What Caused the Crisis?
Last night National Government Radio promoted a documentary on National Government TV about the financial crisis of 2008, which concludes that the problem was . . . not enough government.
If the “Frontline” episode mentioned any of the ways that government created the crisis — cheap money from the central bank, tax laws that encourage debt over equity, government regulation that pressured lenders to issue mortgages to borrowers who wouldn’t be able to pay them back — NPR didn’t mention it.
For information on those causes, take a look at this paper by Lawrence H. White or get the new book Financial Fiasco by Johan Norberg, which Amity Shlaes called “a masterwork in miniature.” Available in hardcover or immediately as an e-book. Or on Kindle!
And for a warning about the dangers lurking in Fannie Mae and Freddie Mac, see this 2004 paper by Lawrence J. White.
Filed under: Cato Publications; Finance, Banking & Monetary Policy
Technology: Debating the Pace of Progress
Last night, thanks to Craigslist and a Web-enabled cell phone, I unloaded two extra tickets to tonight’s World Cup qualifying game between the U.S. and Costa Rica in under an hour. (8:00, ESPN2 “USA! USA! USA!”)
Wanting to avoid the hassle of selling the tickets at RFK, I placed an ad on Craigslist offering them at cost, figuring I might find a taker and arrange to hand them off downtown today or at the stadium tonight. Checking email as I walked to the gym, I found an inquiry about the tickets and phoned the guy, who happened to live 100 feet from where I was walking. A few minutes later, he had the tickets and I had the cash.
This quaint story is a single data point in a trend line—the high-tech version of It’s Getting Better All the Time. Everyone living a connected life enjoys hundreds, or even thousands, of conveniences every day because of information technology. Through billions of transactions across the society, technology improves our lives in ways unimaginable two decades ago.
Before 1995, nobody ever traded spare soccer tickets in under an hour, on a Tuesday night, without even changing his evening routine. If soccer tickets are too trivial (you must not understand the game), the same dynamics deliver incremental, but massive improvements in material wealth, awareness, education, and social and political empowerment to everyone—even those who don’t live “online.”
Sometimes debates about technology regulation are cast in doom and gloom terms like the Malthusian arguments about material wealth. But the benefits we already enjoy thanks to technology are not going away, and they will continue to accrue. We are arguing about the pace of progress, not its existence.
This is no reason to let up in our quest to give technologists and investors the freedom to produce more innovations that enhance everyone’s well-being even more. But it does counsel us to be optimistic and to teach this optimism to our ideological opponents, many of whom seem to look ahead and see only calamity.
Is This Intervention Necessary?
So asks the Washington Post in a cogent editorial about FCC Chairman Jules Genachowski’s speech proposing to regulate the terms on which broadband service is provided. (More from TLJ, Julian Sanchez, and me.) The WaPo piece nicely dismantles the few incidents and arguments that underlie Genachowski’s call for regulation.
As the debate about “‘net neutrality” regulation continues, I imagine it will move from principled arguments, such as whether the government should control communications infrastructure, to practical ones: Will limitations on ISPs’ ability to manage their networks cause Internet brown-outs and failures? (This is what Comcast was trying to avoid when it ham-handedly degraded the use of the BitTorrent protocol on its network.) Will regulation bar ISPs from shifting costs to heavy users, cause individual consumers to pay more, and hasten a move from all-you-can-eat to metered Internet service? We’ll have much to discuss.
Liberals in Power
Will Saletan writes that he and his colleagues at Slate seem to be increasingly engaged in libertarian sallies at the food police and other nanny statists. “Are we becoming conservative?” he worries, wringing his hands. Not quite:
We’re what we were five or 10 years ago: skeptics and fact-mongers with a bias for personal freedom. It’s the left that’s turning conservative. Well, not conservative, but pushy. Weisberg put his finger on the underlying trend: “Because Democrats hold power at the moment, they face the greater peril of paternalistic overreaching.” Today’s morality cops are less interested in your bedroom than your refrigerator. They’re more likely to berate you for outdoor smoking than for outdoor necking. It isn’t God who hates fags. It’s Michael Bloomberg.
Yes, that’s the same Jacob Weisberg who wrote In Defense of Government and blamed libertarians for the financial collapse. Older and wiser every day.
When Saletan takes on the stretches that the fat-tax advocates have to make to justify government regulation of what we eat, he would have done well to cite Glen Whitman’s Cato paper on paternalism.
And as genuine liberals recoil in horror at the actions of liberals with power, it’s a good time to read Damon Root’s new Cato Policy Report cover story on liberals who fled “right” from the economic and constitutional malfeasance of the New Deal. Let’s hope Saletan’s “new Whiskey Rebellion” spreads beyond the pages of Slate.
