Bailing on the bailout

Back in September or so I blogged in favor of the $700 billion stimulus package. In those days, now so long ago, I thought, against my otherwise better judgement, that we needed to do something.

Now I don’t.

Now I think we need to let the train wreck finish happening before we “stimulate” anything. If we even bother at all.

I say that for two reasons.

First is that nobody knows wtf to do, really. If we do anything.

Second is that “doing something” is overrated. For that insight I thank this excellent piece in the Washington Post, by Shankar Vedantam. And to Russ Nelson for pointing to it.

The gist:

  The action bias, or the desire to do something rather than nothing when you have just been through a terrible experience, plays a powerful role in our lives. It influences individuals and companies, investors and leaders. You can see the action bias on display in current thinking on the housing and economic crises, in the bitter debates over the war in Iraq — even in discussions about how to fix a football team that’s a perennial loser.

  When people suffer losses and confront the possibility of even greater reverses — it doesn’t matter if you are talking about a terrorist attack or a meltdown in retirement savings — it is psychologically difficult to do nothing, to hold course. This is true even when the action you contemplate produces an outcome that leaves you demonstrably worse than you were in the first place...

  When things are going well, there is a tendency to stagnate, rather than innovate and make things even better. When things are going poorly, on the other hand, our bias is to flail.

We’re flailing, and we’re doing it with trillions of non-existent dollars. Spending them risks making them even more worthless than they already are.

16 comments

  1. Geoff’s avatar

    I always remember my first solicitor (lawyer) saying best action is always to ignore any demands and do nothing, most usually go away and solve themselves :-)

  2. Bob Morris’s avatar

    I once had a client, a very successful business, headed by the founder CEO who said his strategy was to always avoid making any decision or action until absolutely necessary. I thought that completely bizarre at the time – but now understand what he was doing a bit more.

    “I have known a great many troubles but most of them never happened” – Mark Twain

  3. Mike Warot’s avatar

    Doc, the thing is that bailout has now cascaded into 7+ Trillion dollars of new “money” being thrown at the problem… the inflationary effects are going to be awful once they kick in.

    I remember Karl Denninger saying something about the Fed deliberately draining liquidity out of the market, which I think is a thread that needs to be followed up on.

    The oncoming storm could cause a revolution, and those are generally bad if there’s not a good reason to have one.

    If we’re going to have one anyway, let’s get a goal figured out.. I think requiring transparency from those entrusted with power should be at the top of the list.

  4. Matt’s avatar

    In my field of medicine, there’s a great cliche relating to the tenet of “first do no harm”:

    “Don’t just do something; stand there.”

  5. Amos Anan’s avatar

    Doc, I’m far from well versed on your writings and certainly not in the tech area. I have been reading this blog, which is of the more personal variety, for some time now. Probably since a little before you posted about an image of a wailing Iraqi girl, covered with spattered blood, surrounded by assault rifle totting American troops. The girl had just been in a car that was raked with fire from those assault rifles, killing her parents before her eyes. That’s an aside to my comment but it was probably the most impressionable post I’ve read from you.

    But this financial fiasco has revealed a Reagan Republican aspect to you. The prior post you refer to, where you supported the bailout, even as it was initially proposed, was as breathless as can be projected in a blog. What’s that phrase Republicans like to use? “A conservative is a liberal that’s been mugged.” I don’t think you’re a liberal, but the mugging that was done on a national level left you with a breathless sense of ‘Do whatever they want!! My retirement savings and the kid’s college fund are turning to crap!’ It was classic Stockholm syndrome or even more appropriate, terrorism in action.

    Here you amazingly propose that the suggested flailing that was enabled at that time by congress was a mistake. The better option would have been to do nothing. We should have put our head in the sand and pretended that nothing was happening. Be that deer in the headlights.

    You’re an excellent writer, and I’m basing that on your blog here only. But when it comes to politics, you’re a novice and worse, you’re a sap. You’re still flailing, being lead by people whose interests probably don’t relate to yours.

    It may have been a mistake to do what congress did initially. I certainly think and thought so. But doing nothing wasn’t a better choice. Check that. Doing nothing probably would have been a better choice but it was definitely not the right choice. We’ve seen brinkmanship politics in America for enough years now to know that what happened was a classic example. There may have been other factors involved. The “drown government in a bathtub” dream can be seen in an incredibly stupid and stupidly fought credit card war topped off with a multi-hundred to multi-trillion dollar welfare queen give away to the most rapacious among us in society. What progressive policies could the next president effect with the treasury not only depleted of cash but in debt on a monumental scale? Drowned in a bathtub of debt by a corrupt incompetent government in its last throes.

    I don’t know if you’ve read Naomi Klein. It’s not that she was the sole individual pointing out the nature of the players and their methods that have brought America to its current position. Far from it. She has though provided some excellent insights to one of the keys in their methods. She calls it the “shock doctrine.” It has been described as “a new Pearl Harbor” by some of the actors involved.

    The Shock Doctrine By Naomi Klein
    http://www.truthout.org/article/naomi-klein-the-shock-doctrine

    Baghdad year zero: Pillaging Iraq in pursuit of a neocon utopia
    http://www.harpers.org/archive/2004/09/0080197

    …………………………………………..
    “First is that nobody knows wtf to do, really.
    …………………………………………..

    There are people that know wtf to do. But they’re marginalized and insulted. A recent Noble Prize winning economist (The Shrill One) is a prime example, but there are many others. Hell, I could see the mass scale thievery. The DOT-COM boom was a massive scam with even some Linux firms central to the flimflam. People were buying air because they were told it was valuable and getting more valuable. But I’m just Vinny in the basement.

