Social Security and Tax Increases

If you asked Robert Reich, "Do you believe Social Security should be a form of insurance or a social welfare program," this editorial suggests that his answer would be "yes". That's not entirely unreasonable, given that Social Security does have aspects of both: It's an insurance program for workers, helping in the event of disability and providing a return on money paid into the system that's based in part upon the amount you pay in. But it's also a social welfare program that provides a much better return to workers at the low end of the income scale than those who make the largest contributions.

Reich proposes that Social Security can be made solvent for the longer term, as Reich proposes, by increasing the ceiling for payroll taxes from $106,800 to $180,000. But beyond economic viability, the taxpayers who would be hit hardest by that increase are among those whose support is needed in order to ensure Social Security's long-term political viability. The more money you take from higher wage earners to pay for Social Security, the less appealing it becomes to them.  And while few cry bitter tears for households earning enough to be hit by that increase, it is fair to observe that it would be yet another example of tax policy that has no appreciable impact on the wealthy but disproportionately affects working professionals.

My concern with this type of proposal remains that if you shift public perception of Social Security away from that of a program that guarantees a basic safety net to all workers, and toward "just another welfare program," you'll undermine support for the program and thereby upset its long-term political viability. Reich should consider for a moment that, even though every commentator from left to right found the metaphor to be inane, the New York Times treated as serious the question, "Is Social Security a Ponzi Scheme?"

What about something other than a tax increase? What if, for example, we were to implement policies that buttress and expand the middle class? Frankly if we've given up on that, we are admitting that our economy has systemic problems that cast doubt on whether even raising the payroll tax ceiling will create the sustainability that Reich predicts.

It's Too Hard To Ignore Constituents?

Robert Wright reads more into President Obama's woes than an opposition party united in its desire to defeat his initiatives, and the general polarization of the electorate (something that may be more a matter of perception than reality). The people are using technology to peaceably unite, and to petition the government for redress of grievances. The horror! Wright writes,

Had technological change stopped in 1950, President Obama would be basking in the glow of victory. Insurance and pharmaceutical companies and labor unions posed challenges to health care reform, but their challenges were manageable, and as of a few weeks ago Obama had found a sausage recipe that these groups could stomach.

No, seriously, a single seat changes hands in the Senate bringing in a 41'st vote for The Party of "No", and it's the fault of the Internet? Months of wrangling over a healthcare bill, largely opposed by individual citizens based upon its handouts to those same special interest groups we had during Wright's "good old days", potentially defeated by the fact that the Senate can't reach a supermajority by one vote, and the problem is with the electorate at large? Seriously?

The special interests Wright seems to favor are presumably Special Interest 1.0, as Wright identifies "Special Interest 2.0" as the current "generation of political technology" - such as mass mail. He sees Tea Partiers as part of Special Interest 2.0, as they were supported by traditional special interest groups and corporations; but speaks of an emerging "Special Interest 3.0"

The Web’s many “cocoons” — ideologically homogenous blogs and Web sites — are in a sense interest groups; they’re clusters of people who share a political perspective and can convene only because of the nearly frictionless organizing technology that is the Internet. Some aren’t themselves activist, but most provide a kind of sustenance to activists who carry their banner.

All of this — a balkanized media landscape and the activist groups that spring from it — is Special Interest 3.0.

Big, scary bloggers? And political websites? Seriously?

I think Wright pretty much misses the boat here. First, sure, there are weblogs that cater to particular ideologies. But there are also print publications that do the same thing. Some of those ideological blogs are even owned by the companies that produce the print publications. Perhaps Wright is concerned that, as blogs can (generally) be read for free, more people read them? But that wouldn't of itself mean that there are more factions; just that some of the factions appear to have more members.

Frankly, even if you include blogs that have come from people outside of the traditional sphere of influence, or people inside the sphere who started blogging, you're really only talking about a small number of weblogs that have any significant influence. Most political blogs - just like most blogs on other subjects - don't get many readers and don't have anything that could be considered to be a politically influential set of followers, let alone a group of followers ready to mobilize at the author's command.

Within that context, it's perhaps no surprise that Wright fails to identify any of the problematic websites or weblogs, instead speaking in broad generalities.

