What Now?

Jim Manzi re-visits the financial mess:

I can make the arguments as loudly as anyone, and I believe them, that the causes of this problem that can be laid at the feet of government are ill-advised market interventions and poor regulation, rather than insufficient controls on the market. The best long-term solutions, in my view, all involve less government intervention. It will be important to make these arguments. But the patient has been hit by a car, and is lying on the ground bleeding.

It’s all well and good to discuss how irresponsible he was to wander drunk into the street, how we should better design our traffic control systems, and so on. But first we need to stabilize the patient and stop the blood loss.

It seems to me that the crucial prudential judgment to be made right now is this: How much time and freedom of action does the political process have to improve the bail-out before the time and/or complexity of the process serves to undermine the confidence-building impact of the bail-out? My view is, unfortunately, “not much”. We need to pick our battles, and focus more on trying to make the bail-out as flexible and temporary as practicable, than on trying to get a well-designed regulatory reform in the time and policy space available to us.