Stossel or Stein: Should we bail 'em out or find a floor?

Great Debates
1

and “Could Federal Bailouts have stopped the Great Depression?”

Larry King (that avatar of all investigative virtues) had as his guests the other night John Stossel (the 20/20 correspondent, bestselling author) and Ben Stein (star of WIN BEN STEIN’S MONEY, Ferris Bueller’s Day Off, EXPELLED and about 30 Pit Threads). The subject was the wisdom of the government bailouts.

In spite of Stein’s way-over-the-top advocacy of creationism and his TMI columns about his son’s problems I think he is, at his best, an extremely intelligent man (in fact if he was just your average polemicist and religious right shill I don’t think his creationism and other loopy views would be near as frustrating). Though his career has mostly been spent as a show business personality and law professor, Stein is the son of a world famous economist [which in and of itself doesn’t qualify him for anything, but when added to the fact that] he graduated with honors from the Columbia University school of economics, and he’s served on the board of directors of various companies, and he’s been a columnist for Wall Street Journal, Money, Fortune, and other respected business periodicals.
Reason for mentioning this: in spite of his near insanity on some issues, even if you disagree with him on economics issues you at least have to acknowledge his credentials to speak on the topic.

John Stossel was born the lovechild of Ayn Rand and Geraldo Rivera (Geraldo was only 4 at the time, but looked much older and his libido is legendary), has a BA in psychology, and is best known for 20/20. At some point he had a libertarianish conversion and now has a martyrdom complex (as evidenced by the title of his book Give Me a Break: How I Exposed Hucksters, Cheats, and Scam Artists and Became the Scourge of the Liberal Media). Among my many problems with Stossel are such verisimilitudes as “there are more trees in America now than there were a century ago, so how’s the environment in danger?” (roughly like saying “the average income today is higher than it was a century ago, so how’s the economy in danger?”— true, there may be more trees, but they’re not the same kind of trees- the virgin longleaf pine forests that once covered millions of acres is now down to a few thousand, and the ecosystem that evolved in the longleaf forests is completely different and is unable to adjust to the new trees”) or “The richest 1% of people pay 27% of taxes, so rich people are good” (neglected to mention that they make about 27% of the income as well and control far more than that of the wealth). Stossel also received a large six figure settlement from a wrestler who socked him and then decided that big punitive damage awards were evil, and he actually gloats about how he’s a multimillionaire whose beach house was repaired by a government grant that should be done away with.

Anyway, Stossel’s not one of my favorite people and in fact this started out as a pit thread. In fairness, while I don’t recall if I personally have pitted Stein I’ve certainly participated in Stein pitting. In either case I decided a debate over claims made on Larry King would be more interesting than a pitting, so here are the claims (full transcript here):

So the debate:

Of the views above, do you think Stossel or Stein is closer to correct?

Do you think it would be a bigger disaster with or without government handouts?

Do you think Stossel’s Weimar Republic analogy (that too many bailouts will completely debase our currency)?

Do you think Stossel is putting ideology over humans?

Do you believe bailouts would have lessened/worsened/had no effect on The Great Depression?

And any other related question you wish to add or answer.

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If money flows like tap water it will be as worthless to people as tap water, yes.

Ruining the economy long term will damage a lot more humans than letting one sector of the economy naturally collapse in the short term. It isn’t about ideology over people, it is about a few loud people now screwing over a huge number of unknown people in the future.

I guarantee you the government will not fix the economy. The best they could do is make it easier for the economy to fix itself, but it looks like they want to be seen as “doing something”, so they’ll end up making the economy worse, just watch.

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Stein.

Depends on the “handouts”. If the public gets something in return for putting out the money (corporate equity, financial oversight, valuable infrastructure) then the financial hardship will be lessened and America will also have something valuable in the end as well. If they just hand out money to favored cronies, not so much.

He’s right in that if we just keep throwing out money then at some point things will fall apart. But since we are nowhere near that point his analogy is like warning his friends about the dangers of running down staircases and ignoring the fact that Freddy Krueger is chasing them.

No. Humans are very gifted in selfdeception. I expect he really believes that not bailing out industries is best for people in the long run.

With the caveat offered above, they would have lessened the hardship.

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It’s easy for people who have a job and aren’t losing their house to claim that it’s time to put our foots down about these types of economic issues. I agree with Stossel’s view, but Stein is right, now is not the time to take any ideological stands. This is assuming any bailout is structured in a way that is favorable to the taxpayer and doesn’t subsidize wholesale offshoring of the US auto business (well, more offshoring than they’ve already engaged in).