The new information technology doesn’t just create generation-3.0 special interests; it arms them with precision-guided munitions. The division of readers and viewers into demographically and ideologically discrete micro-audiences makes it easy for interest groups to get scare stories (e.g. “death panels”) to the people most likely to be terrified by them. Then pollsters barrage legislators with the views of constituents who, having been barraged by these stories, have little idea what’s actually in the bills that outrage them.

The "death panel" lie was started by a known individual, Betsy McCaughey. She passed her lie along to Sarah Palin, who fed it to the masses. That's not "Special Interest 3.0" or even "2.0", and isn't something you can blame on the Internet. Perhaps Fox News and a mainstream media that is more interested in creating controversy than in educating the public, but those are factions Wright has told us are part of Special Interest 1.0. Some blogs and websites may have been happy to serve as an echo chamber for the McCaughey-Palin lies, but the mainstream media and numerous elected officials also happily repeated the lies. And we can again see how much of the fault for the possible demise of healthcare reform lies in the Senate.

Moreover, targeting small groups of people likely to be affected by a political message is far from a new phenomenon, and is far from web-based. I would argue that, contrary to Wright's thesis, most targeting still occurs under the "Special Interest 2.0" mass mailing (and mass phone call) model (at times backed up by good, old-fashioned pressing of the flesh). I am not aware of any broad effort on the part of special interest groups to contact and coopt bloggers and webmasters to serve as Svengalis to a mass of mindless followers, and I doubt that such an effort would succeed - first because it underestimates the resistance you're likely to encounter from the bloggers themselves, and second because it overestimates the bloggers' influence over their readers.

To the extent that a blogger picks something up from an echo chamber, repeats it, and inspires outrage among her readers, it's a product of self-selection - the bloggers readers are more likely to be outraged by the things that outrage the blogger, and are there because they share interests. When the outrage arises from misinformation or a lie, such as "death panels", that's a shame. But I suspect that politicians (and perhaps Wright) are more concerned when the outrage is based upon fact. People getting upset, for example, that during the opening moves of healthcare reform some very large concessions were made to "Special Interest 1.0" factions, and that as a result we were certain to have a less effective, more expensive bill. But you know what? Those "Special Interest 1.0" factions still won - they got what they wanted and, if a bill does pass, the concessions they obtained will be preserved in the final bill.

Wright is concerned about "the din of narrow interests and widespread but ephemeral passions", and fears that if politicians are exposed to what their constituents want they will become weak in the knees and our government will effectively be transformed to a direct democracy. Hardly. I do believe that we're seeing politicians cut their milk teeth in dealing with online mass communication - and that a lot of the current problems perceived by Wright have less to do with the so-called "Special Interest 3.0" than they do with politicians' contemptuousness for the voices of the people, individual and collective, as expressed through "new media". No doubt, websites and weblogs help even small groups unite and attempt to advance their goals, but there's absolutely no evidence that politicians care what they have to say any more than they have in the past. The problem, as I see it, is that many politicians (and pundits, and news personalities) are contemptuous of the notion that the people should be able to openly and visibly criticize the and "call them out" - unfairly or, perhaps especially, fairly. And they thus speak contemptuously and dismissively of "bloggers" - an ill-conceived response that can perpetuate or expand the sphere of unwanted criticism.

But it requires far more than a handful of people on an obscure website or weblog to catch anybody's eye, or even be deemed worthy of a dismissive comment. When a theme takes off online, you can be pretty confident that it would have taken off under "Special Interest 2.0" or even "1.0" days - but it's a lot harder to ignore. If we're talking death panels, then we're talking about a failure first on the part of the mainstream media to bluntly call a lie a "lie", and perhaps moreso their unwillingness to turn away a controversial speaker they know to be lying if they think it will generate readers or ratings. It's also a failure of our political leadership in both parties - the Democrats for being unable to get in front of the lie, and make the public aware of the facts; the Republicans for in many cases actively perpetuating the lie, and in most other cases for turning a blind eye to anything that they believed would hurt the Democratic Party and President. None of that can be blamed on "Special Interest 3.0" or some nascent form of "direct democracy".

