Category: Economics

Categories
Economics Health care The Opinionsphere

Our Health Care Systems Undermines Entrepreneurship

[digg-reddit-me]Ezra Klein brings together Andrew Sullivan and economist Jon Gruber to talk about entrepreneurship and health care. Quoting Gruber:

A system that provides universal access to health insurance coverage, then, is far more likely to promote entrepreneurship than one in which would-be innovators remain tied to corporate cubicles for fear of losing their family’s access to affordable health care. Indeed, even the Galtians among us should be celebrating the expanded potential for individual enterprise once the chains tying them to a job that provides insurance have been broken.

I think this argument should be more prominent in the debate – not because it’s the most important element – but because it demonstrates how integral to our economy health care is and undermines key right-wing critiques.

I wrote about this earlier in the summer:

If one wants to stimulate the economy by encouraging small businesses and entrepreneurship, there are few better ways to do it than to pass some sort of health care reform that makes it cheaper and more available outside of large employers. As Daniel Gross, financial columnist for Newsweek and Slate, explains:

An affordable national health care policy, which could allow people to quit their jobs and launch businesses without worrying about the crippling costs of premiums or medical costs, might be a better spur to risk-taking than targeted small-business loans.

I say this as a former small business owner and entrepreneur myself. One of my biggest concerns in working outside of an established business was that I was not able to get my health care through my job – which meant astronomical monthly premiums for a service I did not use – but which I could not be sure I would not badly need.

[Image by Matt McGee licensed under Creative Commons.]

Categories
Barack Obama Conservativism Criticism Domestic issues Economics Liberalism Libertarianism Political Philosophy Politics The Opinionsphere

Protests Against Liberals Running the Gov’t (cont.)

[digg-reddit-me]I should have made a bit more clear in my post yesterday that Andrew Sullivan was well aware of the contradictions within the right wing response to Obama – and had articulated a coherent response to them from his conservative, Oakshottian perspective earlier yesterday in a post I had printed out to read. He did reach a bit too far in seeing that particular silver lining to this movement though.

The main problem is that this right wing movement is still somewhat amorphous. Lydia DePillis of The New Republic had this dispatch from the D.C. protest this past weekend explaining the core complaint of the movement:

Their complaint? Hard to say, really. Some, like the contingent of coal miners in hard hats with anti-cap-and-trade signs, had a concrete beef with the administration. But for most, there was both an incredible specificity to their protestations–all those czars, and ACORN, and Obama’s missing birth certificate–and a fuzzy vagueness.

“We’re losing America,” said Kris, from Maryland. “Government is trying to take over everything.”

It’s one thing I have noticed as well – both the specificity of what they are outraged over and the sense that the tawdry specifics don’t explain the rising crescendo of outrage.

Matt Welch – editor in chief of Reason magazine – tried to defend the protestors against liberals attempts to write them off – and to defend them against charges of racism. He does so by misrepresenting two liberal responses to the protests and then knocking down the strawmen he creates – which is about par for the course in terms of New York Post op-eds, but I expect more of Welch whose work I often enjoy. Welch would have done better to explain what he found most of the protestors stood for, but I suspect he would have had the same difficulty DePillis did.

So, instead, he writes that “popular left blogger Josh Marshall reported from his armchair” that this was a “Small protest.” Welch declines to link to Marshall’s post saying such – probably because if he had, readers might have found that this was one in a series of posts by Marshall and others at the TalkingPointsMemo covering the size of the crowd, and that Marshall had concluded his post with the D.C. Fire Department’s estimate of 60,000 to 70,000 saying the protest was “smallish by big DC protest/event standards but definitely respectable.”

Welch then goes on to say that the Center for American Progress claimed that the protest was marred by “racist, radical portrayals of Obama.” Welch has this to say about the evidence presented by Think Progress:

Among the dozen or so pieces of evidence? A placard claiming, “Ayn Rand is right,” and one of President Obama with the caption, “When his lips move . . . he’s lying.”

Once again – an extremely misleading selection by Welch given the main signs focused on by the piece, including this one:

Welch could have made the argument that focusing on these people was misrepresenting the crowd – but instead he choose to made a much less defensible point.

