The politics of bailouts

The proposed bailout of the (formerly-)Big Three appears to be in trouble. The simple reason for that is that nobody can keep a straight face while saying the words, "This money will make Detroit competitive again." At most, the bailout would stave off a collapse for several months while not addressing the structural problems that are causing Ford, GM, and Chrysler to lose money on every car they sell.

From a partisan political standpoint, it's hard to see how this issue doesn't end up hurting Democrats. Although those with a direct stake in the health of the auto industry would likely disagree, the public as a whole is clearly skeptical about the wisdom of bailouts in general and of a bailout of Detroit in particular. Importantly, part of the reason for that skepticism is that the Democrats have spent much of the last two years bemoaning all the money we have spent in Iraq and the overall precarious state of the economy. Now that the Dems are on the brink of controlling both political branches of government, they find themselves in the position of backing another huge commitment of funds toward a project that seemingly offers no long-term prospects for success. Moreover, whether or not the bailout occurs, the Dems are still expected to solve the larger financial mess. Thus, it seems to be a no-win situation for Obama, Pelosi, and Reid. They must either support an unpopular measure that's not likely to work, or not do it and be perceived as having no answers.

Of course, this is really just a function of the overall challenge facing the Democrats: Although they're being asked to fix the economy, it's unlikely there's any "fix" that does not entail a painful and protracted recession. Blaming Bush simply won't make that challenge go away. Declaring that there's nothing to be done won't work either, not after an election in which the American were told they needed the Democrats in power in order to clean up the country's economic mess. The country was promised results and the Democrats need to deliver.

Another problem the bailout presents for the Democrats is that it undermines one of their core political principles: the notion that Washington should stop using fiscal policy to pad the coffers of Big Business. Barack Obama used this theme against McCain when he accused his rival of supporting billions of dollars in tax breaks to corporations. But if you think it's bad to give corporations a tax break, how can you justify giving corporations a direct subsidy in the form of a bailout? Suddenly the whole world is upside down: the Democrats are the party of Big Business and the Republicans are telling the corporations to stuff it!

Hopefully the economy will rebound sooner rather than later, whether because of or in spite of the Democrats' actions. I'd much rather see the country get back on its feet economically than see the Democrats suffer because it didn't.