What Happened to “Free-Market” Conservatives (or Neo-liberals)? By Dean Baker - April 1, 2008, 5:48PM
With the housing bubble in full meltdown, our political leaders are busily ignoring all the things they have said about the market over the last quarter century and looking to throw all the money that they can find to sustain the bubble. This would be comical, if it weren’t so painful.
Remember all the steel workers and autoworkers who lost their jobs due to trade agreements that were supposed to advance economic efficiency over the last quarter century? How about the workers in the airline, trucking, and telecommunications industry who lost jobs due to deregulation, which was also supposed to increase economic efficiency?
Well, it’s a new day. Nothing these people (or their economists) said matters anymore. It housing bubble support time!
For years, economic policy was supposed to be guided by market principles. If our autoworkers couldn’t compete with their counterparts in Mexico or China, who got paid $1 an hour, then it would be inefficient to have trade protection that would keep them employed here. The same applied to regulations that might keep high paying jobs in key sectors of the economy. Educated people all knew that interfering with the market was harmful to the economy, and if we ever forgot this basic truth, the Washington Post regularly ran sanctimonious editorials to remind us.
Well, it’s a new day. The housing bubble is melting down and Congress and the Fed are throwing money everywhere. After all, this isn’t about auto workers and truckers, it’s about Wall Street banks, and the politicians are pulling out all the stops to come to the rescue. In addition to the money that the Fed is throwing at the banks through subsidized loans at its discount window, it is also granting free insurance to the investment banks – a gift that is potentially worth hundreds of billions of dollars.
Now Congress is jumping into the act. Remember way back in the fall when they couldn’t find $7 billion to expand the State Children’s Health Insurance Program? Well, now Congress can finds hundreds of billions of dollars to support a housing bubble. It’s a worthy goal. After all, the Wall Street crew might lose their shirts if the housing bubble continues to deflate.
Congress will not be able to support the housing bubble indefinitely, but they might be able to do it long enough to allow the big boys to cash out and pass more of their bad loans onto the taxpayers and other suckers.
The political support for this bailout package may make it unstoppable, but if it does go through, we should be clear that there are new rules. In the post bailout world, anyone who makes claims about forcing workers or the poor to take pay cuts or do without benefits in the name of economic efficiency is simply a fool or liar.
Anyone who cared about economic efficiency would be yelling at the top of their lungs against this bailout. Anyone who can throw untold hundreds of billions of taxpayer dollars at the rich to save their hides, has no concerns about economic efficiency, they just want to help the rich. In such a world, the rest of us have the right to demand the same sort of handouts from the government. And those who stand in the way are simply lackeys of the rich and powerful, who pretend to care about principles of economics.
[Addendum: There is one other very important part of this story that I neglected to mention above. Efforts to sustain the housing bubble ensure that houses will be unaffordable for young people or to families moving into bubble inflated markets. For this reason, perhaps the house price support program should be dubbed the "The Housing Unaffordability Act." Every member of Congress would be proud to have their name attached to that one.]