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Jim Rogers agrees with John Stossel

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That’s pretty much where I stand. I’m sure that without bailouts then in 5 or 10 years time most people will have moved on, but meanwhile it’s going to be a miserable 5-10 years of foreclosures, business failures, urban decay, etc… Plus, telling your family “true, we’re losing our house and won’t be able to afford luxuries like vacation and health insurance for the forseeable future, but in the long run, this could be a blessing…”.

7

I still haven’t made up my mind about this issue, but from an emotional standpoint, Stossel doesn’t convince me. His argument reminds me of that line “Kill 'em all and let God sort it out.” It’s what people say when 1) they’re not in any danger of being killed, 2) they don’t care about other people being killed and 3) they don’t have any solution to the problem.

I don’t know if a bailout is the solution, but I’m not convinced that things will naturally fix themselves. “Nature” is what got us into this mess.

8

monstro Well part of the logic is that postponing the inevitable only makes it worse in the long run and props up bad business at the expense of good business. In the Jim Rogers interview I posted, he talked about propping up the automakers with money from good businesses, and how now those good businesses that did nothing wrong have to compete on an unfair playing field.

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I think a lot of people (including economists) think it will… eventually. The problem (and disagreement) is when that is, and what will have to be suffered during that time.

But isn’t part of the argument for the bailout now that it’s GOOD to “postpone the inevitable,” at least for now? That even if GM does collapse later, it’ll be when the economy in general is in better shape, and can more easily absorb the losses? That then the results will still be cheaper than Great Depression II?

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Both have good points and smart policy would be a mix. Some fiscal stimulus is likely needed but the government needs to be careful about moral hazards and rewarding stupidity and greed.

I mean, they’ve been pouring billions upon billions into the banking industry and it’s not exactly making the ordinary Joe’s life easier, is it?

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It has, if it’s avoided a wholesale collapse of the global financial industry.

Part of the problem of all this, of course, is that we’ll never know if it did or not, and absent that, it’s pretty hard not to concentrate on the myriad ways in which government intervention has been abused (or how companies are lining up WANTING to abuse it).

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That’s possible but it still asks GMs competitors to float GM so that it can remain stiff competition for them in the market rather than leaving a massive gap in the market that they are then called upon to fill with lots of infrastructure they could buy up in order to fill that gap.

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As a side debate, Stossel is now and has been for years a major advocate of laissez faire economics. I swear that he touted this in those words on King though it’s not in the transcript (though the transcript also interprets “the Weimar Republic” as “then why am I republic”, so no telling how it got transcribed).

To me, and I admit I’m neither an economist or a business major nor have I studied either beyond long ago freshman survey courses, there would seem to be no bigger argument against laissez-faire policies than the credit crisis. Is this a case of “no true Scotsman” (ah, but the minimal regulation wasn’t really laissez fair because there should have been no regulation) or is it another matter entirely? (Not rhetorical as since I can’t answer this so I’m actually asking others to give their opinions.)

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I also wonder to what extent union regulations can be renegotiated. I completely understand why labor unions exist- it was hell on Earth before they did. The “you’re docked for the time you were up in the sky” stuff really happened: there were people who lost limbs in industrial accidents and not only did they not get disability but they didn’t even receive a full day’s pay! And then the unsafe working conditions, 80 hour weeks, child labor, etc.- the laissez faire owners were as evil as the managers of modern day third world sweatshops.

However, it’s a long way gone from “something has got to be done to keep us from starving to death and risking life and limbs for pennies an hour for fat cat owners” to “grossly overpaid unskilled labor* with multimillionaire leaders who manipulate the multibillion dollar pension fund to mob owned casinoes” (yeah, dated, but the corruption is still rampant). During crisis,is it legal for the government to renegotiate union contracts in a way that says “Alright, you can be unemployed at $22 per hour, or you can be employed at $14 per hour until times improve”? You’ll make a lot more at $14 per hour than you will on unemployment after all, and this would minimize the government bailout.

And to prove it’s not just antilabor, multimillion dollar executive compensations at a company that’s losing money- just shouldn’t happen when they’re coming hat in hand to the government. Executive salaries should be completely capped during the “Federal occupation”.

*I know that not all unionized labor is unskilled- in fact some is highly skilled- but there are people earning $14 per hour for work that could be done by a not particularly bright 10 year old.

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http://www.buffalobeast.com/94/stossel.htm Here is the Beast take on Stoessel an unfair unabashed privateer. He is a joke.

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This is a tough issue. And it’s an issue where there is widespread disagreement among economists.

It’s not necessarily even a tradeoff between short-term bailouts and long-term health. A ‘bailout mentality’ could be very damaging in the short run. Stossel’s comment about needing to find the bottom is very accurate. One of the risks of government action (and one of the things that kept the New Deal from working as it was expected to) is that government intervention in the economy has immediate negative effects outside of the moral hazards involved, because it injects uncertainty into the market.