Nothing Welch says challenges the point I made yesterday – that right wingers are fans of big government run by christianist right wingers, but wary of any type of government run by liberals, such that even pragmatic, incremental, modest Obamaism is seem as a radical assault on their children:

The protests aren’t about the size of government or its role; they are a viceral response to the fact that a liberal now runs the government. That frustration is rooted in cultural and social issues, rather than economic ones.

There are libertarians who legitimately object to big governmen (Ron Paul and Matt Welch himself come to mind), and I can respect their views even if I disagree – but they don’t seem to be well-represented in the Tea Party movement, in the Republican Party, in the bulk of the emotional resistance to Obama.

Categories
Barack Obama Economics Politics The Opinionsphere

These Protests Aren’t Against Big Government, But About Liberals Running the Government

[digg-reddit-me]Andrew Sullivan postulates that there is a “silver lining” to the “right’s apoplexy” in that it has moved the Republican Party away from its christianist social policies to a focus on economic libertarianism.

I’m far from convinced by this argument however – as my impression is that the real impetus behind the opposition to Obama isn’t economic as much as cultural. Concern about the size of government and the deficits don’t seem to be strongly related to either the size of government or deficits, but about who is in power. Ronald Reagan ballooned the size of the deficit and enlarged the size of government, yet is beloved by those who now (and in 1992) claimed to be very concerned about the role of government and deficits. George W. Bush had strong support from the right during his term, and I don’t recall any Tea Party Protests during his watch – yet he presided over ridiculous deficits and an expansion of the government in every direction, from national security matters to health care (Medicare Part D) to the financial and automotive sectors to the tens of thousands of small pork projects.

Yet suddenly, a liberal becomes president – a moderate, pragmatic liberal who seems genuinely focused on reducing the mid- and long-term deficits – and Tea Parties erupt to protest all the programs he’s running (which he inherited). It seems outright naive to attribute these protests to a rejuvenation of economic conservatism – especially given the “hot button” issues that arise: government-sponsored (and maybe forced!) abortion and euthanasia and illegal immigrants getting health care. I know that Sullivan isn’t this naive – he’s just looking for the silver lining. But I don’t think one is there.

The protests aren’t about the size of government or its role; they are a viceral response to the fact that a liberal now runs the government. That frustration is rooted in cultural and social issues, rather than economic ones. Which is why deficit politics only becomes powerful when Democrats are in control of the White House.

[Image by Steve Rhodes licensed under Creative Commons.]

Categories
Barack Obama Criticism Economics Financial Crisis History Morality Political Philosophy Politics The Bush Legacy The Opinionsphere

Must-Reads of the Week: Krugman v. Ferguson, Ted Kennedy again, Hank Paulson, Sedaris, and Phreaking

This week there are quite a few good pieces to take a look at over the long weekend – in between games of beer pong, or BBQs…

Krugman v. Ferguson. Matthew Lynn in the Times of London wrote a feature on the “war” over the response to the economic crisis going on between the American Princeton Professor, New York Times columnist, Nobel-prize winner, and noted liberal Paul Krugman and British Harvard Professor, Financial Times columnist, and noted conservative Niall Ferguson. I had been following it closely already, but this article had a number of more details and conveyed the story arc well. Meanwhile, Krugman released another attack on Ferguson – indirectly though – in which he laid out his vision (as a kind of short intellectual history of economics in the 20th and 21st centuries) of what happened in the most recent crisis, why so many economists got it wrong, and why we’re taking the right steps now:

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

The article is missing Krugman’s usual zingers and partisan swipes – and is really quite good. It also reminds you that Ferguson is an historian – not an economist.

Ted Kennedy, leaky vessel. Sam Tanenhaus writes about Senator Ted Kennedy as a kind of magnificent character, capturing him and the movement he led better than most others:

But if the art of governance did not redeem Mr. Kennedy, it irradiated him, and the liberalism he personified. At a time when government itself had fallen into disrepute Mr. Kennedy applied himself diligently to its exacting discipline, and wrested whatever small victories he could from the machinery he had learned to operate so well. Whether or not his compass was finally true, he endured as the battered, leaky vessel through which the legislative arts recovered some of their lost glory.

Hank Paulson. Todd Purdhum of Vanity Fair finally writes his piece about his many conversations with Hank Paulson before and during the financial crisis – a piece notable for the fact that Paulson seemed exceptionally forthcoming as he knew the piece wouldn’t come out until well after he had left public office.

