Citizens of tomorrow, be forewarned

Regardless of the merits and problems of the Paulson bailout plan, it emphasizes a lot of key trends and disturbing points about the direction in which the global economy is moving. Firstly, the US, for better or for worse, is still a major standard-bearer for Western and Westernizing economic norms. What we do will echo in the rest of the world, and we should not undertake any action that we would not want turned against us later on. As Drezner points out, the US, so far, is doing fairly well; other countries experiencing such financial turmoil have not been so lucky. The US, like its banks, is too big to fail - with around a fifth of world GDP, a financial collapse here would reverberate with massive consequences around the globe. The EU faces a huge test of its fiscal prowess even now, while China cannot afford a world economic downturn that would halt its rapid growth. The world economy for the past 60 years has increasingly been a positive-sum game. While this is not inherently enough to pretent catastrophe, there is no doubt turning it into a zero sum game only encourages it.

To cast a further cynical light on things, the bailout, from a separation-of-powers perspective, should be terrifying. The executive branch, in tandem with the Federal Reserve, can issue hundreds of billions of dollars without judicial review or much legislative oversight. What makes this all the worse is that the Federal Reserve is the only institution that has performed reasonably well throughout the crisis. Congress refused to back down from a program of aggressive homeownership expansion even in the midst of a housing bubble, while opportunities for both parties to reform the GSEs went unexploited. Confronted with the crisis, Congress passed an utterly useless fiscal stimulus bill. I have little confidence constructive responses will emerge in an expedient timeframe barring some massive shift in attitudes and norms in the legislature (Dodd's proposal is decent, but given some of its provisions, it is unlikely to fly through Congress and into law fast enough for Wall Street's liking). Ultimately, the economic crisis may give the executive - the one sitting, and likely whoever wins in November - powers the Iraq War could not grant them. These powers may remain theoretical, though. The burden of financing these bailouts will severely impede whatever discretionary programs they now promise - whether they be tax cuts or spending on social programs. If there is "Caesarism" in 21st century America, it will be centered around national power, rather than "bread and circuses."

On the other hand, we may have that Congressional oversight and those bread and circuses. The current proposal could easily be stacked with Democratic "riders" to bail out whoever that party thinks needs additional relief. Doing so, of course, would only further implicate Congress with a possible (some would say likely) failure of the bailout plan. With an election coming up, too many incentives are on politicians to wash their hands of current problems rather than take on the much more difficult task of fixing them. We may well be stuck between gridlock and the unchecked executive.

Meanwhile, much of the rest of the world so rudely refuses to act according to our preferences. Despite suffering a major terrorist attack which could have decapitated the government, Pakistan continues to stand against American intrusion. This seems illogical until one considers how al Qaeda started out - attacking "apostate" governments which turned to the US for security. Should Pakistan allow American intervention, it is reasonable to expect more bombs, not fewer, targeted at the Zadari government.