If We Are Recovering, Thank Government, Don't Blame it
Like night follows day, free market ideologues and some just plain conservative diehards are now saying those who warned that unfettered financial speculation has led to economic crisis have, as will claim they told us all along, embarrassingly overreacted. The economy is already bounding back, they say, and all those fears about market instability and a worldwide collapse were nonsense. Worse, it was all just an excuse for government meddling on the part of the Left, for which we will all now pay the price in high interest rates and inflation.
Such commentary has been going on a while on CNBC, of course. But the establishment is now following up. On Friday, a regular Financial Times columnist had a remarkable piece, entitled, "Crisis? What Crisis? The market confounds the left."
You see, capitalism isn't failing. You've all not gotten your wish. Rather, all we needed was a little adjustment to help those who suffer the inevitable pains of creative destruction -- thankfully, he did not use the favored Schumpeter phrase -- which is the heart and soul of economic advance. Buck up. Expect such dislocations.
Here's the utter silliness -- let's be honest, outright irresponsibility -- of this argumentation. We've just had the largest worldwide government stimulus in history, and Philips in this piece -- and many others like him in other presentations -- makes no note of it. No mention whatsoever. They argue that the invisible hand did its job with no help from government. No aggressive Federal Reserve policy no Obama stimulus, no Chinese stimulus. Just good old market adjustments.
This is the sad consequence of success. If we are really nearing the bottom, of which I am hardly sure, some observers with axes to grind will forget how it happened. In fact, we learned lessons from the Great Depression and applied them. Capitalism, unfettered by proper regulation and limits, did fail. If the economy is reaching bottom, government intervention did indeed save the day.
And one last very important point. The cost to come in higher debt is not the result of government errors, which so many on the right are now arguing. Rather, it is the result of capitalistic excess that required radical government action in order to avoid major -- major!! -- catastrophe. Moreover, there is a very good chance we can absorb the debt and Fed Reserve creation without high inflation.
Hold on to your seats. We will now see and hear this argument about debt and government overreaction all the time. The people who truly understand the economy must speak up loudly and clearly so the American public understand what's really going on. I fear the Obama advisers will not fight it hard enough, and thereby become part of the problem.
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Sorry Jeff that is all a FAKE! Here is WHY:
Let's have "OFF-THE-BOOKS" Accounting for ALL Americans - ENRON STYLE like the Wall Street Banks get:
1. Have a car payment - don"t worry put it "OFF-THE-BOOKS" to hide it when you go to the Bank for a loan.
2. Have a Second Mortgage - put it "OFF-THE-BOOKS" to hide it when you go to the Bank.
3. Have some Credit Card Debt - Simple, put it "OFF-THE-BOOKS" to hide it when you go to the Bank.
4. Have some student loans - don"t worry put them "OFF-THE-BOOKS"
Also, like Banks can do lets allow All Americans to ignore "MARK-TO-MARKET!"
Your house is worth $125,000 but you paid $250,000 don"t worry with "Mark-To-Market" Neutered you can say whatever you want to about your home value and no one can refute you!
Now when you go in for a loan, simply declare the house is worth $300,000 and along with your clean "ON-THE-BOOKS Balance Sheet" with no visible other debts means you get money from the FED at 1% interest or maybe less!
Why can"t this world be true for ALL AMERICANS like it is for Wall Street?
We do not own Congress and they DO using ill-gotten FUNDS!
Are the Wall Street Banks really healthy? With "OFF-THE-BOOKS" accounting and "MARK-TO-MARKET" Neutered who knows what the truth is!
Zombie or Otherwise?
There is no recovery if the only group saved and left standing is Wall Street and 'too big to fail' corporations. There is very little recovery for the average American. No jobs, no financial security, no government support.
Its primarily Krugman who has posited the theory supported in this piece, that government intervention saved the day. Why would anyone listen to the same man that gave this advice, "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble" --Krugman (2002)
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html
I think that krugman's previous lack of foresight gives adaquate reason to discard his observations and advice regarding the current financial situation, especially as he gave the exact advice which led to the current crisis.
Moreever, the author does not present any evidence supporting his claim that captilism is failed. He merely states if we have reached the bottom its because of the stimulus, and if we haven't its because of a failure of capitalism, while ignoring the Federal Reserve and government policies that contributed to the collapse in the first place. Heads - I win, tails - you lose. This is by fair the weakest and most intellectually dishonest piece I have seen concerning the financial situation we are now faced with.
Capitalism allows failed businesses to fail. Government interdiction does just the opposite. By prolonging the demise of these companies all we are doing is throwing good money after bad.
Regulation of capitalism came about because it was needed and even better, it worked. Conservatives convinced themselves that markets and banks needed no controls and repealed the laws that had worked so well for so long. And we let them. The conservatives in many cases are still in office like John "I'm a de-regulator" McCain.Much like markets, politicians "unregulated" lead us to disaster.