The Wisdom of David Sedaris. A nice story from last week’s New Yorker:

[S]he invited us to picture a four-burner stove.

“Gas or electric?” Hugh asked, and she said that it didn’t matter.

This was not a real stove but a symbolic one, used to prove a point at a management seminar she’d once attended. “One burner represents your family, one is your friends, the third is your health, and the fourth is your work.” The gist, she said, was that in order to be successful you have to cut off one of your burners. And in order to be really successful you have to cut off two.

Pat has her own business, a good one that’s allowing her to retire at fifty-five. She owns three houses, and two cars, but, even without the stuff, she seems like a genuinely happy person. And that alone constitutes success.

I asked which two burners she had cut off, and she said that the first to go had been family. After that, she switched off her health. “How about you?”

I thought for a moment, and said that I’d cut off my friends. “It’s nothing to be proud of, but after meeting Hugh I quit making an effort.”

“And what else?” she asked.

“Health, I guess.”

Hugh’s answer was work.

“And?”

“Just work,” he said.

Phone Phreak. David Kushner in Rolling Stone features the story of a poor, fat, lonely, blind boy who finds a way to be happy as a phone phreaker (a kind of hacker on telephone lines.) The boy – Matthew Weigman – submerges himself in the culture, and due to his unique skillset is able to become an almost cartoon villain, without the manic desire to take over the world. Instead, he unleashes SWAT teams on girls who refuse to have phone sex with him, as he fakes calls from inside their house pretending he is holding them hostage; or ferrets out all the names and biographies of the team tracking him down, which he jovially explains to an FBI agent who comes to recruit him.

Categories
Barack Obama Economics Financial Crisis Health care Life Morality Politics Reflections The Opinionsphere The Web and Technology

Weekly Must-Reads: Disappearing, the Super-Rich, Harry Potter, the Public Option, Craziness, and Abortion

[digg-reddit-me]A low-key blogging day today. Further events complicated my normal week-night blog writing, as my brother was hospitalized yesterday. He’s doing fine. But to some extent, it impressed upon me the reality of some small portion of this health care debate. To get to my brother’s room, I had to walk through the hospital – through security measures in the pediatric section, and then further security measures in the Intensive Care Unit of the pediatric section – and then to his room where I saw him, looking wan, but apparently much better than in the morning, with maybe a half-dozen tubes giving him drugs and liquid and food and another half-dozen wires monitoring his oxygen levels and heart beat and who knows what else. The nurses had to do tests on him every hour. And as I visited in the evening, I didn’t see the doctors who are figuring out what’s wrong and directing the treatment. The whole set-up must be outrageously expensive. And with my brother lying there, getting better, every cent is worth it. As a society, we have made a choice to spend some large portion of our wealth on protecting our families, ourselves – on following our natural human instinct to care for those who are not well. We have made a choice to maximize life at the expense of wealth.

But we must acknowledge that our system has limits. If my father didn’t have a generous health insurance plan, he could never have afforded for my brother to be treated this way. The hospital would treat him anyway – and then they would go after my father for everything he had. About a third of all Americans would be in this position – on the verge of bankruptcy – if an emergency required serious medical attention. And while hospitals have an ethical obligation to treat anyone who needs treatment, studies have shown that those without sufficient insurance get significantly worse treatment. When people argue that health care is not a right, they must do so in the face of those who need treatment. And if you consider health care to be a right, then health insurance must be a necessary responsibility for each citizen.

We do need to reign in increasing health care costs; we also need to preserve our system’s willingness to spend. But what we need most of all is a reasoned debate about what type of system we have and what type of system we want – and it doesn’t seem that America is capable of that. To that, I don’t know the solution.

Without further ado, here are the must-reads of the week:

1. Disappearing. Evan Ratcliff explains in Wired the difficulty of disappearing in our modern world – and how even the smallest slip-up can bring the authorities to your door. It’s an interesting look at the desire to start over – and how technology today makes it both easier and harder.

