[lbo-talk] Discussing the Crisis/Bailout

[John Thornton]

Gar Lipow wrote:
> On Mon, Oct 6, 2008 at 6:05 PM, Doug Henwood <dhenwood at panix.com> wrote:
>   
>> On Oct 6, 2008, at 5:31 PM, Gar Lipow wrote:
>>
>>     
>>>  This
>>> is an empirical argument and to make sense has to falsifiable by an
>>> empirical test. How bad can things get before the facts refute the
>>> idea that this was better than nothing. It can just be a matter of
>>> faith - no matter how bad the turn the economy takes this week, it is
>>> still better than would have happened without it.
>>>       
>> We just don't know. There's no counterfactual available, nor are there any
>> modern instances of letting a debt deflation continue unchecked in a rich
>> country. "This week" is a ridiculously short timescale. We're going to have
>> a recession, and maybe a bad one. But without a bailout, what do you think
>> the results will be? Anyone who knows the experience of the 1930s (or 1870s)
>> isn't willing to play chicken.
>>
>> Doug
>>     
>
> I'm not arguing that something was not needed. The question is, will
> this stop or slow down debt deflation? Are you going to say there is
> no test for that?  The logic can't be be. "We must do something. This
> is something. Therefore we must do this."   Are you saying there will
> never be any way to know whether this particular action made things
> better or not?  And if a week is an absurdly short time frame to know
> whether it had an effect, why wasn't it an absurdly short time frame
> to pass a bill?

That's right, there is no test to say whether or not it is "working".
There is no way to know what would have happened if the bailout hadn't 
passed since there is nothing to compare it to.
Increasing liquidity won't solve any problems but it should slow down 
the collapse so that the next administration can take the hit of large 
capital injections.
Should doesn't guarantee it will and provides no metric to determine 
success or failure.

John Thornton