from Peter Radford
Some quick thoughts for a summer weekend:
I am reading Richard Posner’s book: “The Crisis of Capitalist Democracy”. He and I do not agree on much, if anything, but the book is s decent read and gives a perspective worth knowing. But I could not avoid choking on my coffee when he describes the activities and policy decisions way back during the height of the crisis. Various actions were considered, most dismissed as inappropriate. My favorite, nationalization, was knocked down early. Why? Let Posner tell us:
“That was a bad idea, and with few exceptions was rejected. Controlled by government, the banking industry would become politicized, and probably incompetently managed to boot …”
There’s not much need to go on. The old idea that an industry under government control is automatically politicized is trotted out every time a politician wants to avoid losing influence. Especially here in the US where the political donations flood in from industry, and where lobbyists write legislation so as to save their bought and paid for Senators and Congress-folks the bother. Yes that happens. A case in point being the change in the bankruptcy laws passed by the Bush regime. You see, it’s not as if the banking industry isn’t political. It is. Wildly so. What we have to avoid, apparently, is that it gets politicized. There’s a big difference.
Posner’s book title gives it away.
It’s OK for an industry to be political. That’s just an expression of free speech. And, as the ever perceptive Adam Smith pointed out a long time ago, capitalists have a tendency to want to twist the laws their way, which is why he warned us about them hanging around in groups. They want to rig the game. Using freedom of speech, mind you. It is another matter altogether for democratically elected politicians to twist things in favor of the voters. That’s called politicization. It’s not right. So rigging the game for capitalists is good. Rigging the game for everyone else is bad.
Then there’s the second part of Posner’s sentence. The bit about the incompetency of government management. I assume he’s having a little giggle with this one. I mean, Richard, incompetency is endemic in banking. That’s how they managed to screw up so royally. And they haven’t exactly improved. The litany of foul-ups is way too long to go over here. Every week we learn of another. Let’s just say that when JP Morgan Chase is held up a paragon of bank management virtue and ‘only’ manages to lose about $6 billion on a shady, complex, and ill-understood deal, we should all reconsider what good management is. Because banks wouldn’t know. Or at least the big banks wouldn’t. It is screamingly funny, bordering on the absurd, to claim that we need to leave the failed big banks in the private sector, rather than bring them into the public sector, because the latter is the epicenter of incompetent management. They constantly mess things up despite all the subsidies we throw them. Just imagine what chaos they would cause if we didn’t subsidize them. Suffice to say that the words bank management deserve legendary oxymoronic status alongside bureaucratic efficiency and military intelligence.
I overheard two instances of misinformation that made my blood curdle.
One was when a person, in reference to the Euro crisis, put that blame for it squarely on the overly indulgent and presumably unaffordable social programs that ‘people over there vote for themselves’. Ugh. How this story makes its way around I have no idea. Yes, Greece is a case of rotten budgeting and a nation paying itself goodies with cash it doesn’t have, and has no intention of having. But the conversation wasn’t about Greece. It was about Spain. I have said this before, but in view of the continued misrepresentation of the facts I need to say it again: Spain wasn’t brought low by budgetary error. It was brought low by a real estate bubble with its roots in the inflows of capital consequent to the creation of the Euro. The Euro gave the illusion of a single economy, capital flowed to the margins in search of higher returns. The inflow allowed local wages to rise more rapidly than in the ‘core’ countries where the capital came from. This created an imbalance in competition, that, when the bubble burst, left the margins high and dry. Up a creek, so to speak, with no paddle. In this case the paddle being the chance to devalue a currency. The only way out is for the margins to deflate the hard and nasty way. Hence the problems we are seeing. This has nothing to do with social programs in the build up to the crisis. Nothing.
But the misinformation echoes about doing harm and reinforcing the narrative that we, in the US, need to tackle our ‘equally unaffordable’ social programs if we want to avoid being Spain. Of course the people repeating this story tend to be those who are predisposed to getting rid of social programs, and/or those living off of the bonds that have been expensively preserved at face value via the slashing of jobs and government spending everywhere.
Those that have want more and see a chance to grab it.
The second overheard conversation contained the wrongheaded but popular story that US businesses are not spending their piles of cash because of uncertainty surrounding their future tax status. This, as my father was wont to say, is utter tosh. It is a Republican meme, not a serious analytical position. In every study undertaken – that I am aware of – since the onset of crisis the resounding reason for business retrenchment and hesitation in investment is not uncertainty to do with taxes. It is uncertainty to do with lack of sales. We have a demand problem. No right minded business is going to build a new factory when it cannot yet sell all the output from its existing factories. That has nothing to do with taxes. It has everything to do with demand. This is not difficult to get to grips with, but it isn’t a good stick to beat Obama with. Hence the preference in some circles for the taxes canard.
Worse yet. The teller of the story proclaimed himself to be a ‘moderate’, who was enthused about Romney’s business experience. This experience will, he argued, enable him to make decisions that get us back to work. Quite how I think was left vague. This is probably because Romney has been, hitherto, the very definition of a policy fog. There seems to be a dense damp shroud hanging over every policy suggestion he supports. So dense that we cannot see it all. Only when it emerges will we know. Up until then the shroud protects Romney from having to be specific. About anything. But there is no shroud over Obama. He simply creates massive uncertainty, drains business confidence, and is therefore stopping, singlehandedly, the US economy from powering ahead on a giant wave of investment.
That much of that investment appears likely to be headed towards China and other destinations beyond our borders doesn’t worry a Romney supporter. Outsourcing, offshoring, all to the good. No?
What’s my lesson learned?
That no one should overhear such conversations. It’s maddening to listen to. And it says a lot about our electorate.
I should stick to reading. Not Posner though.