Saturday, October 04, 2008

The Bailout and Elections to Come

A public already angry at Congress over legislation authorizing a $700 billion bailout of the American financial services industry won't be comforted by Rep. Barney Frank's statements following the vote: "No one can be certain about this. We are sure it will make improvements. It may work better or worse, or differently than we think."

Thus, a chief proponent of this enormously expensive and expansive measure affirms that he has no idea if it will have much of an impact or not.

To be fair to Rep. Frank, lawmakers had to respond to a legitimate fear that doing nothing would risk a collapse of the American economy to an extent not seen since the Hoover/Roosevelt administrations. Those fears were significant enough to motivate legislators to cast aside the vast unpopularity of the measure and risk public disdain by voting for it.

And, for many of them, it is likely to cost them their positions in Congress. It also makes it likely that whoever is elected President will be in that position for only one term.

The United States, regardless of this action by Congress or anything else they might do, is likely headed into a recession. It may turn out to be the most severe recession since the early 1980's. With a significant economic downturn, Americans are going to want to know how Congress could spend this amount of money bailing out Wall Street fatcats while doing nothing to keep the nation's economy from going in the toilet.

That is arguably unfair: a strong case can be made that the bailout will help prevent a bad economy from getting even worse. But that is only a hypothetical. Americans will not ever know how bad it might have been: they will only see how bad it actually gets.

The election is too close to make much difference on this year's races, as most voters have already decided which direction they are going and, in any event, gerrymandered districts protect many incumbents. Nonetheless, if the recession persists, it could be enough to cause significant turnover in 2010, and re-election for President in 2012 will be an iffy proposition.

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