Saturday, February 21, 2009

On scapegoats and short memories.

Mark Thoma links to Brad DeLong's post about why Freddie and Fannie aren't to blame for the current crisis. Free Exchange points to sources saying that laymen and others may be at least partially to blame for this mess--so let them suffer. David Henderson at EconLog says that there are people who have been saving money in order to buy homes at crisis-depressed prices--and trying the government's trying to fix the housing crisis hurts these people.

It seems to me that this sort of conversation has mostly left the public discourse. When the housing crisis was just starting to unfold, there was a lot of talk about who was to blame. The term "house of cards" was used quite a bit. Low interest rates from the Fed, financial institutions giving away subprime loans to anyone with a pulse, rating agencies giving high ratings to subprime mortgage-backed securities, and everyday people taking on huge mortgages without considering their abilities to pay them off. In short, lots of people were to blame, from the top to the bottom. Why aren't people still talking about this?

When this was unfolding, there was theme of "pass some kind of recovery bill--anything to help us. If we act now, we can stave off the worst of the recession." And that's what happened. Congress passed a $700 billion bill to try to save our economy. A number of economists were against this--particularly how the bill was designed--but the idea was that a bad bill was better than no bill. The bill, at the time, was intended to save large banks. The ones "too big to fail." The idea was that if those banks fell, then basically the flow of money would stop. There would be no money market at which to finance business ventures. If those big banks fell, then would the vast majority of businesses. Quick action was necessary.

But, that isn't the case any more. The bulk of the recently passed bill won't take effect until well past when the recession is forecast to end. Now, if the bill has any effect, it's to help along the recovery or expansion portions of the business cycle. However, people aren't talking about accountability anymore. That is, the bill is to "save the economy"--save big business, save small business, save homeowners--we've just assumed that we have a right to the money. And if the money doesn't help our specific subgroup of people, we feel gyped. The professionals are talking about where the money is going, not whether there should be any money to save the economy at all.

We were previously talking about how we got ourselves into this mess, and we have to learn that there are consequences to bad choices, rather than knowing the government will bail us out. We put that aside because we were convinced quick action would save us. Now that's no longer the case, we're ignoring this basic economic question?

I'm not trying to make a statement about the quality of the bill. If you think the bill is going to help us, good for you. If you think the bill is a terrible idea, wonderful. All I'm saying is this: what happened to the public discourse? Why aren't we talking about this anymore?

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