Democracy and the Bailout

Whatever the legislature decides about the Wall Street bailout, it is evident that most of the American people oppose it. This seems to be true of both liberals and conservatives, Democrats and Republicans.

The conventional wisdom among our rulers, of course, is that these matters are very technical and complicated, things ordinary citizens just do not understand. But still, even setting aside the condescension to voters that afflicts our ruling class. . .Under a democracy–or even a democratic republic–the people are supposed to be the ultimate rulers. For that system to work, the people have to be educated enough to understand the issues they must deal with (which is why classical liberal education developed, defined as the education fitting for a free [libera] citizen). Yes, we have reverted to education “servilis” (the education fitted for a slave, consisting of mere job training), which makes self-government far more difficult. Still, our politicians are supposed to answer to the people.

Theoretically, politicians convinced a certain course is right should try to persuade–or educate–the people before taking a major course of action they would oppose. I realize the arguments about the dangers of mass democracy vs. the need for autonomous lawmakers, but surely the will of the people should have some relevance. Is the people’s only power over their government one that comes every few years when they can vote someone out of office? Doesn’t democracy entail more than that?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • JPW

    I don’t think the average voter does understand the bailout, largely because of the media. Having said that, I’m not convinced the legislators understand it either.

    The people shouldn’t vote on the bill itself, but on the results of the bill. Unpopular legislation may turn out to be more popular after we see its effects.

  • FW

    there has seemed to be a trend for a long time in arguing that things move so very fast today, that there is no room for a deliberative body. deliberating takes time! so the movement is towards a monarch like executive branch.

    i would be interested in hearing arguments on this.

  • WebMonk

    Like JPW said, very few (relatively) people fully understand all the issues, including myself. However, that doesn’t mean they/we don’t understand it at all. There are certain aspects of these bills that are quite simple enough to be clear even to the non-experts.

    The legislators are trying to gloss over the basic issues by adding in different distractions such as claims of emergency, specific “good” trinkets attached to the bill, by old-fashioned we’ve-got-to-do-SOMETHING rhetoric, and by economic double-speak put forward by Paulson and Bernanke.

    I really think that the general public does have a very basic, correct understanding of some of the core issues. In this case, the public’s tendency to ignore fine details has worked for the best – they have ignored all the noise and so far have remained focused on the core $700bn ball of junk at the bottom of the mess.

  • Peter Leavitt

    Some economists are arguing that Paulson’s bailout plan is actually too weak to effectively deal with this grave financial crisis. One of them, Nouriel Roubini, a prof. of finance at NYU, has writtten a bone chillingarticle in Forbes, Next: The Mother Of All Bank Runs? including:

    It’s plain that the current financial crisis is worsening in spite of–or perhaps because of–the Treasury rescue plan.

    The strains in financial markets are becoming more, rather than less, severe in spite of the nuclear option of a $700 billion package: Interbank spreads are widening and are at a level never seen before; credit spreads are widening to new peaks; short-term Treasury yields are going back to near-zero levels as there is flight to safety; credit default swap (CDS) spreads for financial institutions are rising to extreme levels as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package

    The next step of this panic could be the mother of all bank runs, i.e. a run on the trillion dollar-plus of the cross-border short-term interbank liabilities of the U.S. banking and financial system, as foreign banks start to worry about the safety of their liquid exposures to U.S. financial institutions. A silent cross-border bank run has already started, as foreign banks are worried about the solvency of U.S. banks and are starting to reduce their exposure. And if this run accelerates–as it may now–a total meltdown of the U.S. financial system could occur.

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  • http://www.bikebubba.blogspot.com Bike Bubba

    More or less, I’m finding it surreal that legislators who by and large couldn’t figure out in 1995 (and a few times in the past decade) that it was a bad idea to count welfare and unemployment checks as income for the purposes of getting a mortgage have suddenly become financial Solons with this deal.

  • utahrainbow

    When a lot of power/money is put into the hands of essentially one/two unelected men, something is wrong. I did not have to spend much time agonizing over economic details or be an expert to know that. I knew right away it was time to call my reps. Is that not a fundamental underlying principle in our constitution? Distribution of power so that no one man/group has too much? As a Lutheran I can especially respect and appreciate that and wish to retain this in our system of government. We know all too well that men are sinful, and do not trust even our “own” with so much power.

    This is a no-brainer on that basis alone.

    Fearmongering only makes me suspicious now.

    I like fw’s point about deliberation. Just because we have lightning speed communication, does not mean deliberations over important matters should be the same. If we respected this, we would be more interested in who our reps are, than who the president is.

