On news of President Obama’s bailout plan, the market tanked an incredible amount today, nearly 5%. Gold went vertical. The consensus view is that Treasury Secretary Geithner’s long-awaited proposals kicked the can down the road. There is a “bad bank” proposal and plans for continued acquisition of “toxic” securities through other means, but the price tag keeps going up and the price to be paid for the distressed assets remains a mystery. Without some clear info on how to price these assets–still missing in action from what amounts to a plan for a plan–the whole thing is a charade, and we can expect more calls for multi-billion dollar bailouts and continued tanking in the market. The ersatz, reactive, and anti-market biases of the Obama administration are one of the chief reasons any recovery will be significantly delayed and anemic–anyone with capital to deploy is worried it will be devalued, confiscated, or otherwise smashed by inter alia Obama’s penchant for high taxes, inflationary monetary policy, and direct wealth redistribution.
Obama has not sufficiently connected the dots as to what the problem is in the economy, how much and where it can be fixed by government intervention, and how the stimulus and bank bailouts interrelate. One minute it’s greed, then deficits, then not enough government spending, then too much housing, then not enough spending on housing, loose credit, tight credit, etc. I don’t think he’s a particularly thoughtful or sophisticated thinker on economic matters. He evinces a combination of wonkishness and college kid socialism. To the extent there is coherence, his policies are defective, rooted as they are in flawed Keynesianism, which does not recognize loose money is the chief cause of the business cycle. The political defect of Obama (and American politicians generally) is that they want to avoid hard choices. Instead of recognizing the necessity of painful contraction after a decade-long false economy of loose credit, the stimulus bill and the bailout all promise that we can be wealthy and successful as a country by spending even more borrowed money. Present-day pain must be avoivded at all costs, even if it means future generations will be impoverished. It’s thew worst kind of Ponzi scheme. The whole concept of the stimulus echoes the tin-eared call of President Bush for patriotic Americans to “go shopping” after 9/11, as if a necessary war of self-defense can be fought with no shared sacrifice nor any public mobilization of resources.