and hope that the economy survives.

I think that the financial markets and the economy will be rocky with or without a bailout, for at east another year or so. My guess is that if Obama wins, then the Democrats will spend the next two months pouncing on every negative economic indicator, to try to build the case for massive economic restructuring under his Presidency--making the bailout seem libertarian by comparison.

I see free markets as very much the underdog going forward. But if there is no bailout, then at least markets have a fighting chance. I would want to defeat this particular revolt of the elites, realizing that larger battles probably lie ahead.


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COMMENTS (14 to date)
David Thomson writes:

"My guess is that if Obama wins"

If that happens---then the country is royally screwed. The Republicans are often cowardly and hypocritical, but they are still the only game in town. Today's Democrats strongly push for European style socialism. I can't think of even one who has their head straight regarding economic matters. Does anyone believe that I'm exaggerating? If so, they are free to point out an example or two.

A number of you also refused to realize the truth because of your pro-abortion attitudes. It was deemed conveniently to ignore the extent of the Democratic Party's decline.

Jim writes:

I am sure David Gergen is horrified, too.

Dr. T writes:

Many of the Congressmen who voted against the bailout plan did listen to constituents, but not just to Joe and Jane Average. They talked with local bankers and learned that the banks are doing fine, there is no credit crunch, and that they have plenty of money to loan once the economy picks up. These Congressmen chose to believe what the local 'experts' said instead of what the Wall Street 'experts' said.

It makes sense to me: Why should Congressmen believe Paulson and others about a credit crunch and a domino-effect financial institution collapse when we're at record high lending levels and local banks (and conservative national banks such as Bank of America) are in fine shape? This 'crisis' looks like (and probably is) a problem of a handful of big investment firms and banks rather than a market-wide catastrophe. I'm glad Congress did not approve the bailout.

Andrea writes:

Aren't you concerned that this is just a lull? I fully expect Congress to come back with another vote on SOMETHING next Thursday.

I would rather have action that does less damage, and that allows Congress to claim "we did something" long enough to let the market work this out.

What I desperately need is a proposal (or a set of criteria) that I can go to my Congressman with and tell him I would accept. Arnold has proposed some here - do we still thing those will work?

Amanda writes:

David Thomson,

What about the Clinton administration? I'm no economist, nor do I immerse myself in economic statistics on a regular basis.

However, I am pretty certain of a few things:
1. The average income in the US increased during the Clinton years,
2. We were not in a war (much less two,)
3. The government budget was balanced, and
4. Gas cost $1.46/gallon.

BTW, you befuddled me by attempting to draw a relationship between reproductive rights and the economy...

eccdogg writes:

Amanda, don't you mean a Clinton administration PLUS a Repulican House and Senate that was not yet corrupted by power. That is what prevailed during 6 of 8 Clinton years. And it was a great dynamic for the country (although some of it was inflated by the dot com bubble and some was just luck, low gas prices).

We will not have that dynamic with Obama, at least not in the first two years. And Obama is not Clinton. Clinton was a centrist Obama is not.

John Fast writes:

David Thompson: Are you ready to take me up on our bet?

For the record, I'm pro-life and also pro-libertarian.

Gary Rogers writes:

Has anyone noticed the arguments used to sell this proposal?

Paulson: You have to buy theses assets or the whole financial system is going to collapse.

Main Street: But we don't have that kind of money.

Paulson: You don't understand how serious this is. We need to do this. Borrow the money.

Main Street: Well which assets do you want and exactly how is this going to work?

Paulson: I can't say yet, but if you don't do this the financial world is going to come crashing down around us. It will be terrible.

You get the picture. Now the media has joined in saying that "Main Street" is obviously not educated enough to understand and politicians are so petty that they let Nancy Pelosi's speech keep them from doing what everyone knows is in the best interest of the country. It's the same argument used for global warming.

Why is it that people become so preoccupied with why we are doing something that they forget to look at what we are doing?

TDL writes:

How will this affect the 140 Dems who voted for the bailout despite popular opinion being opposed to the plan? Could this be enough to temper their influence in the House under an Obama presidency?

Regards,
TDL

kashof writes:

Andrea writes

What I desperately need is a proposal (or a set of criteria) that I can go to my Congressman with and tell him I would accept.

I would say this. A large part of our economy is insolvent: the liabilities of individuals and companies outweigh their assets, AND they don't have the income to make up the difference. The bailout is simply an attempt to pass on a portion of banks' liabilities on to the taxpayer.

If we each think of our own situation, the one thing that would make our debt servicing easier would be a raise. And that is what we as a country need: a raise. But the only way to increase our income is to become more productive. So the criteria for a REAL proposal should seek ways to increase our country's productivity quickly.

While, I'm sure we could each come up with thousands of ways in which our governments (Fed, state, local) make us poorer and we each have our pet proposals, I think big ones (at the federal level) include such measures as:
-Eliminating trade barriers, tariffs, and quotas. For the most part, this would primarily have the benefit of reducing costs, allowing individuals and corporations to have more money left over to pay debts;
-Eliminating foreign aid. Benefits include slowing the increase of gov't liabilities which is something you want to do when there are concerns about solvency and encouraging poorer nations to engaging in productivity enhancing economic reforms instead of the elites living off the generousity of our gov't bureaucrats; and
-eliminating farm subsidies and quota. Benefits are much like those for reducing trade barriers but also include reducing the cost of food stamps since less money will buy the same amount of food.

I will also offer a more radical proposal to help support our housing industry. If we want to begin to stablize housing prices and remove some of the excess supply, I propose issuing a housing visa to foreigners. This would allow foreign visitors a month in this country to look at real estate. Any foreigner buying a home and putting down at least 50% of the purchase price would receive automatic citizenship for themselves and up to ten members of their immediate family: parents, spouse, children. I would posit that within a year, most of the excess supply of housing in this country would be absorbed.

donate furniture writes:

It's just a shame that we are backed into a corner as such. :(

Milky Way writes:

There was one year in between Stock Market Crash in 1929 Oct and Smoot-Hawley in 1930 June.

With Chinese products sucking big time, and an Obama presidency with D-control of Congress, there's good chance for a new New Deal to come. Cheers!

We also has Putin in Europe. A splendid replay of the last Great Theater is for our enjoyment!

Lauren writes:

Hi, Milky Way.

A relevant fact: The day before the October 1929 stock market crash, there was a key vote in Congress on the the Smoot-Hawley tariff that finally made its passage inevitable. The news made all the major newspapers. Markets react to probabilities long in advance of legislation being finally enacted. By the time legislation is actually signed, markets have usually already priced what that legislation is worth to the companies being traded.

zzz writes:

What do you even mean by free markets at this point? Surely you do not believe that the system would be in better shape if we had allowed Bear, AIG, Wash. Mutual, etc. to simply fail. Unadulterated (read free) financial markets got us here.

I know. Let's get Palin's input. Surely she, McCain and Phil Gramm are more than equipped for addressing the current financial crisis.

Wait a minute. What crisis?

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