2. The Super-Rich. David Leonhardt and Geraldine Fabrikant examine the implications of the current recession on the super-rich – including John McAfee of McAfee Anti-Virus fame, whose net worth went from $100 million to $4 million in the downturn. Not that anyone should feel bad for the guy. The piece looks at the historical implications of our recent massive inequality and what this downturn’s implications are for such inequality in the long-term. The prognosis: the super-rich will stay richer than they were in the 1950s and 1960s, but their relative wealth will decline a bit.

3. Harry Potter and theological libraries. Michael Paulson in the Boston Globe explains how Harry Potter is becoming a serious subject of theological debate:

[S]cholars of religion have begun developing a more nuanced take on the Potter phenomenon, with some arguing that the wildly popular series of books and films contains positive ethical messages and a narrative arc that is worthy of serious scholarly examination and even theological reflection. The scholars are primarily interested in what the books have to say about the two big issues that always preoccupy people of faith – morality and mortality – but some are also interested in what the series has to say about tolerance (Harry and friends are notably open to people and creatures who differ from them) and bullying, the nature and presence of evil in society, and the existence of the supernatural.

Scholarly interest in the Harry Potter books began long before the series was finished, and shows no signs of slowing. There have been several academic books, with titles such as “The Ivory Tower and Harry Potter: Perspectives on a Literary Phenomenon” and “Harry Potter’s World: Multidisciplinary Critical Perspectives.” The American Academy of Religion last fall offered a panel at its annual convention titled “The Potterian Way of Death: J. K. Rowling’s Conception of Mortality.” And there is a raft of articles in religion journals with titles including “Looking for God in Harry Potter” and “Engaging with the spirituality of Harry Potter,” as well as the more complex, “Harry Potter and the baptism of the imagination,” “Harry Potter and the problem of evil,” and the crowd-pleasing “Harry Potter and theological libraries.”

4. Fighting for the Public Option. Ezra Klein makes a persuasive argument against simply giving up on the public option, but he still comes down on the side of those willing to give it up:

For all that, it’s one thing to fight for an uncertain, but promising, policy experiment. It’s another thing to sacrifice health-care reform on its altar. In July, Families USA released a paper explaining “10 Reasons to Support Heath-Care Reform.” The public plan is one of the reasons. But only one of them. And it’s not even the most convincing.

5. Crazy is a Preexisting Condition. Rick Perlstein, author of Nixonland, has an editorial in the Washington Post examining the “crazy” that he sees as an essentially American part of the political process. Read the whole piece:

So the birthers, the anti-tax tea-partiers, the town hall hecklers — these are “either” the genuine grass roots or evil conspirators staging scenes for YouTube? The quiver on the lips of the man pushing the wheelchair, the crazed risk of carrying a pistol around a president — too heartfelt to be an act. The lockstep strangeness of the mad lies on the protesters’ signs — too uniform to be spontaneous. They are both. If you don’t understand that any moment of genuine political change always produces both, you can’t understand America, where the crazy tree blooms in every moment of liberal ascendancy, and where elites exploit the crazy for their own narrow interests.

6. Watching an Abortion. Sarah Kliff for Newsweek, who is pro-choice, watched her first abortion and reported on her feelings. Rather moving and honest. A welcome inclusion into our fraught debate.

[Image by me.]

Categories
Economics Financial Crisis Politics The Opinionsphere

Fact-Checking Taibbi: The Sarah Palin of Journalism?

Having cited Matt Taibbi’s well-read Rolling Stone article on Goldman Sachs in a few previous posts, it’s worth taking some time to air some fact-checks of it. (Complete article here.) Megan McCardle has dubbed Matt Taibbi “the Sarah Palin of journalism”  but I wonder what this makes McCardle – whose feeling-based objections to any of the health care reforms on the table seem different only in tone than Taibbi’s hysteric rants on financial companies.

Which is why I cite this article at The Big Money instead – which takes a fact-based rather than feeling-based – look at Taibbi’s article. The takeaway by Heidi Moore is about what I suspected:

The mammoth article disappointingly failed to provide the smoking gun that so many people on Wall Street—who have envied and admired and hated Goldman for much of this decade—would have been delighted to see.

Moore’s piece also points out some of the ways in which Taibbi’s article is misleading – and it’s worth a read. Unfortunately, I do not know have the expertise in the subject to adjudicate these disputes – which essentially involve whether Goldman Sachs was a player or the main player in these various financial disasters.

