“New Deal or no deal”?

Some form of the Garbage Pail seems to be needed, but what form matters.

There seems to be a strong case for massive intervention to prevent a credit freeze that would damage the real economy. And there seems to be good reason to do it now, or at least for the political players to credibly commit now to doing something soon.

But I can’t work up much enthusiasm for writing a black check to a Treasury Secretary who takes his orders from this President. And there are serious questions about:

* How to ensure that the stockholders and managers of financial-services firms take as much of the necessary financial hit as possible, and the taxpayers as little as possible. That’s easier to arrange when you nationalize institutions (as in the AIG case) then when you buy assets. A related problem: preventing the abuse of the power provided by the new law either for personal enrichment or for partisan entrenchment.

* What else to do at the same time: Bail out some homeowners? Provide some financial stimulus? Do something for the unemployed and the children without health insurance? Limit the salaries and bonuses of the geniuses who so mismanaged their institutions that they need a Federal bailout? Close the new version of the discount window to any firm that hires lobbyists? This is a moment at which the money forces that can usually block progressive legislation need to get something through the Congress; that gives the Democrats some leverage to say “New Deal or no deal.” They shouldn’t hesitate to use that leverage.

What worries me is that the Paulson plan, which is now the plan on the table, will get the benefit of the panic. We should beware of the syllogism the Permanent Undersecretary uses on the Minister in “Yes, Minister:

We must do something.
This is something.
Therefore, we must do this.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com