Status of the Rescue Package

A good deal of news hay is being made over the "failure" of Congress to come to agreement with a rescue package for financial markets. A common mantra is to "blame House Republicans" (though we would note that senior GOP Senator Richard Shelby is also opposed to the plan as written). To the extent that the Democrats’ plan could be passed if not for Republican resistance, the "blame Republicans" chant might ring true. However…

1. As Rep. Paul Ryan pointed out to an interviewer (source: CNBC, no cite or link), the Democrats have enough votes to pass their plan. That they are hesitating to do so would seem to speak volumes about their confidence in the current plan.
2. The best thinking on economic policy has tended to come from House Republicans since at least 1994 (a claim that many academic economists would deride, which actually bolsters our confidence). They’re not perfect (no one is), but as a group they seem to best understand the importance of incentives and investment to the country’s future well-being. And since they’re the ones holding it up, I’m far more confident in the eventual outcome than I would otherwise be. A $700B investment account should not be created without clear agreement on objectives. A CNBC interviewee just reported that the House GOP has been working on an alternative plan with economist Alan Meltzer, who is no lightweight (again, no cite–we’re reporting this on the fly). 
3. The current plan is reported to be extremely unpopular with the American public, who views it (perhaps correctly) as a Wall Street bailout. First, and most obvious, the GOP could be seen as ‘pandering’ to voters on this issue. But an electorate of hundreds of millions is far smarter than a Congress of several hundred at almost any point in time. The House GOP appears to be the only group involved that accepts such an idea–proponents of this plan might, in their frustration, call this pandering–but whatever term you use, isn’t this basic point of representative politics?

A few other items–two policy analysts on CNBC moments ago (no cite, last names Anderson and Wucher) were just talking about the fundamental importance of economic policy, broadly, which is the only way to emerge from this crisis with the least long term damage–the key points, according to one, are low taxes, foreign investment, and trade. Amen. We will be releasing a paper on this  very subject in the next few days, because it’s a critical addition to the current policy debate (for a preview, see our recent entry ‘Competitiveness and the Policy Mix’).

Finally, the McCain campaign’s tactics this week have been fascinating. We believe his decision to "suspend" operations is a combination of crafty (and risky) opportunism for his campaign, and also an expression of his fundamental personality and character. How it plays out will depend entirely on how independent voters eventually view the outcome of his actions.