TPM Cafe just posted the latest working draft—really, a two-page summary— of the House's bailout plan. It includes executive compensation caps and includes foreclosure prevention provisions. But the question remains, should there be a bailout at all, before the election? I'm increasingly thinking not.

Via today's Progress Report, the state legislator from the Louisiana district previously represented by David Duke, is a man with a plan:

Worried that welfare costs are rising as the number of taxpayers declines, state Rep. John LaBruzzo, R-Metairie, said Tuesday he is studying a plan to pay poor women $1,000 to have their Fallopian tubes tied.

"We're on a train headed to the future and there's a bridge out," LaBruzzo said of what he suspects are dangerous demographic trends. "And nobody wants to talk about it."

LaBruzzo said he worries that people receiving government aid such as food stamps and publicly subsidized housing are reproducing at a faster rate than more affluent, better-educated people who presumably pay more tax revenue to the government. He said he is gathering statistics now.

"What I'm really studying is any and all possibilities that we can reduce the number of people that are going from generational welfare to generational welfare," he said.

He said his program would be voluntary. It could involve tubal ligation, encouraging other forms of birth control or, to avoid charges of gender discrimination, vasectomies for men.

It also could include tax incentives for college-educated, higher-income people to have more children, he said.

....

In an earlier post, I highlighted Dean Baker's proposal for a UK-style financial transactions tax. The tax would limit speculation and raise upwards of $100 billion a year. In a statement today, Barack Obama called for something that sounds similar:

.... after the economy recovers, we should institute a Financial Stability Fee on the entire financial services industry to repay any losses to the American people and make sure we are never asked to foot the bill for Wall Street’s mistakes again. We can ask taxpayers to make an investment in the stability of our economy, but we cannot ask them to hand their money over to Wall Street without some expectation of return.

Having just gotten back from vacation, I've been trying to catch up on the reactions to the bailout plans being floated, and I think a fundamental issue that's going unaddressed is how the bailouts would effect the basic structure of the economy. The size of the Paulson bailout package and the high prices Bernanke is pushing for bad assets suggest that their intention is to preserve the current economic order. Presuming it "works," the economy would pretty much look like it did a year ago. Is this what we want?

To answer that question, I think we first need to know what the current economic order is. Robert Reich's (underappreciated) Supercapitalism offers a birds-eye view of the landscape. As he tells it, the system today primarily benefits consumers and investors, in part because the financial and retail sectors predominate. Reich summarizes:

Supercapitalism has triumphed as power has shifted to consumers and investors. They now have more choice than ever before, and can switch ever more easily to better deals. And competition among companies to lure and keep thme continues to intensify. This means better and cheaper products, and higher returns. Yet as supercapitalism has triumphed, its negative social consequences have also loomed larger. These include widening inequality as most gains from economic growth go to the very top, reduced job security, instability of or loss of community, environmental degradation, violations of human rights abroad, and a plethora of products and services pandering to our basest desires.

Since the book's 2007 publication, the problems Reich lists have gotten a lot worse and a lot more attention. And contrary to what Reich, and, ironically, free-market ideologues, argue, "Supercapitalism" has been exposed as a politically-created order, because it needs so much governmental intervention to survive a crisis. What Sanford Jacoby called the "producerist" order preceded the current structure, and though it had faults, it had a much stronger record on poverty, job stability, inequality, median income, and even economic growth and productivity. But I don't hear a debate over which kind of economy the country wants.

I don't believe the government should sit on its hands and risk another Great Depression. But a bailout plan could postpone a realignment of the economy, which could benefit the folks who've been left behind by the current order. At the very least, the bailout should not be designed to entrench this system, and at best, it would move the country closer to transformation.

A commenter to this post on jobs in progressive organizations made some good practical suggestions that I thought were worth a hoist up.

But at the very least, I wish my organization would capitalize on its connections with universities (which I know it has) on the behalf of junior-staff, because professors often turn around and make professional connections for their students. Even just offering tuition assistance for night courses that either develop skills or build my econ. understanding, for example, that could in turn work me toward some type of internal or external promotion.
...
Maybe some large, progressive donors needs to fund an entry-to-mid-level development program within a handful of progressive organizations. Some consulting firms have competitive programs that you apply for and once accepted, you have a one-year contract in which they simply invest resources and skill development into you, with the expectation that you'll stay at least another year and work on executing their programs. By the time you leave, you have much more direction, experience, perspective, and know how to maximize your skills toward upward movement. It works for the firms and the individuals, and could be a model worth duplicating within the progressive movement.

Although these improvements probably aren't must-do's, as the commenter notes, they don't seem like they'd be that difficult to do. Internally I don't know what the objection would be, and externally it would only make groups look more attractive. It probably wouldn't take that much time, either. But if management and foundations are fine with the way things are, it may still take a bottom-up push to get things moving.

The latest working paper from Columbia economist Janet Currie on links between pollution and health—this one focuses on the effects of prenatal exposure to toxic pollutants:

Using data from the Toxic Release Inventory Program and Vital Statistics Natality and Mortality files, we find significant negative effects of prenatal exposure to toxicants on gestation and birth weight. We also find that several developmental chemicals increase the probability of infant death. The effect is quite sizeable: the reported reductions in cadmium, toluene, and epichlorohydrin releases during the 90s could account for about 3.9 percent of the overall decrease in infant mortality. Our results are robust to several specification checks, such as comparing developmental to non-developmental chemicals, and fugitive air releases to stack air releases.

