Our Future

All political action aims either at preservation or change. Leo Strauss says something like that somewhere. As usual, he is right. I am tempted to think that all economic policy, whatever its pretensions, aims either taking wealth away from those who have it or making sure that those who have it keep it. In most cases, it's the latter.

Michael Barone has some essential reading at Real Clear Politics:

The template for the Obama Democrats' policies, the New Deal of the 1930s, was not designed to stimulate economic growth, but to freeze in place a tolerable but not dynamic status quo.

The New Deal's father, Franklin Roosevelt, believed that the era of economic growth was over, just as many contemporaries believed that technological progress was at an end (how far could you go beyond the radio and the refrigerator?). FDR, like his cousin Theodore, was an affluent heir who had contempt for men who built businesses and made money. They were "economic royalists" and "malefactors of great wealth" -- sentiments echoed by Barack Obama last week.

This is right, and it points to the essential limitation of economic policy. Political communities are composed of tribes, and tribes worry about who has what. They do not think in terms of who makes what, or who will make what in the future.

Machiavelli notes that innovators have as enemies all the partisans of the existing regime. They have as allies only dreamers and dreamers are not ordinarily prone to risk. For this reason, it is probably neither necessary nor possible to have an economic policy that promotes growth. The best that one can have is an economic policy that does not stand in the way of growth. The U.S. has had that for most of its history. Are we about to lose it?

Robert Samuelson is worried.

It is becoming clear that the Great Recession has left a deep and possibly lasting scar on the American psyche. From CEOs to ordinary families, we are a nation that is more cautious, more fearful and more risk-averse. This widespread and -- so far -- indestructible anxiety has hobbled the recovery and helps explain the slow pace of job creation. The economy's revival depends in part on risk-taking, but risk-taking is in eclipse.

The American economy has long been a tremendously efficient engine of job creation and technological progress because it has allowed innovators to flourish and established firms to perish. If you don't believe me, ask someone who invested in Movie Gallery while you are searching your Netflix Instance Watch menu. Or ask the IBM people who thought that the money in computers was in the hardware and not in Bill Gate's operating systems.

I don't think we are at the end of our run, but we might be. A lot of what Samuelson worries about turns on temporal psychology and there isn't a lot that Barack Obama or Congress can do about that. But governments can put the screws on future economic growth in order to save or try to save the privileges of those who benefitted from yesterday's regime.

The New York Daily News is worried about that.

The public pension time bomb that fiscal watchdogs and this page have warned about for years is now exploding - and ripping huge holes in government budgets across the state.

No municipality will sustain more damage than New York City, which next year faces a mind-boggling pension tab of $8.35 billion - a 19% increase in one year - at a time when Mayor Bloomberg and the City Council are forced to hack away at practically every other expenditure.

Public pensions are squeezing state governments from sea to shining sea. Obama's great stimulus plan didn't much stimulate anything, but it did a lot to shield public workers from the recent recession. The great peril we face right now is that government will clamp down on all the engines of economic growth in order to "to freeze in place a tolerable but not dynamic status quo." If that happens, we will really be what the Chinese think we are: a declining power. I would also note that the status quo will become a lot less tolerable for a lot of people.

Comments

[Donald Pay]

Who was really shielded froom the recession were the banksters. It always strikes that the Republicans always want to blame the victims, and reward the criminals.

[William]

Government is creating this risk-averse environment by eliminating risk for some (GM, AIG, et. al.) but not for others (Lehman).

We had long standing rules on investments - secured loans get paid first, followed by bonds, other loans, labor contracts, and finally stocks. Well the last 2 years have seen case after case where the elite rewrite the rule AFTER the investment, turning this over.

Every turn for the last two years has added burdens for the "greedy" investors: new EPA regulations, new labor regulations, higher taxes, more audits, changed rules on existing contracts. It isn't that we are more risk averse - it is that many new risks are added to each economic decision.

Investors are behaving rationally to the irrationality displayed by our government.