Wright's first reaction to the problem of the people peacefully assembling via online means to petition the government for redress of grievances is that "It would be hard to restore much of the insulation [between constituents and their elected representatives] without tampering with the First Amendment." Well, yeah, but doesn't that undermine his notion that this is somehow incompatible with what the Founding Fathers wanted? Oh, sure, "information technology has stripped away the insulation that physical distance provided back when information couldn’t travel faster than a horse", but didn't that start with the electric telegraph in 1831?

As an alternative to repealing part or all of the First Amendment, Wright suggests that we could lengthen legislative terms so that

more people in Congress could spend more time worrying about something other than getting re-elected next year, and this could leave them productively indifferent to the most recently manufactured views of their constituents.

Well, we could expand the terms for Members of Congress to six years, because with six year terms surely an elected representative wouldn't be too concerned about... oh, yeah, the problem with healthcare reform lies in the Senate, which already has six year terms. Wright also suggests term limits, something that has had what I see as a pretty catastrophic effect on state legislatures - a lot more newbies in the state houses, politicians just getting up to speed when they're term limited out, politicians on their way out the door happy to pass the buck to the next group, politicians more concerned with positioning themselves for their next job than with doing a good job in their elected positions.... Wright thinks a Member of Congress, term limited out and hoping to grab the seat of a term limited Senator, is going to be deaf to the wishes of his constituents? Or maybe it's that he anticipates most of them going to work for the lobbying firms that serve "Special Interest 1.0", which would appear to be just fine with him.

Wright adds,

Absent such reform, it seems that the only time you can get big things done is amid a sense of national peril. Then you can pass stimulus bills and invade countries (the big résumé items of Obama and his predecessor). In more normal times, getting big things done means walking through a very large and dense minefield.

So... how does this differ from the rest of the nation's history? It took a civil war to end slavery. It took another century and a serious movement of civil disobedience to bring about the Civil Rights Era. It took a war and a depression to bring about the New Deal. Just when did we enjoy the glory days during which big things got done without a sense of national peril? I do agree that our government should be able to operate more responsibly, and that waiting for a crisis before acting can lead to suboptimal outcomes... such as a civil war... but that seems to be a structural problem not so much of our system of government as of the human psyche.

Healthcare reform failed under the Clinton Administration, something Wright can't reasonably attempt to pin on "Special Interest 3.0". But gosh - since he brought up Betsy McCaughey's death panels, perhaps it's worth remembering who was there, spreading lies that helped bring down the reform bill, much to the pleasure of Newt Gingrich? "Special Interest 3.0", nothing. This is déjà vu all over again.

Meanwhile, I think that if politicians would refrain from speaking dismissively of "bloggers" (or other means by which constituents make their wishes known), would focus on the issues and the formation of sound policy, and would have the backbone to call out people who are lying about major policy initiatives - even of those people are in their own party - Wright would quickly discover that many of the problems he perceives don't even exist. And seriously, does Wright think it's better that monied interests have unimpeded access to cut back room deals with politicians than it is for constituents at large to challenge that status quo? (What about Robert Reich's proposal to clean up "Special Interest 1.0", a major culprit in our nation's problems for generations?)

Another Stimulus Bill?

Paul Krugman interprets President Obama's comments on budget deficits, "that now is the time to 'get serious' about reducing debt", as "an unfortunate tendency to echo 'centrist' conventional wisdom". While I grant that if employment is on a significant upswing a year from now, the size of the deficit won't much affect the election, I think Krugman is missing a couple of important factors.

First, Obama is not merely echoing "centrist convential wisdom". If you take him at his word, he's likely in the same boat as a majority of Americans, and is concerned about the ramifications of Bush's financial recklessness, the cost of two wars, the financial industry collapse, and stimulus spending, on top of the rest of the federal budget. Clearly Obama isn't obsessed with balancing the budget - take a look at the numbers - but he's right to be concerned.

Second, let's assume that Obama doesn't believe that reducing the budget deficit should be a priority within the context of the current economy. He still has to deal with a Congress that does, at least when domestic spending is involved. No matter how compelling the argument, I would expect Congress to reject a new stimulus bill in the current fiscal year.

President Obama is already testing the waters for a second stimulus bill - for now that means sticking a toe in the water and pulling back when the sharks start to bite. If the political climate becomes more friendly to additional stimulus spending, and the bill passes on next year's budget such that Obama can still claim an overall deficit decrease (even if the total deficit remains very high), I think it's quite possible Obama will push additional stimulus spending.

