The American Taxpayer's Blues

In the eyes of stupefied European observers, the former ultra-free marketeers in power in Washington put their convictions aside to rush in and help a financial sector in disarray. The Federal Reserve and the Treasury Department have used the whole gamut of interventions: provision of liquidity to prevent the choking-off of credit, bailout subsidies (the aid offered to the bank JPMorgan Chase to help it buy Bear Stearns), buying-up of credit (the $700 billion bailout plan intended to acquire dubious debt from banks), and even—horresco referens—nationalization (Fannie Mae, Freddie Mac and AIG).

Another surprising subject has been public opinion’s reflexive rejection of the Paulson plan to save the banks, ultimately adopted after great difficulty. It was deemed unacceptable that the whole nation should pay for the missteps of a few financiers. This reaction is explained by American society’s traditional hostility to “big government.” Another reason may be the differing sensibilities of Americans and Europeans with respect to fiscality and saving. The former are very ticklish taxpayers: Most pay income tax, which in the United States constitutes a significantly greater portion of fiscal receipts (nearly 35%) than in Europe (around 23%). On the other hand, their savings rate is very low (1.8% in 2008, compared with 12.3% in Europe): Having placed less money in banks, they feel less concerned by banks’ survival.

Thus the American taxpayer has rebelled. A supplementary public expenditure of around $1 trillion was presented to him. What is less often said to him is that the State has at its disposal several instruments for limiting outlays. The great advantage of the American government over private actors—and one justification for its intervention—is that it has a better mastery of time. It is not a publicly traded business that has sometimes to liquidate assets at any price to keep its stock from tumbling too far. Neither is it a speculators’ fund that is obliged in a catastrophe to sell shares in order to reimburse creditors. It is, to cite the title of a work that appeared 15 years ago, the “master of clocks.” It can wait for the ideal moment to call in its credit (the value of which is at least partly keyed to circumstances) and to sell the shares it holds in businesses it has saved. Frenchmen remember the failure of Crédit Lyonnais, which cost the taxpayer dearly. As for Americans, they can remember the “junk bond” crisis of the late 1980s: The bonds’ value bounced back up when growth was re-established, procuring substantial benefits for those who had had the nerve to buy and wait. The American taxpayer will pay, without a doubt. But probably not as much as he fears.