  • Manxman

    What we are supposed to have here in America is a CONSTITUTIONAL government where the power of the government is strictly defined and limited by the Constitution. Over the years our nation has trashed the Constitution to the point where Bush/Paulson/and Bernenke could pull a stunt like this bailout and think they could shove it down the throats of Congress & the American people and get away with it.

    If the men who crafted the Constitution were around to see this huge power grab/financial rape job, they’d tar & feather Bush/Paulson/ & Bernanke and send them packing. King George never did anything half this outrageous, arrogant or costly to the colonies.

  • http://www.scyldingsinthemeadhall.blogspot.com The Scylding

    Technicality: America is not a traditional democracy, but a Republic. That doesn’t change the force of your argument though.

  • Peter Leavitt

    When a lot of power/money is put into the hands of essentially one/two unelected men, something is wrong

    These “unelected” men were appointed by an elected president and subject to law passed by congress. The present financial bailout plan will need to be passed by Congress and approved by Pres. Bush.

    As to the reality of the situation IBD has a bracing article today, Time To Step Up

    And no, it’s not a “bailout for Wall Street,” as popularly repeated. Average Americans have yet to feel the full force of what a credit crisis means. Once they do, they won’t like it a bit. A credit crisis doesn’t just mean banks stop lending to one another, or call in loans from Wall Street “fat cats.” It means you might not get the credit you need to pay for a car, a home or a child’s education.

    It means many medium to large companies will not be able to go into the money market to finance their daily operations. Those that can’t will be forced to pull back on expansion, slash investments across the board, reduce their purchases, maybe shut down marginal businesses and lay off workers.

    All this could cascade into a deep economic downturn that will last years. The victims, however, won’t be gazillionaires on Wall Street. It’ll be you. That’s why, despite IBD’s impeccable free-market credentials, we support the rescue plan. Time for taking effective action is running short .

    We live in a republic that ideally requires elected leaders and their appointees to exercise wise and sometimes courageous judgment in the face of fevered popular opinion.

  • Carl Vehse

    Don’t forget that over 200 economist signed a letter against the bailout. That should have been a warning to those who wish to be re-elected to have consideredl the alternatives more carefully and slowly.

    The ultimate evidence that the crap sandwich was not necessary was that Senate lowlifes ladened it with every conceivable kind of irrelevant pork to bribe their fellow Senators from both parties to swallow it. And that’s before the House gets a chance to slobber over it.

    As for McCain’s “yes” vote, he might as well have crawled on his knees to the 0bamaniac and kissed his keister for all that’s going to help him get into the White House.

    Coincidentally, Sen. John “No spent fuel in my backyard next to all my other nuclear waste!” Ensign (R-NV) just sent me a Republican Senatorial Leadership Survey to fill out. I’ll have to pick up some asbestos-lined envelopes to send my comments back to him, and copies to my two TX senatorial toadies.

    I’ve already called my Representative and thanked him for voting “NO” on the House bill, and asking him to stand firm again and vote a resounding “NO” on the Senate excrement.

  • WebMonk

    Peter, if I thought even for a moment that the bailout bill would actually improve the credit crunch, I might be tempted to support it. However, most economists I’ve read on the topic are against the bailout because it won’t work.

    There are economists (a minority) who have written articles in support of the bailout, but none try to give any analysis of how the bailout would get credit flowing. They just assert that it will, but never go into the details.

    In contrast, many of the economists I’ve read who oppose the bailout give solid reasons why the bailout won’t accomplish its goal.

    One, the bad debt massively outweighs the $700 billion.

    Two, just taking the bad debt off bank books won’t affect the credit crunch.

    Three, the WAY the $700bn is being injected means it will be soaked up without affecting things.

    Four, all the problems which are causing the crunch are being left in place, several of which are causing #3.

    Absolutely, a credit crunch is a bad thing for an economy, but the bailout won’t affect it, and things are currently in such a poor system that the whole system needs a major overhaul which will be painful no matter what. Ultimately the economy needs to pass through the pain, and history has shown that economically a short, sharp chop is much preferable to a long, drawn out rot.

    If the bailout is put through (which I’m afraid it will be) then not only will it not avoid the pain, but it will add $0.7 trillion to US debt. It’s bad news all around.

  • rlewer

    It was the elected Congress that told the financial institutions to loan money tho those who were unqualified so that the poor might own houses. In 2004 the Democrats praised Freddie Mac and Fanny Mae for their social engineering when the Republicans, including Jon McCain tried to warn of the consequences. You will not see this on the news. I wonder why?

  • Anon

    Well, it used to be that the Senators could be recalled and replaced at will by the State legislatures. This was changed in 1913. I think we ought to go back to that. That was the check against the Parties in the legislative branch.

