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Do We Love the Bailout?
By Liza Featherstone
Last week, we—the American people—didn't seem to like the notion of a bailout, not one bit. A Rasmussen opinion poll [1] released Sept. 17 found that just 7 percent of Americans favored "using taxpayer funds to keep a large institution solvent." Rasmussen's results tend to skew conservative compared with other pollsters, but it was still a dramatic finding. In fact, it's hard to find another idea we hate that much. For example, with 54 percent of Americans now saying we should have stayed out of Iraq, the war is unpopular-but nowhere near the depths of single digits. You might assume that, therefore, an even greater percentage would disdain Treasury Secretary Henry Paulson's scheme, announced only two days later, to push through, in great haste, the largest-scale government rescue of any financial system in history.
But public opinion is way more complicated than that. A Pew survey released Wednesday [2] finds that 57 percent of the public-a margin of almost 2-to-1-favors Paulson's bailout scheme. Rasmussen's voters like it less than that-28 percent approved on Monday and 25 percent Tuesday [3]-but they still like it better than they liked the abstract idea of a bailout last week. ABC News finds 44 percent approving of the Treasury's plan, while the Los Angeles Times/Bloomberg poll [4] finds only 31 percent approve, about the same as the Wall Street Journal/NBC poll [5]. These are radically different results. What in the world is going on here?
As Gary Langer, director of polling at ABC News, points out [6] on his blog, everything depends on how you ask the question. The Pew survey asks how people feel about "investing" money to "try and keep financial institutions and markets secure," while L.A. Times/Bloomberg asked if the government should "bail out private companies" using "taxpayer dollars." ABC News, most neutrally, asked if people approved of "the steps the Federal Reserve and the treasury have taken to try to deal with the current situation involving the stock market and major financial institutions." Rasmussen asked last week how they like "using taxpayer funds" to help "large institutions"; this week, they asked, "Do you favor or oppose the proposal for the federal government to purchase up to $700 billion in assets from financial companies?" Far more sober wording, but notice it still includes the phrase "federal government"-truthful but, for some people, loaded. The Pew, Bloomberg, ABC, and Rasmussen respondents were answering completely different questions.
Why is language so important here? Partly because most people don't know what to think about economic policy. As Larry Bartels, a Princeton University scholar who has extensively chronicled the muddled contradictions of American political opinion, reminded me Wednesday, "Most people have no way at all to judge for themselves whether a bailout would be sensible or crazy." They don't know what it would involve, he explained, nor whether "the risk of inaction is massively frightening or largely manufactured." Even worse, Bartels adds, "they don't even have any clear conception of how much money $700 billion is."
The less we understand an issue, the more vulnerable we are to delicate shifts in framing (e.g., investing vs. spending). And in this as in many economic matters, emotions are more important than logic. Eric Schoenberg, a behavioral economist at Columbia Business School, points to psychological factors explaining the reactions to this bailout. "People are willing to accept a decision that harms them," he explains, "if the alternative means that someone else benefits unfairly." The phenomenon, which is called the "ultimatum game," explains why even though people may realize that their own retirement savings or other investments could be imperiled by a financial crisis, they still find it unacceptable that the banks are receiving direct assistance. Schoenberg says, "People feel that is very unfair and they find it really distasteful." (And, rationally, they may also be skeptical that former Goldman Sachs head Henry Paulson will take steps to make the bailout more equitable.) That's why, when pollsters make clear who's benefiting from the Paulson plan, they find widespread disapproval.
Schoenberg points out, too, that when people face two choices, both bad-give your hard-earned tax dollars to rich bankers or face a possible economic collapse-they have a hard time deciding and, in fact, don't want to decide. That means, he says, they are "particularly influenced by moments where the bigger loss is emphasized." Different framing strategies render different kinds of losses more vividly. Since it has been so long since Americans experienced a real economic disaster, the loss of $700 billion in taxpayer dollars looms larger to most people. On the other hand, people do pay attention to the administration's reminders that ordinary Americans could be personally affected by trouble in the financial markets; we could lose our jobs and retirement savings and be unable to borrow money to buy a home or even a car. Our intense loss aversion also explains why we love the plan when it's framed as an "investment," as Pew's pollsters did. We're always on optimistic alert for the possible "win-win" situation, no matter how rare it may be in economic reality.
Wording matters because unlike most pundits and politicians, who strive for a coherent worldview, much of the public instead harbors a set of discrete opinions (if that-Bartels points out that they may "merely pretend to have views to humor the people doing opinion surveys"). People who always oppose government action of any kind, or always like redistribution schemes and hate big business, constitute a minority. This makes it hard to organize Americans around a concrete, 10-point program but also presents an opportunity. Thus, to anyone advocating ways to make the Paulson plan better: Our minds are wide open. Just don't remind us who's winning or how much we stand to lose.