If you are like me, you have spent the last week listening to President Bush, Harry Reid, John McCain, Nancy Pelosi, Henry Paulson, and all the rest telling us that the financial crisis looming on the horizon will cause a recession so bad, so terrible, that we simply have to act now to prevent it. And by “act now” they apparently mean “pass a bailout package in the neighborhood of $700 billion.” Although they disagree on many (relatively minor) details, like CEO compensation, and oversight, both the Bush Administration and Congressional Democrats seem to agree that the nature of the problem with our financial system is so severe that it will require a massive infusion of cash to fix it.
So far, nobody has asked the one question I want to hear answered: just how bad would it get if we didn’t “fix it”? I understand that we’d go into a recession. Granted. But a lot of very smart people, including former General Electric CEO Jack Welch, seem to think that we’re headed for a recession no matter what Washington does:
“I now believe we are in for one hell of a deep downturn,” Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 will likely be “brutal.”
Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has changed his mind.
“I am now caving,” he said. “Get ready for real tough times. They’re coming. There is no credit available.”
I should note that Jack Welch supports the bailout plan. But given his own bleak prediction, it is fair to ask what exactly is the upside of the bailout package? If we’re headed for a severe recession no matter what, will the $700 billion simply ameliorate the economic pain of that recession? If so, by how much? Will the recession last for a shorter period if we pass this legislation? If so, how much shorter? One quarter? Two quarters? If that’s all this is about, then speaking for myself, I’d rather not commit to $700 billion in new spending, plus new regulations which undermine the free market and expand the role of government in our financial system. I’d rather take my recession like a man, and not betray so much of what I believe in.
I don’t know as much about finance and economics as some people on this site, but I do know that we’ve had a lot of recessions in American History, and every single recession in the history of this country has come to an end. Usually, we ended up being a smarter and more disciplined people for having had an experience like this. If someone can show me why this crisis is so much more severe than all the other financial crises we’ve faced, I’d be happy to hear it. Otherwise, with all due respect to our panicky brethren on Wall Street, I think I’d rather pass on this bailout plan. Sorry.