With the bailout compromise bill going down in flames in the House, I just want to highlight two very sensible paragraphs written by Jim Manzi over at The American Scene just before the vote happened:

It seems to me that biggest cost of this proposal is not the direct expenditure. The government would commit to up to $700BB to buy and then re-sell some assets. How much they would recoup is unclear, but history suggests that it is far from impossible that this would be close to break-even. How is it possible that the Treasury could avoid paying more than they are worth if the bail-out is to help the banks at all? Because the fact of the Treasury being available to buy them changes their market value. Before we get too excited about this seeming magic, however, we should remember – as I went into in greater detail a prior post – that the ideological costs of this are likely to be extremely heavy over time. This is a terrible precedent on many levels. Further, we can’t be sure that there really would be a cataclysm without the bail-out, nor can we be sure that this will be enough to avoid one if it’s coming. We are making a bet to lower the odds of a bad outcome. It’s just that the severity of a Great Depression is sufficiently bad that it is a worthwhile bet to make. But we will pay dearly for it for many years. In this way, the bail-out should be seen as one move in the course of a long and unpredictable campaign.

Emphasis mine. He concludes, “But now it’s time to swallow hard and vote for the bill.”

Very interesting to see how the aftermath of this afternoon will play out. It sure looks like the House GOP acted just as I feared they would.

UPDATE: Megan McArdle:

I am grimly reminded of H.L. Mencken’s famous observation that Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Pethokoukis has some important insights:

Newt Gingrich said voting for the bailout will break against candidates in 2010 and beyond when voters see how destructive it is to the economy. And that’s the thing. While the bailout, if Paulson and Bernanke are to be believed, may prevent a financial meltdown, it will not by itself return America to prosperity. The labor market is clearly weakening, and is the last thing to turn around once an economy does regain momentum. So there’s a good chance that a perturbed public, currently down on the bailout, will view it as an expensive flop by the time the midterm elections roll around. They will hold its supporters accountable.

That’s the rub, isn’t it?

It seems more than likely that Pethokoukis is correct: there will not be a miraculous recovery. Even if the plan is effective and averts outright disaster, it certainly won’t bring back the prosperity we’ve come to believe is our right. We’re in for several years of slack growth and higher-than-comfortable unemployment as the fetid gas leaks out of the distended sphincter of our bloated bubble economy. We’re used to spending beyond our means, but it’s become time to come to terms with the less glamorous lifestyles we can actually afford.

Politics doesn’t recognize such realities, however. If the bailout bill passes, it will quickly become the root cause of all of our future economic underperformance, a handy cudgel with which to bludgeon political opponents. It’s obvious why neither Obama nor McCain was willing to support the bailout last night in anything but the most circumspect terms.

Is it an unreasonable question to ask whether the bailout will help out at all? Not in the slightest. But there’s a line to be drawn between healthy skepticism and crass political maneuvering undergirded by slavish adherence to a free-market ideology which deems any government intervention to be anathema*. Here’s a disgustingly irresponsible example of the latter, as reported in Politico the other day:

According to one GOP lawmaker, some House Republicans are saying privately that they’d rather “let the markets crash” than sign on to a massive bailout.

This is Washington business as usual—unsurprising opportunistic angling for future gain. It’s depressing, however, that the gravity of the moment is not compelling our leaders to look beyond their political futures at what’s good for the country.

* This is not to say that I approve of the extra provisions the Democratic leadership is proposing—far from it! It’s just that the House GOP shouldn’t be trying to second-guess a Republican-appointed Treasury and Fed—who just happen to have concocted a fairly decent plan—for future tactical gain based on ideological truisms.

Welcome aboard, Wall Street Journal:

Above all, the risk is that the current panic will damage the overall economy and lead to a deep recession that causes a further decline in housing values and continues a spiral to even greater financial problems. The libertarian blogs are full of tut-tutting that the economy has held up surprisingly well, and for a year we’ve been arguing the same thing. But there’s no guarantee this will continue, especially as unemployment climbs and as evidence grows that banking distress is squeezing credit to small and big business alike. Credit spreads over Treasurys are back at agonizing levels, as investors and lenders flee from even plain vanilla risks. Nobel economics laureate Gary Becker is no alarmist, but this week he wrote on his blog, “I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy in a major depression.” Anyone who thinks that capitalism will fare better after a crash should recall that the 1930s didn’t end politically until 1980.