For example, let’s say someone today is willing to invest a billion dollars in the economy. Where should they put it? In the auto industry? Well, what if they don’t get a bailout? Or what if they do, and you put your money into a competitor’s product? Or maybe you’re thinking of opening up a parts distributorship for GM vehicles with your investment money. It’s either that, or you’ll take the money and invest it somewhere else. But you can’t really make a decision, because you don’t know if they are going to get bailed out or not. So that money sits on the sidelines doing nothing.

Or let’s say you’re GM - You know you’ve only got capital to last until the middle of next year. You really should start cutting now, and trying to salvage what you can so that your company has a chance to survive. But then a bailout gets floated in front of you, and suddenly the hard decisions are put off while you chase after that particular carrot. If you wind up not getting it, the delay has seriously affected your ability to weather the storm. And even if the big three get their bailouts, there are a hell of a lot more companies out there with their hand out who won’t get one, and they’re wasting time begging when they should be working overtime on correcting their imbalances.

What the economy desperately needs is information. Investment capital needs a rational environment to work in. Government is anything but rational. Money flies around willy-nilly based on backroom deals and the tug-of-war that goes on in Congress. It’s very hard to plan a business recovery when you don’t know what government is going to do.

This always hurts the economy, but when the bailouts and pork are in the hundreds of millions, the economy can absorb the ‘noise’. I mean, it still sucks to be a ferry operator when suddenly a bridge to nowhere springs up, but it doesn’t wipe out 10,000 jobs. But when the money being flung around is in the hundreds of billions, there are serious distortionary effects.

Then there are the moral hazards, wherein companies start to merge and grow in hopes of becoming ‘too big to fail’, and banks take insane risks with their money, confident that the government wll never let them go under. This is the same reason why we over-build on flood plains and hillsides when we know we shouldn’t - government will save us. It’s partly the reason why we got into this mess in the first place. Provide too good of a safety net, and more people decide to risk jumping.

Then there are the distortions to the price system, and the perverse incentives that punish excellence and reward failure. Don’t forget - if the big three with their screwed up management practices are bailed out, that’s going to hurt the other, more efficient auto makers. Nissan and Toyota make cars in America as well, and they do it better. And they are also hurting. If the bad car companies are allowed to fail, the good ones can expand to fill the gap, and we’ll have a better auto industry in the long run.

But Stein’s point is also valid - there’s a time when you just have to suck it up and do what you have to do to keep the economy from completely collapsing. The trick is to find out where the line is, and to make sure that whatever you do on an emergency basis does not become a new entitlement and stay with us for the next 50 years.

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They need to build the 21st Century Volkswagen bus, Simple, efficient, cheap, sturdy. Build the vehicle they could have built years ago if they hadn’t been seduced by the SUV. Build cars that are halfway to Amish in their simplicity and reliability, again, like the Vdub bus. (I had one until 1978, and if it hadn’t been for the Great Duck Tape famine of that year, I might have it yet!)

For far too long our cars said “My owner can afford me!” We need cars that say “I go from place to place safely and efficiently”. Build the car that Americans in reduced circumstances can afford, and they will buy it. And so will many people around the world, if we do a good enough job of it. Steal all the ideas of the Smart Car, and go one better.

Perhaps another classic car design is more appropriate for the modestly endowed car of the new century. Perhaps the old Ford Falcon. The Millennium Falcon? Gotta admit, has a ring to it…

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They build those cars. They’re called “minivans.” Safe, reliable, affordable and excellent at what they do.

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I agree with Sam Stone’s points, but I think his last sentence is important to think about:

Stein’s point is valid IF not doing these things would, in fact, lead to a collapse. I think that is far from proven. It is pretty apparent that all the bailouts and stimulus packages so far have not made things better. I don’t think the answer is, “keep doing the same thing, only more so.” I am with Stossel on this one. There are many smaller banks that didn’t get pulled into the sub-prime mess. They will survive and grow to fill in the gaps left when the big, stupid banks fail. Same for the car companies.

20

The problem as I see it is that the pro-bailouts can say that they DID make things better - “Well, the companies are still there, aren’t they?” Sort of like the old “elephant repellent” joke. Like you said, there’s no way to know, and everyone is terrified that doing something different would cause wholesale collapse.

Yeah, but part of the problem is, can those smaller banks make the loans that keep international shipping going? Can they collectively keep the system going when the big boys, who handled billions, all go under almost at once?

With the car companies, you probably have more of a point, which is why the resistance is so much greater now than it was when the banks were making the demands.