The Quantum Physics of the Bailout

Right now I feel as though we’re all, collectively, like Schrödinger’s cat before the box is opened, except that instead of two different outcomes there are dozens. Will we revert to ad-hoc, case-by-case responses requiring no legislative approval? Will the Democrats come up with a more left-wing plan they can push through on their own? Might such a plan include outright bank nationalizations? Contrariwise, is the ball in the House Republicans’ court, to come up with a plan that they can vote for? Will something like Plan A still get pushed through, as people seem to hope right now? Or will we end up in utter chaos?

And while I’m on the quantum-physics metaphors, the uncertainty principle fits in here quite nicely as well. If you want to find out the position or velocity of a particle, the very act of observing it can make an enormous difference. Similarly, when the markets observe goings-on in Washington and plunge as a result, that plunge feeds back into the legislative process, making some kind of a deal more likely. I do think that the 777-point drop in the Dow yesterday was a bucket of cold water in many Republicans’ faces: yesterday morning, their greatest fear was being blamed for voting for the bailout, while today, they’re even more scared of being blamed for voting against it.

The reason is that individual voters don’t care about abstractions like "the economy"; they care about their own personal circumstances. And right now, anybody with retirement funds or any kind of stock-market savings is worried. They see their net worth plunge as a result of legislative incompetence, and they rightly blame their elected representative. No, they don’t like the idea of a Wall Street bailout for the fat cats who caused the problem to begin with. But they like the idea of losing a substantial portion of their life savings even less.

I think we can date to September 2008 the point at which serious negative wealth effects started feeding through from the stock market into consumer behavior. Up until now, the US consumer has been astonishingly resilient. But anecdotally, a lot of people are cutting back right now, worried that they’ve lost a lot of money in the markets. Even if they still have credit, people aren’t inclined to use it, because they’ve lost that all-American confidence in their future income.

Does the House of Representatives, collectively, grok this? If yesterday’s stock-market plunge did cause a change in national sentiment, away from anti-bailout and towards get-this-fixed, do the lawmakers in DC have the ability to notice and to change their behavior accordingly? We’ll find out, I guess, when the box is opened. Whenever that might be.

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