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November 29, 2008


Big-government proponents have all the reason in the world to maintain the ambiguity about what is an outright expenditure (or in Obamaese, an "investment") and what is a loan or purchase of obligations much of which is likely to be repaid. Then when the repayments start flowing in, they can be treated as a windfall for the Government, ready to be spent on the wishlist of new Federal initiatives.

I agree with Drum and Marshall that it would be better if the media would explain the different types of commitments and the ultimate amount likely to be spent for each category. In addition, I'd like to see the media provide some sort of risk analysis to show what the spending would be under various optimistic and pessimistic scenarios.

I agree with Drum that under an expected scenario the likely ultimate payout is likely to be affordable, but I'm concerned about the ultimate payout in the bad scenarios. If the US goes into a deep recession (or, Heaven forbid, a recession) then many of the guarantees would come due. The payout could then be several trillion dollars. And, this amount would come due just when the deep recession reduced tax receipts to the government. These bailout obligations would limit the government's ability to fight the recession by cutting taxes or by providing a stimulus package to all Americans.

In short, the bailout will probably be affordable, but the government has taken on an enormous risk that is without historical precedent. The reporting of scary numbers like $7 trillion has the virtue of informing the ordinary citizen that there is a big risk involved.

Parenthetical phrase above should have been:

(or, Heaven forbid, a depression)

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