    You were and still are a victim of the shock doctrine. Doing nothing is almost exactly what these people want from the masses. It’s almost as good as following blindly or cheering rabidly. America has been lead by “adults” and “sensible” and “practical” people for far too long. I’m reminded of the Jackie Coogan laws. These are the type of ‘adults’ that have been leading America. They have to be called on their self-serving and often criminal (when they haven’t de-criminalized the behavior beforehand) actions. Real concerned representation is desperately needed. That won’t happen by people doing nothing. I can’t believe that’s what you suggest. You don’t even suggest inaction solely for the lame duck thieves pulling the strings right now.

    “I’m mad as hell and I’m not going to take it anymore!” I’m going to sleep.

  6. Russell Nelson’s avatar

    More reason not to just “do something”: Amity Shlaes on the Greater Depression in the WSJ: http://online.wsj.com/article/SB122792327402265913.html

  7. Doc Searls’s avatar

    Amos, thanks for the thoughtful response.

    I’ll admit to flailing, but I don’t admit to following anybody. Some folks have made sense to me. Joe Stiglitz. Kevin Phillips. Bogle. Though I gotta say I can’t tell you what they’re saying right now.

    For what it’s worth, I like Naomi Klein, and agree with a lot of what she says. Not all of it, but a lot.

    As for becoming a Republican, far from it. Not sure what more to say about that, at least right now, in a hotel room with a need to sleep and two others in the room asleep already.

    And you’re right that there are some people who know what to do. I’m sure there are.

    I don’t know who they are. Not sure you do either.

    As for being shocked, I don’t feel that way. Confused is more like it.

    One thing I am sure about is that the effects of spending great big piles of money we don’t have will be hugely inflationary. Can you tell me how it wouldn’t be?

    Meanwhile you’ve convinced me I should just shut up about this until my mind is made up. It isn’t now and isn’t likely to be for awhile.

  8. vanderleun’s avatar

    If you’re going to have a revolution the things that should be at the top of the list are guns and ammo.

    If not, leave it alone.

  9. Mike Warot’s avatar

    Doc, don’t shut up… just seek out the conversation with the rest of us. When you bring up a topic, we’re all pulled along to discuss it, and some of us even write a post or two in reply.

    The idea that someone should always be right and never make a mistake is the George Bush doctrine… and look where that got us.

    The tentative nature of blogging that you’ve told us about for a long time now applies to you as well. If you’re not sure, just say so at the start, and dive in anyway. You might get some answers, or better yet, some insight.

    Shutting up when you’re sure is great when you’re trying to defuse a bomb, and there are only seconds left… but we’ve got time, and we should take it to inform each other, and start exploring the problem space and solution sets.

    It’s ok to be wrong… I’m wrong a lot, but I don’t let it stop me. I admit when I was wrong, and everyone respects me all the more for it. Sticking to it, and getting the important issues out in the sun is the best thing all of us can do.

    —-

    All that being said, I initially dismissed Naomi’s ideas as a bit too far of a reach from reality… but she’s turning out to be remarkably prescient
    .

  10. Will Emerson’s avatar

    So much of the current economic crisis is mistaking the disease for the cure and vice versa. I think the public, underneath its apparent apathy and ignorance, has a certain wisdom and common sense which realized that we could no longer pile on personal debt and keep the bubble growing. Most of the applied cures seek to make it easier to borrow more but people are just saying no. Prices need to fall to a sustainable level. It will be painful but necessary and the longer we delay, the more painful it will be.

    Keep up the good work, Doc! You’re not becoming a republican. They never admit their mistakes or change their minds.

  11. Steve Eskow’s avatar

    Doc, Paul Krugman may be the Nobel award-winning economist referred to above. He says we need to do two things:

    <>

    His piece is worth reading in its entirety.

  12. Steve Eskow’s avatar

    Well, that didn’t work!

    Another try at Paul Krugman’s piece:

    FOCUS | Paul Krugman: What to Do
    http://www.truthout.org/113008Y
    Paul Krugman, New York Review of Books: “What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.”

  13. Russell Nelson’s avatar

    When people choose not to spend, how does it make any sense to take their money and spend it anyway? I’m not following the logic here. If Krugman thinks we need to get credit flowing AND prop up spending, exactly HOW does he think that’s going to happen? Government has only four sources of money: higher taxation (which is the WRONG thing to do in a slump — are you listening, PE Obama?), borrowing (which, if you’re trying to make credit available, can it make any sense to create it and then use it all up on government borrowing), inflating the currency (but that turns out to be a very regressive tax and makes giving credit harder), or selling off assets (Yellowstone … for sale … right, I can just imagine what the environmentalists would say).

    Listen to Krugman, then do the opposite of what he says.

  14. Doc Searls’s avatar

    Although I don’t buy ad hominem cases against Krugman (or anybody), I don’t agree with what Krugman says (or is quoted as saying) in this case. And I do agree with Russ.

    I think Obama and crew should stick to making structural adjustments, and hold off on the spending. Lack of accounting, much less accountability, was a large causal factor in the current crisis. So was a lack of transparency, not only within the fincancial sector but within government as well. Those are relatively obvious fixes. The bailout is not. Nor are others in the pipeline that Bloomberg talked about in its $7 trillion story.

    What exactly is the $700 billion “stimulus” being spent on? The fact that Bailout Sleuth exits is testimony enough to the problem. (And it looks like it’s doing a job there.)

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