Dean Baker has an excellent post on TPM Cafe outlining a set of progressive conditions for a bailout and restructuring the financial system. You should read the whole thing, but I wanted to highlight one particular idea whose time has come:

Congress should impose a modest financial transactions tax with the explicit purpose of reducing excessive trading and downsizing the financial sector. The financial sector has exploded in size over the last three decades. It accounted for more than 30 percent of corporate profits in 2004. Back in the 1950s and 1960s, the country's period of most rapid growth, the financial sector accounted for less than 10 percent of corporate profit.

The financial sector performs an incredibly important function in allocating savings to those who want to invest in businesses, buy homes, or borrow money for other purposes. But shuffling money is not an end in itself. The explosion of the financial sector over the last three decades has led to a proliferation of complex financial instruments, many of which are not even understood by the companies who sell them, as we have painfully discovered.

The best way to bring the sector into line is with a modest financial transactions tax. Such taxes have long existed in other countries. For example, the United Kingdom charges a tax of 0.25 percent on the purchase or sale of share of stock. This is not a big deal to someone who holds their shares for ten years, but it could be a considerable cost for the folks who buy stocks in the morning that they sell in the afternoon.

Scaled taxes on the transfer of other financial instruments (e.g. a 0.02 percent tax on a trade of an options, future, or credit default swaps.) could go a long way in reducing speculation and the volume of trading in financial markets. Such a tax could also raise an enormous amount of money--easily more than $100 billion a year. This would go a long way toward funding new programs or reducing the budget deficit.

And, this tax would be hugely progressive. Middle-income shareholders might take a small hit; but it would be comparable to raising the capital gains tax rate back to 20 percent, where it was before it was cut to 15 percent in 2003. The real hit would be on the big speculators.

Via Open Left, a great line from Kevin Philips on Robert Rubin, from an interview with Bill Moyers: "Bob Rubin as Secretary of the Treasury - I mean, if he was a Hindu and he was being reincarnated, he'd come back as a pail because this guy bailed out everything you can imagine."

Via Dean Baker, here's John McCain—in the current issue of Contingencies, the magazine of the American Academy of Actuaries—on how to fix health care:

>"Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."

That John McCain is crazy ... like a fox! If this new deregulation plan works as well as financial deregulation, we should have nationalized health care in the United States within the next decade!

A new statement from CEPR's Dean Baker on recent financial events:

Virtually the only certainty in the current financial situation is that there will be more problems ahead. Those who controlled the levers of economic and financial policy neglected their greatest responsibility, which was to ensure an orderly financial market and prevent exactly the sort of collapse that we are now seeing. This was a policy failure of massive proportions, not a natural disaster.

The central problem remains the collapsing housing market. The Case-Shiller 20-City Index shows a nominal price decline of almost 20 percent over the last two years, an event that few in the financial sector apparently considered to be a serious possibility. This price decline has led to an unprecedented rate of defaults on mortgages and derivative instruments.

These defaults, in turn, have raised questions about the solvency of a large number of financial institutions. This has led to an increase in the price of risk more generally and the crisis of confidence that is currently shaking financial markets world-wide.

While there is no simple path out of this crisis, it was a crisis that could have been easily avoided. If the Federal Reserve Board had acted to stem the growth of the housing bubble before it grew to such dangerous proportions, the country would not currently be facing a recession and the prospect of a financial collapse.

Alan Greenspan had the tools necessary to rein in the bubble had he been so inclined. First, he could have imposed tighter restrictions on mortgages, as the Fed has recently done. This would have prevented many of the worst mortgages that led to the subprime crisis and helped inflate housing prices.

More importantly, he could have used his platform as Fed chairman to explicitly warn of the dangers of the housing bubble. In his congressional testimonies and other public appearances, he could have carefully explained how house prices had diverged from a 100-year long trend in the mid-90s.

He could have pointed out that after just increasing at the same pace as overall inflation for a century, house prices suddenly jumped by more than 70 percent, after adjusting for inflation, in the decade from 1996 to 2006. He could have shown that this increase was not supported by any changes in the fundamentals of supply and demand in the housing market, nor was it matched by any remotely comparable increase in rents.

If Chairman Greenspan had pointedly made the case for the existence of a housing bubble and explicitly warned of the losses likely to be suffered by individual homeowners and the huge risks being taken by financial institutions that were heavily invested in mortgages and mortgage derivatives, it almost certainly would have been sufficient to take the air out of the bubble. As a last recourse, he could have raised rates with the explicit purpose of bringing down house prices.

Instead, Greenspan repeatedly denied the existence of a housing bubble, dismissing the warnings of the small group of economists who tried to call attention to the potential dangers posed by a housing bubble. Greenspan's denials helped create a false confidence that allowed the bubble to continue to expand. It also helped to fuel the complacency in financial markets that led the country's largest financial institutions to ignore potential risks and to become very highly leveraged against their capital.

There are no easy solutions to a financial crisis of the sort the economy currently faces. It is not possible to change history and we must work with the crisis that the collapse of the bubble has created. However, it is important to recognize that this crisis was entirely foreseeable and preventable.