The idea of $700 billion in taxpayer money to lessen the pain for irresponsible Wall Street firms is extremely hard to swallow, even when I contemplate the predictions of Bush, Paulson, Bernanke and others that we’re on the edge of some deep precipice for our economy. Yes, I believe things could get much worse and cause a lot of pain to people who had nothing to do with the excesses of Wall Street and the real estate boom, but will it really be bad enough to warrant a bailout in which the big winners are the already well-off (who stand to lose the most)?
I’m no economist, so I’ve gone looking for what some economists have to say about this bailout.
Apparently there are many who don’t buy in to the fear of imminent Armageddon if Congress doesn’t pass a bailout package in a matter of days, and who are collectively calling for much greater discussion of how the government should respond to this crisis.
One of those economists, Alex Tabarrok, recently wrote on the blog Marginal Revolution of his notion that we need to more strongly incentivize savings as the core of our national response to the crisis, including increased tax benefits for retirement savings accounts and a possible retirement savings match for people below a certain income.
Not many of his fellow economist readers were quick to rally around his idea in their comments: perhaps a lot of the readers of this libertarian-tilted blog have a strong suspicion of government action of any kind, including tax-based incentives for thrift and savings by average households.
Nevertheless, his larger point seems to be that our country’s negative savings rate is a huge part of our economic problem, and that we won’t make fundamental progress without finding mechanisms to grow the savings of American households.
I wonder if Alex is a fan of the savings-focused policy proposals of the New America Foundation’s Asset-Building Program.
One of the commenters on Alex’s post mentioned the existing Saver’s Credit, which is much like the savings match component of the proposal that Alex made. New America and CFED and others in the asset-building field want to see the Saver’s Credit made refundable, which would significantly enhance the impact for low-income savers, allowing it to be a more powerful savings incentive of the kind that Alex proposes.
It sounds like the Wall Street-focused bailout is a foregone conclusion at this point. What interests me more is whether this economic crisis will help legislators come together around savings-based policies when a major tax bill is considered during the next session of congress, or if it will simply further deplete the government’s financial capacity (and the will and imagination of our legislators) to integrate asset-building into major federal initiatives? We’ll see.