Most of us are knowledgeable about the sort of financial information we need to get along in life okay. For example, how to balance a checkbook. We know what Social Security benefits we might be receiving someday, as well as the basics of the stock market and investments. We know we’re supposed to plan for our retirement because pensions are rare these days, and that we can use credit cards to put ourselves in hock up to a point but that if we get too deeply in debt we may have to declare bankruptcy.
Sometimes even prudent people run into trouble. Illness may strike and unexpected expenses mount, or people lose their jobs and can’t sustain what they used to be able to afford. But most people know the basic principles and manage to figure out a way to have a decent enough life for themselves and their families, if their luck holds.
Right now a lot of people are feeling that all bets are off. And they don’t really trust our “experts” to know how to remedy the situation or even to act in good faith to do so. That’s part of the groundswell of antagonism to the bailout plan that members of Congress have reported receiving from their constituents.
How many people understand, truly understand, the current financial crisis and how it works? I submit that the answer is very, very few (perhaps none?), and that includes most members of Congress and even those in the financial business itself.
It’s something like climate change, a system very complex in its interacting variables, some of which initially may not seem all that important but which end up having a huge effect on outcomes.
That’s why intervention is both very tempting and very dangerous. Again, I’ll use the climate change analogy, admittedly not a perfect one. One thing both systems have in common is that there are two general schools of thought on how to handle potential problems within them: (1) to trust that the system, if left alone, is essentially self-regulating; or (2) to trust that we are able to diagnose the problem and its cause, and to figure out how to intervene successfully to fix it—or at least to improve it compared with what would happen if we left it alone.
Such interesting philosophical discussions we can, and do, have on these matters! But unfortunately the whole thing cannot remain in the realm of an abstract debate; it has to be acted on or not acted on in the real world when large problems threaten, and even more urgently when they actually arrive. The consequences of action or inaction can be equally vast and equally catastrophic, and it seems fairly clear that no one really can predict the effects of either.
Advocates of pure laissez-faire captitalism remind me of advocates of socialism (bear with me here; I haven’t lost my mind) in that they tend to believe their system would work very well if it ever were to be implemented correctly. It’s not the theory that’s wrong, you see; it’s the execution.
However, we do have before us the evidence of certain “experiments.” Socialism in the form of Communism has had a wretched history, and even milder forms of socialism don’t seem to be going all that well (talk to a sick Canadian, for example, about how long he or she has to wait for an MRI). Capitalism had its darkest hour—so far—in the 30s, and it’s no coincidence that that era also saw the heady rise of the socialist alternative.
FDR came into office at the nadir of the Depression and brought both hope and a plan and programs. But even today there is argument as to whether the remedies he implemented worked to alleviate the Depression or to prolong it, protecting us from pure market forces that would otherwise have operated more quickly and efficiently. I don’t pretend to know the answer (I’m the one who’s bad at economics, remember?), but I do know reasonable people differ, and that a similar disagreement is at the heart of the brouhaha over how to act to stem the bleeding in the current crisis.
Of course there’s a lot more to it. Politics, for example. Nancy Pelosi would love to get the American people to swallow her current Big Lie that it’s all the fault of Bush, and that the heroic Democrats have been bucking that tide and trying to regulate. Horse manure; Fannie and Freddie and their Congressional mandate to make bad loans to bring “affordable” homes to millions who couldn’t afford them was hardly an example of unbridled market forces at work. The push for regulation of said entities was actually a Republican project. On the other hand, if the twelve Republicans who changed their votes to “no” on the bailout bill really did so because Pelosi called them nasty names, then they are guilty of remarkable stupidity.
I suspect the real reason those votes were changed (and that so many Democrats voted against the bailout as well) was that people are distrustful of the bill itself, and in disagreement over the proper remedy. As far as members of Congress go, the bottom line for way too many is preserving their own seats there.