Maybe Yglesias tried to think of a more tendentious partisan angle to all this business about “bailouts,” but couldn't come up with one, so instead of bothering to write a post, he just turned the crank on the PunditBot2008-D, which produced this for him while he was out getting a smoothie:
But conservatives don’t believe in that kind of safety net for regular people — just for the billionaires. Guaranteed health care? Forget it. Guaranteed retirement income? No way. Just let the market work, and when it stops working the executives will be okay and the rest of us will, oh, something or other.
Incisive! It seems that when Matt says “Progressives believe in a robust safety net for everyone,” the idea is we're supposed to be in favor of bailouts for regular people and billionaires. That's generous, but I'd drop safety nets for billionaires.
Anyway, institutions are institutions are institutions. Government institutions aren't magical. Some institutions can indemnify others, but it can't be turtles all the way down. Government is limited in capacity to insure individuals and corporations against loss. The widespread assumption that there is in fact some kind of unlimited, all-purpose backstop — that the U.S. government can simply guarantee itself against its own failure through magical fiscal and monetary willpower (i.e., economic Green Lanternism) — seems to me a big part of the problem here. So, no safety net for billionaires. I'm sure that we can all agree that government action that would contain an economy-wide meltdown — when possible — may be desirable, even if it does incidentally help some billionaires as part of the effort to keep regular people from losing their shirts. What everyone needs, capitalist and prole alike, is better institutions, including a better regulatory framework for the financial sector, so that markets do work. So let's have that.
But let's also not pretend that the government's attempt to “guarantee” that you will get your retirement income, or that you will get your heart surgery in a timely fashion, or that a functioning financial system will endure, actually makes these events more likely than they would be under alternative institutions that make no such guarantees.
Read David Schmidtz on safety nets and guarantees:
What do we want from a welfare state safety net? Is it enough for an economic system to help people become so prosperous that they can afford to carry those who truly cannot carry themselves, or must there be a guarantee that those who cannot carry themselves will be carried by someone else? Should we look at the actual history of charity and mutual aid, or is the bare lack of a guarantee sufficient grounds for denying that charity and mutual aid can serve as a safety net? If there has to be a guarantee, is it enough officially to guarantee that no one will ever have to carry himself in times of trouble, or should we insist on some level of actual performance as well? What if we have to choose between official guarantees and actual performance? What then?
What then? Forget guarantees and go for actual performance. I think the same thinking probably holds for much of the financial system. As Schmidtz puts it, the worst problems arise when we try to externalize responsibility for decisions. Our institutional choice isn't between collective responsibility and individual responsibility. Our choice is between institutions that externalize responsibility and those that internalize it. Responsibility is very often internalized collectively — risks are successfully pooled — with insurance contracts, limited liability corporations, or associations of mutual aid. We need institutions of collective responsibility. But those institutions need reliable mechanisms that guard against adverse selection and moral hazard, and that's the hard part. Official guarantees (implicit or expllicit) tend simply to create the sense that ultimate risk and responsibility rests elsewhere without doing enough (or anything) to prevent the guarantee from making itself more needed.