TPM Café (Talking Points Memo), September 25, 2008
See article on original website
Before anyone has any idea how much a bailout might cost, before we even know what the bailout will look like, the enemies of Social Security and Medicare are already using the bailout as a pretext to cut these and other essential programs. Earlier this week, the Washington Post ran a front page "news" article that essentially demanded that the presidential candidates put forward a schedule of spending cuts and tax increases to pay for the bailout. Peter Peterson's crew has also been banging the same drum.
The reality is that a bailout is likely to be expensive, but it does not create a whole new budget world.
The relevant measure is the debt to GDP ratio. If the sum total of bailout expenses comes to $750 billion, this adds approximately 5 percentage points to our debt to GDP ratio. That's not trivial, but it's less than the impact of a typical recession, which also leads to larger deficits (of course this expense is coming in addition to the impact of a recession). While we should be looking to make up the cost of any bailout, ideally from the Wall Street crew that forced the spending, we are not yet at the edge of bankruptcy as the Social Security cutters want to claim.
The dishonesty of the Post-Peterson crew suggests another reason for extreme caution with the bailout. We could finding ourselves handing over $700 billion to the Wall Street crew one day and then fighting to protect Social Security and Medicare the next. In effect this would mean taking money from the people who were the victims of the housing bubble (people who saw most of their wealth disappear in the collapse of the house bubble) and giving it to those responsible for the bubble.
However perverse the logic of the Post-Peterson crew, they have enormous power and influence, and access to the media. Therefore they are formidable force.
Of course if the Post had opened its pages to those warning of the housing bubble 5-6 years ago, instead of just being a mouthpiece for the bubble promoters, we might not be in this mess. But this is a battle about politics and power, not justice. Bringing the economy into a disaster and then using the wreckage as weapon against their critics is the modus operandi of this crew.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.