A couple things to say about that: first, the death of the neocons has been greatly exaggerated. This is a country that is still in love with aggressive projection of power and an effectively imperialist foreign policy. Witness the presidential debates, or watch the one tonight, and you will see two men arguing hotly over who has the most expansionist, unilaterally militaristic cred among them. Obama and McCain aren't arguing about the wisdom of "getting tough with Iran", they are arguing about who would do a better job of getting tough with Iran. I'm sorry to say that at this juncture in American politics, there is no party for those of us who believe in radical ideas like not invading countries that don't threaten us, worrying about our own problems over those of far-flung peoples, and supporting the basic principle of self-determination.
More germane to the topic at hand, I just see the need for further regulation as being championed by too many enthusiastic (and well-credentialed) capitalists for this to be a here today, gone tomorrow phenomenon. What's more, many of these capitalist champions are pointing out that the seeds for this kind of problem are inherent in many of our financial models. Consider what Jim Manzi said in this smart post about the crisis:
Smart bankers observe that lending is very profitable, and compete to provide more and more loans to [borrowers], with terms that are more and more favorable to the [borrowers]. This enables the banks to make more money, and they can use this to offer higher interest rates to depositors. Banks who think this is too risky and don’t make bigger and bigger loans will have less profits to use to pay higher interest rates to attract deposits, and will therefore tend to shrink. Bankers also realize that the odds of every depositor showing up on one day to demand their money is almost zero, so they can hold a lower and lower proportion of deposits actually on hand, which enables them to make more loans which enables them to offer higher interest rates and attract more deposits. They see that this is risky, but like making more loans, if they don’t do this, they will not have the profits to pay competitive interest rates to prospective depositors, so very few people will deposit with them, and therefore they will lose business.
And, prompted by a question from me, he says in the comments
Only government regulation (as far as I can see) can dampen the boom-and-bust cycle.... I argue that such regulations should focus on compartmentalizing risk, rather than trying to dampen economy-wide business cyclesIn other words, what's good for individual banks and lenders is bad as a system, and so the markets need forceful intervention from a regulatory body. Now, Jim Manzi's true-blue capitalist cred is unimpeachable. As are those of the many i-bankers, venture capitalists, moneymen and corporate heads who have been applauding this near-nationalization of banks through direct investment to improve short-term solvency. So I don't think this is an example of just those who (like me) are inclined to be skeptical of some aspects of capitalism crowing about a turn towards socialism. I think it's a fact of most people who are invested (literally and figuratively) in the system on Wall Street recognizing that the best remedy for this problem involves ventures which might not fit with their usual ideological preferences.
Capitalism, after all, is the great adapter. I've idly wondered if a turn towards socialism might come not from a new peoples revolution, not from the ballot box, and not by government fiat, but through the capitalists becoming convinced that a socialist turn would be best for business. Of course, that's a hypothetical, largely, at this point. But it's possible. Capitalism has no ideology, it just has the profit motive, and I believe that if it became apparent that some system of government controls of wealth and industry led to greater profits, the Larry Kudlows of the world would run smiling into the arms of Trotsky.
Posts
4 comments:
Mostly, I think you're nuts, but I still like reading you.
I hate to admit it, but the cards look like they're turning your way in terms of the post-GOP incrimination cycle. I hope you're wrong, but it's looking ugly. -K.
I am to please as always K.!
Honestly, I'm not saying it's likely that socialism would increase profits. Only that, if it would, the capitalists would embrace it-- as, indeed, capitalist credo requires them to. And I think that's the rhetorical space that this kind of bailout measure occupies.
I don't think Capitalists worry much about GDP. They worry about personal and company profit.
Raw capitalism doen't in fact work all that well. It's just if you get too far away from it things work much worse.
Government decisions tend to close off options. Governemnt tolerates no competitors. Most decisions about new problems are wrong. Therefore, if government makes the decisions most will be wrong and there will be nobody else out there making the right decisions.
Government tends to foster a monoculture of ideas. The resulting economy/ecosystem is fragile.
I think that it's possible to alleviate future problems somewhat without outright socialization. The Brits have a good system; The FDIC insures only 90% of an individual's assets above a certain amount. The result is that a risky bank gets defunded. Without this risk, people will keep their money in banks that make risky investments because of the FDIC insurance. On the other end of the extreme, removing FDIC insurance seems a bad move since without the FDIC insurance, people keep their cash under their mattress and it doesn't get invested (read: allocated to those most likely to use it profitably.)
Also, all economic bubbles from the great depression onwards have involved over-extension of credit. People lend money not secured by enough assets. The result is they can't be held responsible when their obligations are suddenly are called in. The CRA reduced the amount of assets that banks needed to hold against any loan from 10% to 2.5% and this was a bad move. That didn't cause the current crisis by itself, but it unquestionably made the credit-fueled bubble worse.
And sure, certain businesses love socialism and government regulation, which do increase their profits. Government enforced standards prevent some upstart from coming along and finding a better way to do things, and big companies handle piles of paperwork better than small ones. Eliminating competition, one way or another, is the only surefire way to increase profits significantly. Otherwise, you're just making marginal profits pumping out some commodity. The timely government threat of taxing oil profits certainly deterred those investors who were hoping to invest in more refineries.
But it's hard to see this happening since startups don't have a political voice.
And interestingly, it was a small cadre of republicans (and Clinton) pushing for regulation on this issue back when it would have done some good, while people like Barney Frank insisted that the FMs were just fine and dandy.
Post a Comment