Friday, November 14, 2008

This Amorphous Bailout

At his Wednesday press conference, Hank Paulson came clean that, no, he didn't intend to use TARP funds in the way he previously agreed promised was apparently bound by law said he might use them--namely, to buy up bad securities. We'll now be using it to recapitalize banks directly (so they can resume lending, remember? remember guys? resume lending, right?) and to free up consumer credit. Bailouts for the auto industry and credit card companies appear imminent.

Tyler Cowen reflects on his own bailout position. That one of the more intelligent bailout-backers finds the need to reassess is troubling.

Here's another bailout-backer backpedaling a bit.

Here's Arnold Kling, who I've agreed with the most consistently since this whole thing went down. Kling posts often, and many of them reach beyond my understanding of macroeconomics, but this is him at him most lucid and organized--a compendium, of sorts, of Kling-on-Bailout. A nice read.

The question, of course, is why I prefer Kling to Cowen, two macro guys whose disagreements, no matter how fundamental, exist at a level of economic comprehension that far exceeds my own. That is, in response to the question of whether I have a rational, reasonably-well-reasoned preference of Kling over Cowen--the answer is no.

Why the Kling preference, then? His zombie-banks approach is intuitively appealing, for one, and his dexterity in BS-sifting is considerably greater than most. More than anything, however, is the congruence in terms of conceptualizing the market. Kling is a Hayekian on these questions; so am I. Everything about Paulson and TARP is a bad idea because it runs counter to everything Hayek has to say about markets, information, and the relationship between these as a function of centralization. What is growing abundantly clear is that Hank Paulson has an incredible amount of power and no idea how to use it. This is no knock on Paulson, because no human being could possibly know how to coordinate markets in the way Paulson is being asked to coordinate them.

Then again, this last sentence should not read: "Paulson is being asked to coordinate them." This is a gross error on my part. Paulson has asked to coordinate markets in this way; Paulson has repeatedly threatened economic ruin upon those who would oppose his coordination of markets. I'll repeat: Henry Paulson is a tyrant. Unfortunately for us, he is not one of the cleverer tyrants.

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