I think that when Krugman and Robert Reich advocate for additional stimulus spending, they help lay the groundwork that could help Obama advance a new stimulus bill. Yet it's not lip service to centrism, but acknowledgment of reality, that unless things get suddenly and drastically worse it's not happening in the current fiscal year. (I'll buy you a cookie if I'm wrong - but you'll have to come here to collect.)

Priorities

Robert Reich, who to date has been arguing that a healthcare bill must be passed before a limited window of opportunity closes, today argues that it's the wrong priority - that instead Obama should be trying to pass additional stimulus measures. Perhaps this isn't the "loss of discipline" Reich warned us about, but results from Reich's concern that the legislation that is likely to pass gives up too much to pharmaceutical and health insurance companies. But Reich doesn't offer much of an explanation.

The problem I have with this type of argument, whether from Reich or anybody else, is that it presupposes that the government is capable of only doing one thing at a time, and also that the government's priorities should change along with their own. Obama has largely deferred the healthcare reform debate to Congress, so who's to say he hasn't been working on other issues? More to the point, there's reason to believe that a healthcare reform bill, even if flawed, will pass, but there's no compelling reason to believe the same of another stimulus bill. I suspect that if Obama were to follow Reich's advice, abandoning healthcare reform while advocating for a @$trillion stimulus bill, he would look silly - and he would fail.

The optimist in me says Obama can pivot off a health-care victory and launch some new initiatives that palpably and quickly spur job growth. The realist says there aren't any such initiatives -- at least none that can work fast enough to reverse the tide of unemployment before the midterm elections.

Is the concern the long-term welfare of the nation, getting people back to work, or the next election? If a job-creating stimulus bill is good policy, it remains good policy even if its effects aren't felt for two years. With due respect to Reich's concern that "getting the nation back to work" is more important than healthcare reform, I can't help but feel that a failure to pass a healthcare bill combined with what now appears to be an unavoidably slow recovery would be worse.

Reich argues that, by focusing on the economy,

Clinton avoided Carter's failure and won re-election handily. But the Clinton years produced few if any major social reforms. Clinton spent so much of his initial political capital, as well as his time and energy, on deficit reduction that he didn't have enough left to enact health care in 1994.

So when he cautions Obama,

If Obama and the Democrats lose one or both houses of Congress in the midterms, it will be because the president learned only the most superficial lesson of the Clinton years. Health-care reform is critically important. But when one out of six Americans is unemployed or underemployed, getting the nation back to work is more so.

I can't help but wonder if it's Reich who learned the superficial lesson of Clinton. Taking an "it's the economy, stupid," approach seems likely to similarly deprive Obama of the political capital necessary to enact healthcare or other reforms. And while Clinton did win reelection, it seems fair to observe that his inability to deliver on issues such as healthcare first cost the Democrats their Congressional majority, and later contributed to the election of G.W. Bush.

Timing Is.... Difficult

In relation to the anti-healthcare reform propaganda campaign, Paul Krugman writes,

So far, at least, the Obama administration’s response to the outpouring of hate on the right has had a deer-in-the-headlights quality. It’s as if officials still can’t wrap their minds around the fact that things like this can happen to people who aren’t named Clinton, as if they keep expecting the nonsense to just go away.

What, then, should Mr. Obama do? It would certainly help if he gave clearer and more concise explanations of his health care plan. To be fair, he’s gotten much better at that over the past couple of weeks.

What’s still missing, however, is a sense of passion and outrage — passion for the goal of ensuring that every American gets the health care he or she needs, outrage at the lies and fear-mongering that are being used to block that goal.

Personally, I think it's a bit silly to suggest (as many do) that Obama can somehow make a speech or hold a press conference and transform the moment. From what I can see, we have a two-fold problem:

• Irresponsible politicians who are willing to lie to a gullible public, to create an atmosphere of fear, anger and uncertainty about reform; and

• A media that fans the flames, presents false equivalence rather than debunking the lies, or engages in the type of meta-analysis Krugman offers.

