e-z dissertation topic: the moral pyschology of the bailout

Brayden recently drew attention to the nearly unanimous view that key financial institutions are in serious trouble. This has lead to the bailout plan – the Fed will come in to purchase control of banks and lending agencies to stem the pain. On the flip side, Bryan Caplan, over at econlog, makes an interesting point: Why aren’t Republicans opposing this? Don’t they always yell “socialism!” whenever Democrats intervene in the economy?

I suspect that’s what we’re seeing now. If a Democratic president were backing a $700B bail-out, I have to think that Republicans would be crying “Socialism!” But if a Republican president does the same, the bail-out’s natural enemies keep silent out of loyalty or ingroup bias. It’s a lot like the contemporary Republican reaction to Nixon’s price controls – if our boy is doing it, how bad can it be?


Where are the left-wing demagogues denouncing the bail-outs as “welfare for the rich”? Where are the right-wing demagogues denouncing the bail-outs as “foreign aid for the rich”?

He is right that there’s much in-group bias. It’s always the other side that’s evil. But there’s much more to be said. I think a fascinating project would be to predict which actors will “break ideology” and just cheer for their team. It’s also interesting that there are “demagouges” (non-economists?) who oppose the Great Bailout, but they get buried. My hypothesis: behavioral links beyond voting with the GOP/Dem parties predicts who will “break ideology.” Ideology has no effect once you control for that. My view is that ideology, for most people, is pretty flexible. Few are consistent. Counter examples?


Written by fabiorojas

September 22, 2008 at 4:50 pm

4 Responses

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  1. McCain had an interesting deflection on the “socialism” question:

    Harwood asked McCain: “What do you say to conservatives in your party who look at this and say, `Wow, this is a lot closer to socialism than to free market capitalism’?”

    McCain replied: “I say to them: ‘I’m with you in spirit, but I remember the S&L crisis, and we had to go in, we created the RTC, and we had to go in and fix these problems.’ The Japanese, as we know, had a crisis some years ago. They didn’t fix it, and their economy has limped along, as we all know. So this is going to require drastic action. The role of government in our society is clearly that we help Americans who are being hurt by circumstances beyond our control.”

    So much in that paragraph.



    September 22, 2008 at 5:48 pm

  2. Liberal talk radio (e.g., Ed Schultz, Randy Rhodes, and my personal favorite Stephanie Miller) have been denouncing the bailouts. Rhodes put it today: “privatize the profits, socialize the losses.”



    September 22, 2008 at 8:16 pm

  3. More practically… it is fascinating to see that the opposition to the bailout plan cuts across left and right. On the left front: I just recently received an invite for an anti-Wall Street bailout demonstration, to take place in New York this Thursday… Whatever the merits of the anti-bailers –I don’t yet have a set opinion– it will be interesting to see how the left frames their opposition to government intervention.

    (4 pm – ? Thursday, September 25. Where: Southern end of Bowling Green Park, NYC).



    September 23, 2008 at 3:20 am

  4. I haven’t fully decided my position either, but I think a good leftist anti-bailout position would have to note that this bails out the mortgage holders who took the risk and had full information while not helping the foreclosure victims who took risks on poor, even deceptive, information from poorly regulated institutions.



    September 23, 2008 at 3:23 am

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