I find it absolutely laughable that the "Big Government" cheerleaders scream for more regulation only when the existing regulation failed. When are you people going to wake up? With central planning, everything shifts from one’s own judgment about safety, wisdom and relative benefits of a behavior, to the discretion of government bureaucrats. The question then becomes “what can I get away with,” and there will always be advantages for those who can afford lawyers to find the loopholes. The result then is that bad behavior, that would QUICKLY FAIL under the free market, is propped up, protected and perpetuated, and sometimes good behavior is actually discouraged.
Regulation can actually benefit big business and corporate greed, while simultaneously killing small businesses that are the backbone of our now faltering economy. The other problem is the trust that people blindly put in regulations, and the moral hazard this creates. Too many people trust government regulators so completely that they abdicate their own common sense to these government bureaucrats. They trust that if something violates no law, it must be safe. Further regulation can only make things worse.
..."what can I get away with"... applies more to the CEOs than to anybody else. Why do you think the free market produced such a gap in income between the CEOs and average worker? Because, the CEOs are really worth 400 times more money than the average worker or because the CEOs knew how to get away with tons of money in unregulated market?
WAIT A MINUTE. First, regulation did not cause this problem. What happened was that lassez faire free market capitalists were put in charge of the agencies responsible for applying the existing regulation. Then said regulation was not enforced. Period.
Second, I don't think anyone is calling for MORE regulation, I think that what I've seen is a call for more effective regulation and for enforcing the regulations that already exist.
Really now? And did Angelo Mozilo of countrywide ask for your input re: giving mortgages to "anyone who has a pulse"? Did any of these banks, insurance companies etc. consult you about the decision to package subprime mortgages with prime mortgages when they creatd their very complicated derivatives? If your 401K ever recovers, you can thank government or chances are it would have been completely wiped out. The regulators failed...no doubt about it...which is why we need new regulations...not necessarily more regu;lations. New ones that call for accountability and regs that make it clesr the regulators will go down with the ship if this kind of meltdown happens again. Tell me Mr. Small government fan...are you one of those conservative cheerleaders who thinks the government should stay out of business but has the right to interfere in the very private matters of sexuality?
I give credit to the government for trying to turn the economy around. But now that the second wave of foreclosures are here now, it looks like they're going to have to try again.
If you think we are recovering ,you still have plenty of time to wake up.
No kidding Kungfubreath! This economy still has plenty of trouble build in. Wait until the hyperinflation smacks us in the face!
I have sincere doubts that hyperinflation is a threat at this point. Hyperinflation comes about when there is a great expansion in the monetary base without a corresponding increase in consumption.
The printing of excess cash would normally lead to inflationary pressure, but because banks aren't lending the money they're getting, overall monetary base is not expanding at all.
I have no doubt, at this point, that meaningful (and painful, to some) reform will happen quickly.
It can no longer be doubted, by anyone other than a small group of easily-bribed people (called "Senators" and "Congressmen" and "SEC Committee Members"), that the present situation represents a cavernous failure for all concerned ... and that neither the people of other countries nor the people of this country will permit it to continue.
We can look through the pages of ancient books ... the Talmud, the Torah, the Q'Oran, the Bible ... and time and time again we see the same: drastic condemnations of the selfsame practices we have witnessed, spoken from the mouths of the gods themselves. "Y'know, there must be a good reason for that, and it's high time that we learned it."
Yes, we have computers now. But human greed has not changed in five thousand years. Neither have legislators, I think, who are transparently willing to accept bribes while closing their eyes and ears to the entreaties of their people.
Do we have to "put up with this?" No.
Well, it would take a lot more to make capitalism fail than what just happened. Capitalism, by definition, is merely the private ownership of the means of production. There are no guarantees attached to that definition. Capitalism, by definition is neither better nor worth than any other economic system. If we let history be our guide it seems to be a lot better than most other attempts at the ownership question. But just because something is better does not make it "good" or even "good enough". Did American "short term, let the stock price be thy god" capitalism fail? Probably. The main problem we have with that is that we can't replace it. It's too ingrained in people's minds and it won't go away nearly as quickly as e.g. communism did, which was really the opposite of what most people believe in, deep, deep inside.
Kinda pessimistic, even for you. Cheer up. We have the internet tubes now, not just computers. And people are starting to actually use them to help themselves to history and thought and learning. And one thing is certain, they want to survive. At least most of them do, even if it means lightening up on the Tee Vee and beer.
You are correct on one point, we may be able to absorb all of this debt. But only if, IF, we are able to control spending, something liberals so far have been unwilling to do.
So, who balanced the budget and who spent it all?
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