In fairness to Krugman (and to myself) there's room for meta-analysis. His column could be viewed as a commentary on President Obama and his critics, not a commentary on healthcare reform. This post is about the weaknesses of our nation's media and its effect on politics, not about healthcare reform. It seems that that the two competing media themes right now are the advancement of anti-reform lies versus "This is a referendum on Obama so he needs to find a solution - all by himself." Except that latter theme is a right-wing talking point, not in any sense a valid approach to the issues or to Obama. (But boy, the media loves the "referendum on Obama" theme.)

People who were watching this phenomenon develop, such as Robert Reich, pushed hard for a vote before the August recess. I don't think that anybody estimated the amount of astroturfing, fear mongering, and lying - not just by professional hysterics like Glenn Beck and Rush Limbaugh, or astroturfoing organizations and lobbyists such as Freedom Works and Americans for Prosperity, but by prominent Republicans like Sarah Palin and Michael Steele. The amount of media attention on the failure of the Republican Party to stamp out the lies? Next to nothing. Is deliberate lying now an accepted part of party politics, such that it isn't worthy of media attention? Is it "objective" to fail to call out a liar, instead putting on a "he said, she said" show and pretending not to know who's telling the truth? Or deferring to Obama to magically save the day?

What does Obama have to do? He has to line up enough votes to get an acceptable reform package through, then worry about fixing it in future years. Just as happened (and continues to happen) with programs like Social Security and Medicare. Does it make sense for him to launch his massive effort right now in the face of the deliberate, willful lying of the Republican Party coupled with a media more interested in the outrage the lies inspire than in their truth? I suspect we will receive a solid speech from Obama, addressing healthcare reform, as we get closer to a vote. Offering such a speech now would, in my opinion, be followed by a blitz of right-wing distortion and misrepresentation, with the media again taking primary interest in "whose message is winning" rather than who was presenting better policy or even telling the truth.

Some are comparing the present right-wing propaganda campaign to the Swift Boat Liars attacks on John Kerry. There are parallels: People are coming forth with misrepresentations and lies, the target of those lies seems slow to respond, the media is happy to make it the target's responsibility to debunk the lies rather than its own, and the media focus is on "whose message is winning" instead of "whose message is true." So I can understand supporters of healthcare reform being concerned that Obama may "lose control of the message" and be unable to recover the momentum needed to get healthcare passed... never mind that if he had that momentum we would have had a vote before the August recess.

But there's an important difference. Obama isn't trying to win a primary or an election. He's trying to get enough votes to pass a bill. If he gets those votes it doesn't matter if Sarah Palin and Micheal Steel have successfully convinced a third of America that Obama will personally preside over death panels to kill their grandmothers and children - it will have passed, and those lies will be betrayed by history. Seriously, what would Obama's speech accomplish right now - will he change one mind among those who eagerly embrace every insane lie of a Glenn Beck, Sarah Palin or Michelle Malkin? Will those right-wing commentators suddenly become contrite, apologize and tell the truth? Get real. He's not going to win over people who believe - and who are encouraged to believe - that this is a "government takeover of Medicare". To the extent that some "independents" are wavering, due to the extent of the propaganda and their ignorance of the issues, his best bet to win them back is probably not to start a personal campaign right now, but to let the gun-toting nut jobs undermine their own credibility, then to step in at a more crucial juncture with his explanation of the reform bill.

When Congress resumes session, I expect Obama and his team will do a lot of arm-twisting to get votes on board, and to keep votes already committed, and that Howard Dean wasn't just speaking for himself when he fired this shot across the bow of the "Blue Dogs" - "I do think there will be primaries as the result of all this, if the bill doesn't pass with a public option". And Obama has to give enough of a speech to let the country know, in advance of the vote (and after the present round of childish, Beck/Limbaugh-fueled, astroturf driven hysterics are "old news") that their Member of Congress has done the right thing.

Update: I came across a Mencken quote that highlights both that the problem with our news "elites" is far from new:

A good reporter used to make as much as a bartender or a police sergeant; he now makes as much as the average doctor or lawyer. ... His view of the world he lives in has thus changed. He is no longer a free-lance in human society, thumbing his nose at its dignitaries; he has got a secure lodgment in a definite stratum. ... The highest sordid aspiration that any reporter had, in my time, was to own two complete suits of clothes. Today they have dinner coats, and some of them even own plug hats.

