His name was George F. Babbitt. He was 46 years old now, in April 1920, and he made nothing in particular, neither butter nor shoes nor poetry, but he was nimble in the calling of selling houses for more than people could afford to pay. – “Babbitt”
by Sinclair Lewis (1922)
WE’RE waist-deep in evasions because one can’t talk sense about the cultural roots of the financial crisis without transgressing a cardinal principle of politics: Never shall be heard a discouraging word about the public.
Concerning which, a timeless political trope is: Government should budget the way households supposedly do, conforming outlays to income. But the crisis came partly because so many households decided that it would be jolly fun to budget the way government does, hitching outlays to appetites.
Beneath Americans’ perfunctory disapproval of government deficits lurks an inconvenient truth: They enjoy deficits, by which they are charged less than a dollar for a dollar’s worth of government. Conservatives participate in this, even though deficits fuel government’s growth by obscuring its cost.
The people can emulate the government because credit has been democratized. Democratization of everything is supposedly an unquestionable good, but a blizzard of credit cards (1.5 billion of them, nine per cardholder), subsidized loans and cheap money has separated the pleasure of purchasing from the pain of paying. And the entitlement mentality fostered by the welfare state includes a felt entitlement to a standard of living untethered from savings.
Populism flatters the people, contrasting their virtue with the alleged vices of some minority – in other times, Jews or railroad owners or hard-money advocates; today, the villain is “Wall Street greed,” contrasted with the supposed sobriety of “Main Street.” When people on Main Street misbehave by, say, buying houses for more than they can afford to pay, they blame the wily knaves who made them do it, such as the “nimble” Babbitt.
Knowing that heat breeds haste, errors and unintended consequences, George Washington praised the Senate as the saucer into which legislation is poured to cool. In this crisis, however, the House of Representatives has performed that function. Republicans, especially, slowed a Gadarene rush to ratify the deeply flawed bailout legislation.
Voting against the bill – against putting taxpayers’ money at risk to clean up a mess that some people got rich by making – was easy, but not necessarily wrong. The $700 billion figure exaggerated the plan’s probable cost, but accurately measured something worse – the enormous enlargement of government’s power.
So John McCain and Barack Obama’s joint declaration that Congress should “rise above politics” was mere gas. The legislation touched elemental questions – the meaning of justice, the parameters of freedom and the proper functions of government.
Democrats charge that the crisis is market failure arising from an insufficiency of government, in the form of regulation. Well.
Suppose that in 1979 the government had not engineered the first bailout of Chrysler (it, Ford and GM are about to get $25 billion in subsidized loans). Might there have been a more sober approach to risk throughout corporate America?
Suppose Fannie Mae and Freddie Mac had never existed – there was homeownership before them, just not at a level that the government thought proper. Absent Fannie and Freddie – absent government manipulation of the housing market – would there have developed the excessive diversion of capital into the housing stock?
The rising generation of thoughtful Republicans was represented on both sides of Monday’s vote. Virginia’s Eric Cantor, 45, and Wisconsin’s Paul Ryan, 38, supported the bill because they’d helped achieve substantial improvements in it (such as requiring financial institutions to help finance their bailout and eliminating a slush fund for Democratic activists). Texas’ Jeb Hensarling, 51, and Indiana’s Mike Pence, 49, voted against what they considered a rescue model fundamentally flawed because (in Hensarling’s words) it “could permanently and fundamentally change the role of government.”
It is potentially catastrophic that this crisis comes in the context of a closely contested election and a collapse of presidential authority. Congress should disconnect from a public that cannot be blamed for being more furious about than comprehending of this opaque debacle.
The public wanted catharsis, and respect for its center-right principles, and got both with Monday’s House vote. It still needs protection against obliteration of the financial system.