Fairness in Bailouts

As Congress and the country consider the "bailout" plan proposed by President Bush and Treasury Secretary Paulson, there has been a growing cry from Congress and the public about the alleged unfairness of the plan. Why are we helping rich Wall Street executives? What about poor people losing their houses? Some in Congress are trying to take what is already a huge bill and add more things to it. Help people being foreclosed here. Help state and local governments there. After all, if the cost is already $700 billion, what’s few billion more?

But that is wrong.

The bill is huge. In fact, it is too big (unless it is necessary). It would be nice if it could be smaller, but at least it shouldn’t get bigger unnecessarily.*

Instead of the normal kind of budget bill that Congress likes to make into a Christmas tree, with presents on it for everyone (presents paid for with Uncle Sam’s, i.e., the taxpayers’, credit card), we need a telephone pole. We need a bill that does one thing and nothing else. And the one thing it needs to do is to stop a possible financial panic.

We are not trying to help Wall Street investment firms or rich executives or homeowners who can’t pay their mortgages. We are trying to save the economy and prevent a really bad recession. That is the one thing, the only thing, we are trying to do.

If, in the process of rescuing the economy in the best and cheapest way possible, somebody gets helped, that is lucky for them. But that is not the purpose of the bill. The only purpose of the bill is to help all of us by preventing a possible financial panic. The fact some people may get helped in the process does not mean we have to help other people to be "fair".

We can’t afford to help everybody. We are not even sure we can afford what we might have to pay to rescue the economy, so we have to keep our costs as low as possible – to not hurt the economy by unnecessarily wasting money in some futile effort to be "fair" and to keep some money in reserve.

What this situation reminds me of is this quote from Abraham Lincoln:

"My paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that. What I do about slavery, and the colored race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union. I shall do less whenever I shall believe what I am doing hurts the cause, and I shall do more whenever I shall believe doing more will help the cause."

And so it is with the Bush/Paulson plan. The goal is to rescue the economy at the least possible cost for all of us together. If the economy can be best saved without bailing out anybody, that is what we should do. If we can best rescue the economy by bailing out everybody, do that. If saving the economy means bailing out some people and not others, so be it.

And that is where we are today. It looks like what we have to do to rescue the economy may result in some people getting bailed out. If that is true, then that is what we need to do – because what we are doing here is rescuing an economy for everybody, not giving bailouts to those who scream about fairness the loudest.

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* While the bailout/rescue plan has a price tag of $700 billion, we really don’t what it is going to cost. Better guesses are in the range of $250 billion (still a lot of money), but apparently that is not the way you "price" this kind of legislation. (See here.)

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Update (9/26/08 11:45 p.m.) A follow-up on the Lincoln quote in this post. The quote comes from a letter President Lincoln wrote to Horace Greeley on August 22, 1862. The letter was in response to an editorial in Greeley’s New York Tribune which demanded Lincoln move forcefully against slavery. By that time, Lincoln was already planning to issue the Emancipation Declaration; he was just waiting, per Seward’s suggestion, for a Union victory to issue it. Lincoln was able to use Greeley’s editorial to do some preparation for the declaration that was coming. Lincoln realized proslavery people would not like freeing any slaves and antislavery people would be upset that not all slaves were being freed. Lincoln was, in effect, explaining his reasoning ahead of announcing his decision. He was emphasizing that the main objective was saving the Union, and he was explaining how he had to fit policy on specific matters to achieve that overall goal.

And so it is with our economic situation. Our goal is to prevent a financial panic. Worries about a possible unfairness in the plan to this group or that, or even within groups, cannot take our focus off the main goal. Once we are comfortable we have achieved the main goal, then we can go back and worry about little unfairnesses here and there.