Mencken saw some rotten apples in the barrel, but nobody took them out and now.... Actually, I think the problem is more than the celebrity journalist who now, more than anything else, strives to advance his social status - it's that they've been joined, perhaps supplanted, by a class of pundits and commentators who do the same thing, but do no actual reporting (and in many cases never did).

This Is Acceptable?

Robert Reich comments,

In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system. Those risks and costs should be put on the people who made risky bets on the banks in the first place - namely bank shareholders and creditors. Shareholders of the most troubled banks should be wiped out entirely. Bank creditors- except depositors - should take major hits. And top executives who were responsible should be canned. But Geithner and Bernanke don't want to take these steps for fear of spooking the Street. They think it's safer to put the costs and risks on taxpayers -- especially in ways they can't see.

Remind me again why "nationalization" is such an awful word? Not in the context of healthy organizations, or even those that are struggling to recover, but in the context of bankrupt financial institutions that seem to lack the will, desire, and ability to get themselves out of the mess they created? "It spooks the street" just isn't convincing enough for me.

But It's Even Worse, Isn't It?

If you wait long enough, somebody's probably going to articulate what you are thinking, and probably say it better. Case in point: I haven't had much time to type out my thoughts on the nation's fear of "nationalization", but Robert Reich does a pretty good job of describing something that's been bothering me:

The federal government -- that is, you and I and every other taxpayer -- has taken ownership of giant home mortgagors Fannie and Freddie, which are by now basket cases. We've also put hundreds of millions into Wall Street banks, which are still flowing red ink and seem everyday to be in worse shape. We've bailed out the giant insurer AIG, which is failing. We've given GM and Chrysler the first installments of what are likely to turn into big bailouts. It's hard to find anyone who will place a big bet on the future of these two.

In terms of the companies lining up for bailouts,

If anyone has a good argument for why the shareholders of these losers should not be cleaned out first, and their creditors and executives and directors second -- before taxpayers get stuck with the astonishingly-large bill -- I would like to hear it.

I completely agree. But there's something Reich doesn't mention that concerns me: Our current bailouts aren't working. That is, it may cost us more to continue bailing out loser companies while declining to nationalize them than it would if we nationalized them, ate their bad debt and, as quickly as possible, restored them to private ownership. (Part of the reason, of course, is the appalling greed of incompetent managers.)

I can also tell you this, not far off from one of Reich's points - Chrysler is a black hole. If it weren't, Cerberus would be bailing it out itself. They shouldn't be invited back for more "loans" or bailout funds, save perhaps a bridge loan to help them seal a takeover deal with a viable company.
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Addendum: "Moral haz... whuttard?" David Ignatius flat-out calls for subsidy:

How will the managers of the Bad Bank coax the gremlins out of hiding? With money, of course -- buying up an estimated $1 trillion to $2 trillion in toxic paper. Will the government overpay? Of course it will, especially at first, as it discovers fair prices for securitized debt for which there isn't now a functioning market.

Anybody even casually conversant with this crisis knows that the government will overpay because to do otherwise won't help the banks. We can buy them for the pretend value the banks presently use, knowing we're paying probably two, three, four times their actual value, removing a huge liability from the banks' shoulders, then hope that with actual assets back in their coffers banks will return to "business as usual". Or we can try to come up with something approximating market value, force banks to report multi-billion dollar losses on those assets, and... then most of them have to admit insolvency.

At least people seem to be through arguing that if the taxpayer ends up owning these toxic assets, there's a chance of "turning a profit". Does Larry Kudlow blush when he reads crap like this, or does he shrug, smile at the corporate interests he serves and say, "It was worth a shot."

If Kristol, Reich, Mallaby and Krugman Are All Skeptical....

Although you may not get a sense of it from reading this blog, as I focus on the 10% at issue, I don't much care for the brand of debate where people focus exclusively on the 10% of issues that give rise to contentious political debate, rather than the remaining, soft 90% of issues where people are mostly indifferent or are largely in agreement. Despite occasional controversy, it's hard to find someone who gets hot under the collar because our nation "doesn't have the sense" to eliminate the Electoral College. You would have to work pretty darn hard to find somebody who is incensed that we don't have a unicameral legislature, or that Presidents are elected every four years. You may find people who scoff in one direction or the other at notions of an "ownership society", but general concepts of capitalism and private property are uncontroversial.

