A Far From Modest Proposal

In his magnum opus, A Modest Proposal, literary genius Jonathan Swift engineers a satirical masterpiece in which the reality of his nation’s adversity far exceeds even the most morbid of his fantasy. Plagued by famine, penury, and disease, Swift appears to suggest that the plebian Irish might assuage their economic troubles by selling their children as food to the bourgeoisie. Indeed, a striking and perturbing parallel can be drawn from America’s present fiscal situation- as a government already immersed into a sea of morbid debt entreats its constituents for an additional $700 billion to ultimately conceal what remains an unfilled and eroding void.
On September 19, 2008, Treasury Secretary Henry M. Paulson Jr. proposed a sweeping bailout of financial institutions battered by bad mortgages and a loss of investor confidence. In Mr. Paulson’s original proposal-entitled the Troubled Asset Rescue Plan-he asked Congress for $700 billion to use to purchase mortgage-backed securities whose value had dropped sharply or had become impossible to sell. According to Federal Reserve Chairman Ben S. Bernanke, who worked with Mr. Paulson to develop the plan, the government would pay “hold to maturity” prices -meaning a price based on some estimate of what the asset would be worth once the crisis of confidence had passed, not on what the asset holder could get by selling it today (The New York Times OL). By doing so, they contended, the government would provide troubled firms with an infusion of capital, reducing doubts about their viability and thereby resorting investor confidence. Mr. Bernanke and Mr. Paulson warned lawmakers in frank terms that failing to provide the financial community with additional capital would exacerbate a growing credit squeeze, depriving businesses and consumers of the money needed to sustain the economy. Without a huge immediate bailout, the money needed to sustain the economy, they hypothesized, the higher the change of a deep and rapid recession (The New York Times OL).
The plan in its original form was quickly rejected by both Democrats and Republicans in Congress and was criticized by a many economists across the political spectrum. They focused primarily on two points: transparency and constituent incentive. Mr. Paulson’s three-page draft legislation included a provision that left the proposal entirely in his hands; without the possibility of review by Congress, the federal courts, or any other national agency (BBC World News OL). Invariably, without the supervision of those legal administrators the possibility of corruption, and thus, additional fiscal irresponsibility, increases.
Members of Congress also demanded that the government receive an ownership stake in companies participating in the program thus so taxpayers would benefit from a “rise” in value created by the bailout. As a proposal to be funded primarily by taxpayers, a yearning of this nature is just. This notion satisfies one of the most rudimentary criteria of economics which states that people respond to incentives. Indeed, the fate of the proposal will remain inauspicious if those seemingly benefactor-like constituents are not compensated accordingly.
The aforementioned information further compels the discerning economist to examine the true costs and benefits of a proposal of this magnitude. Inarguably, to get one thing, something else must be sacrificed. But at what cost? “We can’t afford to take a risk of this magnitude on the economy of the United States,” says Presidential nominee Barack Obama (The New York Times OL). The indefinite achievement of ‘economic stability’ would cost much more than $700 billon, but the nation’s ethical and fundamental economic infrastructure. Professor of Economics at Macon University Trip Shinn concurs: “Infusing $700 billion into a $14 trillion economy will significantly increase the amount of money in circulation, which will inevitably cause inflation” (Macon OL). Economic integrity also plays an integral role in this decision. “Much of the electorate views the rescue package as an unfair bail-out for greedy, bottom-line driven bankers, leaving many politicians unable to support the proposal,” observes political correspondent Anderson Cooper (CNN OL). In a capitalist system, a network whose principal fiber advocates fiscal autonomy and responsibility, is it truly the role of the government to condone the frivolousness of what remains financial irresponsibility? The role of honest taxpayers so save Wall Street suits? Indeed, the cost of something is defined by what is compromised- and in this case- it is the erosion of our nation’s financial and social ethos. Already scathed by the byproducts of outsourcing, America cannot additionally afford the unemployment which will remain inextricably bound to the inflation procured on by this immediate bombardment of $700 billion; another fundamental of economics.
Congress needs to give America something it can work with, not something designed to solve their political and bureaucratic problems. Yes, Hank Paulson and Ben Bernanke need to accept strict oversights and the taxpayer must be guaranteed a share in the upside profits from all rescued banks. Yes, this economic tumult must be assuaged- but with aplomb, diplomacy, justice, and the utmost shrewdness. Our government is so broken that it can only function in response to a huge crisis, and the system still does not seem to work. Our leaders, Democrats and Republicans, have gotten so out of practice of working together that even in the face of this system-threatening meltdown, they cannot agree on a rescue package, almost as if they have no stake in the outcome.