Henry Paulson’s proposed bailout of Fannie Mae and Freddie Mac has justifiably sparked a lot of debate. I won’t attempt to add to that, but I’ll simply direct you to a few predictions and rants by frustrated economics professors: here’s one by Paul Krugman, here’s one by RGE Monitor’s Nouriel Roubani, he cites one by Willem Buiter in the FT. Then there’s another one published by the Wall Street Journal. All of these are worth reading, and they all have differing opinions about the severity of the problem and who is really to blame. However, as with most crises, there isn’t just one group at fault, but a number of different complicit wrongdoers. Certainly, the two mortgage giants and the financial industry in general were overzealous in selling and packaging mortgages that perhaps didn’t deserve to exist and the government stood by so idly that they are rightfully accused of negligence. Even American consumers are duly ridiculed for their rampant debt accumulation. But placing blame is one thing, solving the problem is another.
Part of the difficulty in addressing this problem is that it seems to require altering economic behaviors that are part of the American identity. The American economy is designed—through a number of mechanisms—to promote radical risk-taking and innovation. That general attitude is not something we will change, nor is it necessarily something we should abandon. However, we clearly crossed a line into excessive risk-taking, and we need to send a message that we should take a step back at every level. Sending a message that condemns excessive risk-taking without opposing the practice in general is a politically difficult maneuver, but one that presidential and congressional candidates will have to make.
One way of addressing this might be by making this the new debate over “values”. Previous elections were one or lost based on claims to having superior values on issues of moral import like gay marriage, gun rights and abortion. I could see the candidates addressing these economic problems with the same language of values—starting a journey back to the “culture of thrift” perhaps, as David Brooks calls it. One candidate could (should?) claim that they are the candidate of responsibility, the torch-bearers of the protestant work ethic that used to have Americans spending what they had and, as a result, having more to spend; a candidate that could reintroduce us to the values of modesty and hard work. This seems like a traditionally Republican mantra, but the Bush era of fiscal profligacy lost them that mantle. McCain could make this turn to traditional values, but his support of the Bush tax cuts loses him some credibility. Obama doesn’t exactly seem like a fiscal conservative either, but he could argue that having the government spend more on health care and education helps keep people out of the debt that is perhaps the root of this problem. Whether or not either candidate picks up this undertone, it is clear that getting out of the credit crisis will require more than a new set of regulations; it may require a more substantial change towards a new set of values and social ideals. What are those values and does either candidate have the capacity to lead us down that path towards change? I think those questions deserve some discussion.
This could go hand in hand with the American response to the energy crisis. Buying a small sedan instead of an SUV contributes to a culture of thrift, and it’s already happening: http://www.msnbc.msn.com/id/25196998/.
Add to that Obama’s opposition to the wasteful (and disastrous) Iraq War and I think you’re right, he does have a coherent set of values to set him apart. Responsibility and thrift might/should make a comeback during this election cycle.
jaf2106 – I think that it should be added that Obama has this in general, across a broader set of issues. His invocation of a concept of “black responsibility” can be interpreted as an affirmation of the import of values, over and above a “social science” (for lack of a better term) perspective on racial inequality and the plight of African Americans. And I think the spirit of his campaign is consistent with a sort of “new American values”; maybe that’s why people gravitate towards him so strongly.
hlz2 – I think you’re right, and I tend to agree with Brooks, as well. But I can’t help but worry about one aspect of his claim.
I think that, in the past, it was easier to emphasize the importance of responsibility in regards to financial matters, because the payoffs to such a strategy were really clear and evinced themselves on a relatively short time frame: people who saved accumulated wealth, and people who consumed quickly ran out of it. Nowadays, I wonder if the feedback is quick enough to register? Someone who behaves irresponsibly in a financial sense today might very well do better than his responsible neighbor, and perhaps for a good bit of time, before the fallacy of his strategy becomes clear as events unfold.
Can these sorts of values inhere when they’re faced with seeming contradiction in the short term?