HT: Jacob Grier.
Taking Over Everything
“My critics say that I’m taking over every sector of the economy,” President Obama sighed to George Stephanopoulos during his Sunday media blitz.
Not every sector. Just
- health care
- energy
- local schools
- banks
- insurance companies
- automobile companies
- compensation at financial firms
- newspapers
- the internet
This president and his Ivy League advisers believe that they know how an economy should develop better than hundreds of millions of market participants spending their own money every day. That is what F. A. Hayek called the “fatal conceit,” the idea that smart people can design a real economy on the basis of their abstract ideas.
This is not quite socialism. In most of these cases, President Obama doesn’t propose to actually nationalize the means of production. (In the case of the automobile companies, he clearly did.) He just wants to use government money and government regulations to extend political control over all these sectors of the economy. And the more political control achieves, the more we can expect political favoritism, corruption, uneconomic decisions, and slower economic growth.
Filed under: Finance, Banking & Monetary Policy; Tax and Budget Policy
Americans Don’t Want It
“Americans are more likely today than in the recent past to believe that government is taking on too much responsibility for solving the nation’s problems and is over-regulating business,” according to a new Gallup Poll.
New Gallup data show that 57% of Americans say the government is trying to do too many things that should be left to businesses and individuals, and 45% say there is too much government regulation of business. Both reflect the highest such readings in more than a decade.
Byron York of the Examiner notes:
The last time the number of people who believe government is doing too much hit 57 percent was in October 1994, shortly before voters threw Democrats out of power in both the House and Senate. It continued to rise after that, hitting 60 percent in December 1995, before settling down in the later Clinton and Bush years.
Also, the number of people who say there is too much government regulation of business and industry has reached its highest point since Gallup began asking the question in 1993.
That might give an ambitious administration pause. The independents who swung the elections in 2006 and 2008 clearly think things have gone too far. An administration as smart as Bill Clinton’s will take the hint and rein it in. Meanwhile, another recent poll, by the Associated Press and the National Constitution Center, shows that
Americans decidedly oppose the government’s efforts to save struggling companies by taking ownership stakes even if failure of the businesses would cost jobs and harm the economy, a new poll shows.
The Associated Press-National Constitution Center poll of views on the Constitution found little support for the idea that the government had to save AIG, the world’s largest insurer, mortgage giants Fannie Mae and Freddie Mac, and the iconic American company General Motors last year because they were too big to fail.
Just 38 percent of Americans favor government intervention – with 60 percent opposed – to keep a company in business to prevent harm to the economy. The number in favor drops to a third when jobs would be lost, without greater damage to the economy.
Similarly strong views showed up over whether the president should have more power at the expense of Congress and the courts, if doing so would help the economy. Three-fourths of Americans said no, up from two-thirds last year.
“It really does ratify how much Americans are against the federal government taking over private industry,” said Paul J. Lavrakas, a research psychologist and AP consultant who analyzed the results of the survey.
Note that 71 percent of the respondents opposed government takeovers, with 50 percent strongly opposed, before the “benefits” of such takeovers were presented.
President Obama is an eloquent spokesman for his agenda, and he has an excellent political team with a lot of outside allies to push it. But as the old advertising joke goes, you can have the best research and the best design and the best advertising for your dog food, but it won’t sell if the dogs don’t like it.
Administration Reform Plan Misses the Mark
The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crises. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.
Shockingly, the Obama plan makes no mention of those institutions at the very heart of the mortgage market meltdown – Fannie Mae and Freddie Mac. These two entities were the single largest source of liquidity for the subprime market during its height. In all likelihood, their ultimate cost to the taxpayer will exceed that of TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.
Instead of addressing our destructive federal policies aimed at extending homeownership to households that cannot sustain it, the Obama plan calls for increased “consumer protections” in the mortgage industry. Sadly, the Administration misses the basic fact that the most important mortgage characteristic that is determinate of mortgage default is the borrower’s equity. However, such recognition would also require admitting that the government’s own programs, such as the Federal Housing Administration, have been at the forefront of pushing unsustainable mortgage lending.
While the Administration plan recognizes the failure of the credit rating agencies, it appears to misunderstand the source of that failure: the rating agencies’ government-created monopoly. Additional disclosure will not solve that problem. What is needed is an end to the exclusive government privileges that have been granted to the rating agencies. In addition, financial regulators should end the outsourcing of their own due diligence to the rating agencies.
The Administration’s inability to admit the failures of government regulation will only guarantee that the next failures will be even bigger than the current ones.
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