    We should repeal the 17th.

  • WebMonk

    Do you know why the Senate selection method was changed?

    Corruption and abuse that makes this pork barrel legislation look like Pollyanna politics.

    The 17th was set in place for a good reason. Maybe things have changed enough since then that we should go back to it though. Maybe people have become more ethical and honorable.

  • utahrainbow

    “The present financial bailout plan will need to be passed by Congress and approved by Pres. Bush.”

    Yes, and they should NOT for many reasons.

    “We live in a republic that ideally requires elected leaders and their appointees to exercise wise and sometimes courageous judgment in the face of fevered popular opinion.”

    And sometimes courageous judgment would mean to slow down and refuse to be steamrolled into handing over unprecedented power to the executive branch. How do you know which is courageous?

    The constitution is the basis upon which these sorts of decisions must be made. Not upon some arbitrary “trust me, I know”. Public opinion ebbs and flows and is sometimes wrong, and also sometimes our leaders are wrong. What we have to determine what is or isn’t is the constitution. If our reps don’t use it, then what IS our national foundation?

  • http://www.bikebubba.blogspot.com Bike Bubba

    Ya know, I don’t see any authority in Article 1 given to the Treasury to buy and sell private securities at all, let alone to bail out (and sorry, that’s exactly what it is) Wall Street.

  • Anon

    Webmonk, what would -you- suggest?

  • johnlnk

    What I never understand in discussions like these is what exactly the politicians are perceived to be gaining from “forcing” something like this onto the people. Why would they create and pass something like this unless they were actually believed it was needed? They don’t get the money and it is famously unpopular.

    In a republic we elect and trust people to deal with matters we dont’ have the time or inclination to deal with, on our behalf. We can still vote them out if they fail us in this duty. I for one am grateful to live in a republic and where we don’t have to spend endless time settling every detail by popular nation-wide vote.

  • Susan aka organshoes

    johnlnk: They get plenty of money for their eternal campaigns, sweet deals on loans and property ownership, good jobs for their spouses and offspring, and all pretty much without suffering for it, or even answering for it.
    Once in awhile, they sacrifice one of their own for the purposes of cleaning house. They hold hearings where everyone but themselves are held to account.
    Check out the campaign coffers of the chairs of committees, particularly banking and finance, and see where the money comes from.
    I read today that, since we’re buying all those crap mortgages, and alll of Fannie mae’s and Freddie Mac’s debt, let’s put all the documentation online, so we the owners can read it for ourselves.
    See your congressman for details.

  • Neb

    Another thing we wont’ see in the news is the fact that the Carter and Clinton adminstrations were largely responsible for this mess we’re in today. Oh Bill’s office darn near demanded 3 trillion in loans be given out. Lenders bent the rules and we the tax payers are having to pay for it. WHY?

    I agree with the economists who stated we should slow down and look at viable alternatives. Would the economy really go in the toilet if we had waited to find a better solution. Was the solution to savings and loan crisis in the 80′s really that great?

  • Anon

    johnlnk,
    But they do get money from it. Billions and billions of dollars for pet projects, earmarks, pork. That is what is in the 397 pages they added to the original 3 page bill.

    Then you have how Barney Frank and Chris Dodd, both Dems, profited hugely from this whole debacle with Fannie Mae, which apparently is basically run by powerful Democrats and which gives lots of money to Planned Parenthood, and from the bailout.

    This was a massive transfer of taxpayer money to the Democrat Party – and possibly to some corrupt Republicans as well.

    Does anyone know where the extra unaccounted for 200 million in Obama’s coffers just came from?

    Neb,
    And of course Obama and his cronies pushed very hard for this and benefited from it as well.

  • Neb

    This article summarizes the point I was trying to make in 20. It’s ashame that liberals will always play the race card. Hmm aren’t they doing that in this election every time someone says something bad about Obama? I digress.

    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/

  • http://www.toddstadler.com/ tODD

    Neb (@22), when you make sweeping generalizations, when you use words like “always” and “every time”, you don’t seem very interested in discussion.

    It seems that your main intent is to (repeatedly) toss out this widely-circulated talking point and then make sure the Democrats (only) get the blame. Would you disagree?

    Do you have an interest in discussing everything that went into this crisis, or only that which can be pinned on the Democrats? I cannot tell from what you’ve written.

    You also said (@20), “Another thing we wont’ see in the news is the fact that the Carter and Clinton adminstrations were largely responsible for this mess we’re in today,” and then go and point to a link to it … in a major newspaper. Hmm.


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