[Donald Pay]

So, we have William who thinks "change" is the problem. But if you really look at everything William says, it really isn't change that William and his ilk object to. What they object to is change that makes the investor class accept the risks associated with their investments. If the change is to socialize the costs of business onto the public (make regulation lax), William is a cheerleader. When it comes right down to it, William is risk averse, and so are the businesses that lobby for the lax rules changes William supports. Notice how we never heard a peep about all the change in regulatory environment when the corrupt Bush regime was changing regulations. William and the other sociaiists supports all the risks being taken by the public and zero risk being taken by investors. William is a socialist.

[William]

Donald,

If you never heard the "peep" (I thought it a rather bellowing yell) about the regulatory environment (not only during Bush JR, but LBJ, Nixon, Ford, Carter, Reagan, Bush SR, Clinton...) then you haven't been paying attention. (I've been on this train for awhile...) I do NOT trust centralized authority, removed from the people it supposedly represents. Never have, never will. Grand plans, run by "experts" ALWAYS turns out badly when attempted on a national scale.

WHAT (other that blind ideology) would make you thing that I support a regulatory regime that provides a barrier of entry to new business to the benefit of political corporatism?

For some reason, you seem to feel that human beings in positions of governmental authority are blessed with "super powers" that will be channeled for the good of mankind if we just let them RULE US. Somehow, when faced by national challenges, these "super-humans" will use "their powers for good, not evil"...

I believe, that markets, flawed as they may be, are the most freedom enabling force known to mankind.

The Obama administration leans toward a "Kleptocracy" that is nullifying the rule of law to award favors to it's supporters, it's undermining market certainty with "ad hoc" changes in regulatory authority and replacing the legislative process through the expansion of regulatory authority beyond the oversight of Congress. Unions taking precedence over secured creditors? Do you seriously want to justify this?

Risk takers, the lifeblood of innovation and commercial success are sitting on the sidelines because they have NO IDEA what this administration may do to PUNISH them for success.

Obama has essentially "baked in the cake" an economic uncertainty that will prevent risk takers from investing in the United States". Even with a Republican Congress, enough uncertainty and fear of Obama's "real motives" will stifle economic growth during the remainder of his term.

[Jimi]

Donald says, "Notice how we never heard a peep about all the change in regulatory environment when the corrupt Bush regime was changing regulations. William and the other sociaiists supports all the risks being taken by the public and zero risk being taken by investors. William is a socialist."

Ha!...Nice Try....But No!

Donald says, "If the change is to socialize the costs of business onto the public (make regulation lax)."

The Bush Administration pushed for more regulation of Freddie and Fannie, and warned that they had taken on more risk than they could handle, which has a cause and effect response thorughout the economy.

Of course, it was the Democratic Politicians of the left that fought against it, because their agenda was to accomplish exactly what you are accusing William of. They wanted to socilaize the risk. Each side apparently has their own definition of "regulation", but once the working definition is established, it becomes apparent who the "Socilaists" are, and that would the people you have consistantly supported.

[Donald Pay]

The real problem in the mortgage meltdown was not Fannie and Freddie, which did have some regulatory oversight. The real problem was the private subprime mortgage market, which had absolutely zero regulatory oversight, and which had displaced Fannie and Freddie as the largest lender to moderate income homeowners.

From the Federal Reserve data:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

Read more: http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz189ULGmsi

[William]

Donald, you know full well that regardless of who made the loans, it was Federal policy that was encouraging the loans. Lenders were punished if they didn't make enough loans to sub-prime applicants.

[Donald Pay]

Sorry, William, you have your facts wrong. The private mortgage market found it very profitable to sell first time home buyers risky loans, even if they qualified for less risky loans. Higher profits were generated by shoving these loans on first time home buyers and in refinancing packages. Not only that but more profit yet could be obtained through bundling low risk with high risk loans. Securitization of mortgage products and selling derivitive products on the underlying securitized products counted on a bundling low risk and high risk mortgages. If they couldn't generate high risk mortgages the amount of profit from securitization and derivatives would be less.

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