A Nation At Risk

The Mitchell Daily Republic has published a Denise Ross article featuring the wisdom of my favorite political scientist, me. 

“Tim Johnson is extremely cautious, because I doubt the outcome of that election is going to be based on how Johnson votes,” said John Schaff, a professor at Northern State University in Aberdeen and a blogger at South Dakota Politics (http://southdakotapolitics.blogs.com/).

“Either vote carries possible risks with it,” Schaff said. “How one votes on this is in part tied to how does one view that risk?”

For Johnson, the risk is tied, at least in part, to him standing for re-election next month.

Schaff notes many of the “no” votes came from members of Congress vulnerable in next month’s election. That’s not so for Johnson. In his race against Republican Joel Dykstra, polls show Johnson leading as much as a 2 to 1.

I forgive Denise for misspelling my first name (no "h", please).  It's a common mistake.  I do want to expand on this concept of risk 

Was the $700 billion "bailout" the right move?  That depends on how you assess risk.  There is no doubt that the government is providing much needed liquidity into the financial system.  Contrary to the implication of Todd Epp's tendentious post, the government, strictly speaking, isn't spending $700 billion, it is investing it.   This, like all investments, implies a modicum of risk.  It is possible that by purchasing various assets the government may eventually be able to sell those assets for a profit.  The risk here is that the government will not recoup its investment, leaving taxpayers holding the bag.

But there is substantial risk in the Tim Johnson position Mr. Epp lauds in his post.  The risk is that by not investing this money, a credit starved financial sector collapses taking the entire economy with it as capital simply dries up.  Robert Samuelson, who has forgotten more about economics that Todd Epp or I will ever learn, suggests today that a lesson of the Great Depression is that we cannot allow our money supply to dry up. This is why Samuelson is a cautious supporter of the bailout.  I wait to hear Mr. Epp explain whose toady Robert Samuelson is.

Those opposed to the bailout also accept some risk, namely that the economy can withstand the collapse of various financial institutions and the ensuing massive decrease in available capital. Maybe they are right, maybe they are wrong.  My point is essentially this: either vote on the bailout, yes or no, contains some risk and, conversely, the promise of some reward.  One's support or opposition to the bailout depends on one's estimation of that risk. I think it is a near thing and don't blame anyone for their vote, although I think I would have voted for the bill. 

By the way, many people are linking to this piece by Sebastian Mallaby, and for good reason.  Read it to learn about regulation, deregulation, and their relation to the current financial crisis.