It’s worth taking a look at Moore’s piece if you were one of the many who has read Taibbi’s. But I think it was pretty clear to anyone reading Taibbi’s piece that it was deliberately over-the-top and overstated.

Categories
Domestic issues Economics Health care Politics The Opinionsphere

The Bankruptcy of Deficit Politics

[digg-reddit-me]Ezra Klein had a revealing interview with Senator Lindsey Graham over the weekend. Read the whole thing. Graham gives Obama some clear advice on how to get health care reform done: Make Republicans and Democrats fear opposing you:

There’s two ways to fix a hard problem in Washington. You make people afraid of opposing you or you get them rewarded for helping you. There’s no fear for opposing Obama’s public option, and the reward is for opposing it. Right now, Republicans feel no political exposure from opposing the president’s health-care initiative.

That’s a pretty good analysis of what’s going on – though I’m surprised Graham is the one giving it. I think this would qualify as a gaffe if it were a bit punchier – if Graham had expressed this idea in one or two sentences instead of three.

But this wasn’t what I saw as the most interesting moment. That came when Klein asked Graham point-blank about “deficit politics”:

If the deficit politics are so powerful, where do you specifically see an opportunity for cost savings? Where can the curve be bent?

Graham dodged the question – as the astute politician he is rather than the honest truth-teller he holds himself out to be. And that’s exactly the problem with “deficit politics.” People may be angry about the deficit – but they don’t want any government services cut. They have been raised with the expectation that they can shift the burden to a future generation – namely, my generation. Republicans have been extremely astute at harnessing this anger at the deficit, though extraordinarily ineffective at actually doing anything about it.

“Deficit politics” is only about fear – and has no positive agenda. As conservative David Frum explains what the “success” of deficit politics will look like:

We’ll have entrenched and perpetuated some of the most irrational features of a hugely costly and under-performing system, at the expense of entrepreneurs and risk-takers, exactly the people the Republican party exists to champion.

It’s a mistake to see it as about “fiscal responsibility. What “deficit politics” is about a general suspicion of government, a sense the country is on the wrong track, and a sense that America’s position in the world is eroding due to government encroachment, especially on economic matters. What “deficit politics” is about is a kind of uniquely Baby Boomer sentiment – that we must cut the size of government, except for the military and those programs which “I” am using. It’s not a new sentiment – gaining serious credibility as a standalone dynamic motivating people at least as early as Ross Perot’s 1992 campaign. Before then, it had generally been incorporated into Republican politics – but as Ronald Reagan railed against big government while ballooning the size of government and deficits – and as George H. W. Bush tried to be fiscally responsible and raise taxes to reduce the deficit, and was pilloried for it – those motivated by “deficit politics” grew disappointed with the Republican party. As Bill Clinton reigned in deficit spending, he defused the explosive “deficit politics” but got little credit from those motivated by the issue. When George W. Bush exploded the deficit, he got little blame from this same crowd.

But now that Obama is running a short-term deficit to keep the macroeconomic demand high during this downturn, “deficit politics” is back with force. Obama has sought to defuse this issue by approaching his opponents as if they are acting on a good faith concern about fiscal responsibility by constantly talking about the importance of the long-term deficit, by taking strong measures to reign in the long-term deficit, and by making sure all of his new programs which seek to reign in the deficit in the long-term are deficit neutral over the mid-term. But the problem is – “deficit politics” isn’t about fiscal responsibility – but a far more nebulous and near-impossible combination of goals.

What is happening is that the right policy on the deficit is being distorted by deficit politics; it takes an odd, risk-averse sort of leadership style to realize how to play this game. Clinton was a master of it. But the selectiveness of the targets of this anger coupled with its explosiveness when it finally finds a target make any movement motivated by “deficit politics” impotent. Our political system rewards those movements that apply steady and generally predictable pressure, have clear goals, and that offer commensurate rewards for their supporters. The NRA, the NRLC, labor unions for example. Deficit politics though offers none of these.

Which is why it will fail to accomplish anything, except perhaps block any changes needed to deal with our festering, long-term problems – in which case these problems will get progressively worse.

