Bailout Blues

Ian Welsh gives his typically unvarnished view of the economic consequences of the bailout passed into law (signed by Bush within like 10 minutes) today.

Japan had its own bubble back in the 80's. When it popped the Japanese decide that they would not force banks to write down their losses. Instead they left them on the books. Those of you who are old enough will remember when Japan was the economy of the future, who built the best stuff and were destroying everyone else. After the bubble popped that all ended. The world's most vibrant economy went into a long economic slump from which it never recovered. This wasn't a classic depression—there wasn't a huge immediate contraction. Things just generally got lousy - unemployment rose somewhat, jobs stagnated, no one had a lot of money. The good times never, ever, came back ever again. It was like being caught in a low grade recession, all the time.

That's what this bill will do in the most likely scenario. The US will go into recession, every once in a while it will seem to pop out, then it will drop again. Because the US has population growth, and Japan doesn't, the actual numbers will look better than Japan's, but the feeling of "there are no jobs anywhere" and "this economy sucks" will be pervasive. This will translate into a grinding down of Americans standards of living.

You should read the whole thing. Jobs aren't really mentioned in his scenario and I think that's the key, but if the capital to start new businesses or undergo R&D is entirely tied up in the markets then it'll be difficult to grow out of the recession, absent some killer new technology that the whole world must have. And Paul Krugman's prediction is absolutely terrifying.

We’ll learn more next week. But I have a prediction: well before January 20, Congress will be asked to vote on bailout 2.0.

Let's face it, we're in those hard times right now. The next President will enter the White House with a recession in full swing. He will have seen 12 straight months of job losses, in all likelihood, and he'll have seen nearly one million new enrollees in the federal Food Stamp program. Our manufacturing base is hollowed out, our financial industry will take years if not decades to recover, housing prices still need to hit bottom, etc.

There are solutions out there, like doing a real bailout 2.0 for the people who need it, creating an HOLC, investing in infrastructure and green jobs, and nationalize the failing banks. If Wall Street does come back for another bite at the apple I don't think you can structure this any other way. Ending the war and getting us out of dozens of countries where we have no compelling national security interest and using that money elsewhere in the budget would be nice as well.

The need to create public pressure to reach these important goals is stronger than ever.