Earlier today, I was invited to speak on a panel at Sonoma State University titled “War and the Economy” (the first in SSU’s “It Matters” pre-election lecture series) David McCuan, associate professor of political science moderated the discussion while Steve Cuellar, associate economics professor was the other panelist.

As can be expected, given the news of late, we talked much more about the economy than the war. (It’s fair to say, for once, that the news about the Iraq war is actually more encouraging.)

Cuellar offered some compelling – albeit depressing – data demonstrating the growing income disparity between the top 10 percent of U.S. wage earners and those in the bottom 10 percent over the past 45 or so years. The gap was remarkable – and growing. In real dollars, those on the lower end are actually making less than their peers did 35-40 years ago. (I will see if I can provide a link to some of Steve’s information.)

I talked mostly about the dramatic economic news in the past few days, particularly in context of how this might play out in the presidential election. Suffice it to say we’ve witnessed a massive, historic expansion of the federal government’s involvement in financial markets. This is unchartered territory.

Just in the past few weeks, the government has committed, through the bailouts of Bear Stearns, Fannie Mae and Freddie Mac and now AIG, roughly $315 billion in taxpayer dollars. In the process, the government has gotten into some new lines of work. A couple of weeks ago, it suddenly went into the mortgage business (Mac and Mae oversee roughly half of them in the nation) As of yesterday, it got into the insurance business. The federal government now owns an 80 percent share of a company (AIG) that, among other things, is a leading provider of insurance for kidnapping and ransom. What are we supposed to make of that?

The major questions now:

How many more companies are “too big to fail?” (What about Washington Mutual?)

How many more bailouts can the government afford before it sinks the rescue boat

And, perhaps most important, what will be the government’s exit strategy from this involvment in this private sector?

That’s a question that the presidential candidates need to pressed to answer, because one of them is about to win this problem
– Paul Gullixson