Categories
Economics Financial Crisis

Theories of the Financial Crisis: Deference to the Financial Sector

[digg-reddit-me]Closely related to the previous theory of the financial crisis – that Goldman Sachs did it – is the more generalized version of this idea – that the financial sector itself – whether through political donations, lobbying, corruption of politicians, respect, fear, or any other means at their disposal – was able to demand and receive undue influence over the political processes affecting them.

Since Ronald Reagan took office in 1980, the financial industry has been growing more quickly than the rest of the economy – whether because of this or as a result of this, politicians of both parties have given the industry about every policy they wanted. The financial industry began to feel its oats when a cultural revolution swept America – the Reagan Revolution – which removed the various moral stigmas from money and profits just as the 1960s had from sex. Reagan also instituted several policies which served to concentrate wealth (thus enlarging the financial sector) and removing regulations. He cut taxes – especially for the wealthiest; he instituted a de facto Bretton Woods II agreement in which the savings of East Asia were transferred to America, thus enlarging the financial sector further and decimating our manufacturing sector; he ran massive deficits, thus super-charging the economy – from which the financial sector was a main beneficiary; he deregulated various industries thus allowing private enterprises to capitalize on the investments of the public in them; he reduced regulations overall, especially those on the financial sector.

Bill Clinton came into office with various plans to help out the middle class – to pass a stimulus bill, to tackle health care – but was forced by an unruly bond market to back off. Bob Woodward quoted Clinton realizing the power of Wall Street a few days into office:

You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?

But Clinton came around and designed an agenda that would win Wall Street’s approval. He brought down the deficit – running surpluses even. He reformed welfare. He pursued free trade agreements – especially NAFTA. The Committee to Save the World – consisting of Treasury Secretary Robert Rubin, Assistant Secretary Lawrence Summers, and Federal Reserve Chairman Alan Greenspan (with an assist from Timothy Geithner) organized emergency interventions committing taxpayer dollars to help Mexico, the Asian markets, Russia, and domestic markets with the collapse of Long Term Capital Management in order to keep the markets stable and growing. By the end of his presidency, Clinton was a major proponent of deregulatory measures – signing the repeal of the New Deal era Glass-Steagall Act, forbidding the regulation of derivratives, and allowing off-balance sheet accounting. All of these changes greatly benefited the financial sector and were much sought after by the industry.

And then of course came further deregulation under George W. Bush and his proposal of various housing initiatives under the rubric of an Ownership Society. The deregulatory fervor was probably best symbolized by the efforts of the Office of Thrift Supervision (OTS) to bring more financial institutions under its authority. (Regulators were funded based on what companies they oversaw, so the various regulators began to compete to be more lax.) The head of OTS brought a chainsaw to the photo-op in which the heads of the various regulatory agencies attacked a stack of paper representing bank regulations to demonstrate their commitment to reducing oversight. As Simon Johnson wrote in The Atlantic regarding these many causes of the financial crisis:

[T]hese various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector.

His thesis is essentially this:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

Whether politicians of both parties deferred to the financial sector because of their massive contributions to both parties or because the financial sector became the leading driver of GDP growth doesn’t really matter.

What’s clear is that when the financial sector wanted something, they got it. They blocked reforms; they got deregulation, free trade agreements, business consolidations, and policies that led to market inefficiences and bubbles they could exploit. The financial sector was pushing virtually every policy which contributed to the economic collapse – and politicians of both parties went along.

Categories
Barack Obama Conservativism Criticism Financial Crisis Latin America Politics

In Case You Missed It: Best Reads of the Week on Whining Conservatives, Internet Battles, Peru, The Single Life, and the Unborn

1. Whiny Conservatives. David Frum scolds conservatives for  quite whining and points out how silly they look doing so given how far the conservative movement has moved America since it gained power:

In 1975, the federal government set the price of every airline ticket, every ton of rail freight, every cubic foot of natural gas and every barrel of oil. It controlled the interest rates paid on checking accounts and the commission charged by stockbrokers. If you wanted to ship a crate of lettuce from one state to another, you first had to file a routemap with a federal agency. It was a crime for a private citizen to own a gold coin. The draft had ended only two years before, but not until 1975 itself did Congress formally end the state of emergency (and the special grant of presidential powers) declared at US entry into the First World War.

2. The Battle for the Internets. Fred Vogelstein writes in Wired about the brewing battle between Facebook and Google for the internet.

