Ross:

A slew of conservative economists and think tankers, led by the University of Chicago’s Luigi Zingales and the Manhattan Institute’s Nicole Gelinas, have been working on ways to protect free markets from a re-run of last fall’s “too big to fail” fiasco. But most Republican politicians would rather rail against bailouts that have already happened than talk about how to prevent them from happening again.

Ross is right that a lot of anti-bailout rhetoric now coming from the right is focused on the past. He could also add that a lot of it is very new. Many of the new high-profile critics of “bailout nation” were nowhere to be found last fall when it might have mattered. Republican politicians who could have played the role of cautious skeptics and leaders unwilling to be stampeded into emergency measures instead chose to fall in line as they had done time after time under Bush. Most national Republican politicians weren’t railing against bailouts at all. They were desperately embracing them. Ross doesn’t mention here that Luigi Zingales was one of many scholars explaining why TARP was unwise and unnecessary, and he presented various alternatives at the time. It was conventional for many in certain reform-minded, wonkish circles to lump together all opposition to the TARP and other bailouts as nihilistic and purely negative, because they, too, were ignoring or dismissing the arguments of Zingales et al. As it happens, Reihan was not one of them:

To beat back the populist revival, conservatives need to articulate a new approach that is pro-market and anti-insider. Last week, University of Chicago economist Luigi Zingales offered a brilliant alternative that Republicans, led by John McCain, ought to have embraced.

In a stinging essay, Zingales essentially argued that Paulson was offering welfare to the rich. Rather than pay premium prices for toxic assets, Zingales called for the federal government to craft a restructuring plan that would involve some amount of debt forgiveness or a debt-for-equity swap, saving taxpayers billions and imposing well-deserved financial pain on the reckless creditor who created the mess in the first place.

So why did the GOP go along with such a profoundly flawed approach? If you can think of a better reason than laziness or cowardice, let me know.

What Reihan defines as “beating back the populist revival” is really nothing other than channeling the absolutely legitimate populist outrage generated by the financial crisis into the institutional and regulatory reforms scholars such as Zingales are proposing. One of the reasons why reform-minded wonks are waiting for politicians interested in their proposals is that far too many wonks insist on setting themselves in opposition to populists, who then conclude that they have no need of wonks (at least until they are in office). This perpetuates and deepens the divide between the people who spend most of their time thinking about policy proposals and their natural base of support.

Arguably, what we saw last year was just a Bush-era mirror image of what we have now. Instead of heeding smart arguments, most national Republicans resorted to echoing whatever the party line happened to be. Last year it was imperative to follow blindly whatever the Fed and Treasury said, and so most did, and this year it is now imperative to pretend that last year never happened and most Republicans had nothing to do with it. Perhaps it is just as important that leading national Republicans learn how to break from party leadership when the latter is clearly heading in the wrong direction. That would require a major change in how both the GOP and the conservative movement respond to internal dissent.

Filed under: economics, politics, populism