But sometimes the stars align in funny ways, and a consensus forms among people on an issue that is controversial despite their political differences, or get incensed on a topic where the mainstream media seems to be largely reacting with a shrug. Perhaps it isn't too surprising that Paul Krugman, economist, and Sebastian Mallaby, defender of the financial industry, both question the Bush Administration's proposed $700 billion financial industry bailout. Given what's known of the plan, I would be surprised to see any economist not demand additional details or question the viability of the plan as proposed. And Mallaby's defense of the financial industry necessarily involves making the industry responsible for its own failings. When you advocate leaving the industry largely unregulated such that financial geniuses can find clever ways to make money without the interference of government, you can't credibly argue that when those geniuses mess up - big time - that the government should bail them out with a blank check.

Krugman's instinct may be toward more regulation and Mallaby's toward less, but their common ground is to try to hold financial institutions responsible. Putting things in very simple terms, with regulation you risk stifling innovation, and you may still the source of an eventual financial crisis. With less regulation (and I'm not aware of anybody who is seriously involved with these issues who advocates none) you risk what we're seeing right now, but you enjoy the fruits of the innovation that might otherwise occur. Under the Mallaby approach, holding financial institutions responsible for their own failures is even more critical, as that's the check that is supposed to keep them responsible in their experimentation and innovation.

Robert Reich is a very smart man, but he also has a clear political affiliation, as does Bill Kristol. Reich offers some proposals that, apparently, would make this bailout acceptable to him. (Contrast that with Mallaby, who proposed alternate plans that might achieve the desired effect without a taxpayer subsidy.) Reich's credulity - this is a plan he seems to believe we can fix - lends credence to Kristol's worry, which is sufficient in magnitude to overwhelm his more typical deference to the latest party memo:

[The plan] would enable the Treasury, without Congressionally approved guidelines as to pricing or procedure, to purchase hundreds of billions of dollars of financial assets, and hire private firms to manage and sell them, presumably at their discretion There are no provisions for - or even promises of - disclosure, accountability or transparency. Surely Congress can at least ask some hard questions about such an open-ended commitment.

And I’ve been shocked by the number of (mostly conservative) experts I’ve spoken with who aren’t at all confident that the Bush administration has even the basics right — or who think that the plan, though it looks simple on paper, will prove to be a nightmare in practice.

But will political leaders dare oppose it?

It depends upon how much cover they get. And despite Kristol's skepticism of the plan as a whole, his proposed fixes for the plan are far less significant than Reich's.

Comments by McCain on Sunday suggest he might propose an amendment along the lines of one I received in an e-mail message from a fellow semi-populist conservative: “Any institution selling securities under this legislation to the Treasury Department shall not be allowed to compensate any officer or employee with a higher salary next year than that paid the president of the United States.” This would punish overpaid Wall Streeters and, more important, limit participation in the bailout to institutions really in trouble.

Reduced salaries for one year? You could drive a semi through the loopholes that idea creates. But to his credit, Kristol ends up more in Mallaby's and Krugman's territory than in Reich's:

While assuring the public and the financial markets that his administration will act forcefully and swiftly to deal with the crisis, [McCain] could decide that he must oppose the bailout as the panicked product of a discredited administration, an irresponsible Congress, and a feckless financial establishment, all of which got us into this fine mess.

Many have observed our society's tendency to cheer on capitalism and private profits, but to socialize losses. This appears to be a grotesque example of the Bush Administration doing exactly that - with the financial industry eagerly demanding an even larger bailout of all of its junk assets. I'll credit Reich, Mallaby and Krugman with far more knowledge of economics and market theory than I, so (dare I say, like Kristol - I guess we're in that area of overlap that's so often hidden in plain sight) I'm operating more on instinct. But my instincts are screaming, "This is an incredibly bad deal for everybody but Bush, Paulson and a handful of financial elites."
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Update: Dean Baker observes,

If the bailout were properly structured, firms would not be lining up to get in. It should be a last resort that involves selling most of the firm to the government, as happened with AIG. If banks are lining up to get in, then the people who designed the bailout should be chased out of town.