Tuesday, December 9, 2008

Bailouts, age, and interests

Right now, America is having a debate about bailing out the big three automakers-- GM, Chrysler, and Ford -- centered in Detroit. Media institutions like newspapers (e.g. WSJ and FT), television (CNBC and Meet the Press), and blogs (Paul Krugman's) all talk and put forth different arguments. Soon, Congress is about to have a vote on the prepared $15 billion plan. Senators and Representatives will vote yes or no.

Yet, despite the imminence of the vote, the debate seems unfinished. There still is no consensus to the question at hand. What should be the plan? Should we let them go bankrupt (with a little assistance by the government)? Or should we give them some capital (money) and let them work themselves out (with a little more regulation)? Good arguments define both sides.

In struggling to answer this question, on either side or anywhere in between, one of the under-examined issues is age. What I mean is, what age you are has a lot to do with the interests you bring to the debate. If we let the car companies go bankrupt, the entire American economy will feel a ripple effect. In particular, the stock market will will take a hit. Savings and investments that need to be used in the short term -- like retirement savings -- have lost a lot of their value in recent months. In other words, the men and women in this country whose economic interests are most at stake are the elederly -- individuals in retirement or very close to retirement who are seeing their savings dramatically drop. In contrast, the younger among us can be patient and let the stock market take hits now, especially if the re-structuring provides positive medium- and long-term consequences and the stock market rebounds.

The bottom line is, just like age trends were stark in the recent presidential election, what age you are shapes the economic interests you bring to the current debate. The un-elderly got their way and got Obama, but the older among us look like they'll get the bailout.

I think this is the right thing to do. We should struggle to keep the equity markets up, because people's wealth is there. But we also need to think about re-structuring the whole dang system for the longer term. We need to think in both dimensions -- maintaining wealth (and perhaps even growth) and stability (including smart and at times extensive regulation). It won't be easy. But that we seem to at least recognize the importance of stability is a welcome change from the past eight years.

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