3. Peru’s Moment. Most of the world has lost ground in the financial crisis and recession. Daniel Gross in Newsweek tells the story of one country that has managed the financial crisis perfectly (Peru), and their secret ingredient: leadership in the years leading up to the crisis:

In the latter half of 2008, being a poor, export-dependent, commodity-producing country set you up for a vicious downturn. But Peru has weathered the storm, in large part because President Alan García, an old leftist turned center-leftist, and the Peruvian central bank have proved adept at a set of capabilities notably lacking in the United States in recent years: sound fiscal and financial management. Fearful of a return of hyperinflation amid rapid growth, Peru’s central bank raised interest rates throughout 2008. Instead of spending the foreign currency that piled up on its books ($32 billion at the end of 2008), the government saved it. In 2008, Peru ran a $3.3 billion budget surplus.
And so, when troubles came, it was able to respond in textbook fashion. In December 2008, García announced a stimulus program, promising to boost government spending by $3.2 billion, and to take up to $10 billion in further measures. The total of $13 billion in promised stimulus doesn’t sound like much, but that’s equal to about 10 percent of Peru’s GDP.

4. New York Wins Again. Forbes has released a list of the top cities for singles. New York is – as in everything else – number one.

5. This strong, invisible and unacknowledged force. David Brooks (in a piece that Yglesias ridiculed, justly on some grounds) – manages to write an interesting meditation on the importance of the unborn to our society:

People live in a compact between the dead, the living and the unborn, and the value of the thought experiment is that it reminds us of the power posterity holds over our lives.

Bonus: This song came out months ago, but I just starting enjoying it recently, so here’s to sharing:

[Image by me.]

Categories
Financial Crisis

Theories of the Financial Crisis: Goldman Sachs Did It! (cont.)

[digg-reddit-me]To follow up on my initial piece: Joe Hagan in New York magazine addressed the various accusations and news stories about Goldman Sachs’ role in the economic crisis and its aftermath – and he had inside access to the top honchos at Goldman Sachs as they attempted damage control. Hagan seems to have gone into the piece fair-minded and, unlike Taibbi and other polemicists, tried to give the pro-Goldman side its due – but he still ended up summarizing the two takes on Goldman Sachs’s business model thus:

On Wall Street, there are two interpretations of this business model: Either the firm is so brilliant at making near-riskless bets that it continually attracts more clients, who don’t mind being used for the golden database if it means more profits for them—or it’s a giant casino in which the house has gamed the system by knowing every hand at the table and using that information to enrich itself at the expense of others.

Read Hagan’s whole piece – it’s quite good. It’s hard to see how these two models are different – except that on one hand, Goldman is seen as good for its clients; and in the other bad. Either way, for the market and country as a whole, what do they contribute? And how is it that a company can make so much money making “near-riskless bets”? In a real market, one couldn’t – because everyone else would be providing the same “near-riskless bets.” But Hagan provides an expanation – the presumption that Goldman Sachs uses its access to its clients portfolios and finances to become more knowledgeable about the market than almost any other participant. Which is why they saw the subprime mortgage fiasco coming and while still providing these mortgages, bet that they would lead to a disaster. Hagan quotes Peter Solomon – “chairman and founder of the investment bank Peter J. Solomon Company” – explaining how Goldman Sachs along with other Wall Street firms has an interest in creating unfree markets – all the better to profit from if one already has advantages:

The interest of the Street, dominated by Goldman Sachs, has been to have markets that are opaque, inefficient, and unregulated. And that’s been the policy for twenty years. That’s what the world is reacting to.

Hagan explains  Goldman Sachs is able to make money because it exploits the inefficiencies in the market – it profits not from free markets but from unfree ones. Hagan also quotes Joseph Stiglitz deriding the business model of Wall Street firms in general, and Goldman in particular:

“Much of their recent profits seemed to be derived from ‘trading,’ which typically means gambling—not lending,” says Joseph Stiglitz, the Nobel Prize–winning economist who teaches at Columbia University. “It is lending which is required if our economy is to be revived; it was gambling that got our financial system into trouble.”

Goldman Sachs’s outrageous recent success proves once again that it is a proud beneficiary of gambling and unfree markets – with the government taking any losses. No wonder people people are losing faith in the financial system.