The Case Against Crony Capitalism

As OWS themselves become increasingly grungy and irrelevant, the debate they helped launch is developing into something beyond their vision. They posed the question but defined it poorly. The problem is not the free market; it is the corruption of the free market in the form of crony capitalism. It is the unholy intersection of Washington and Wall Street that have provoked the problems that ostensibly perturb the protesters and actually do trouble most Americans. So let’s take the issue.

Most countries of the world have become more unequal due to globalization. Generally speaking, those with skills or talents that sell well worldwide have reaped benefits. But the same worldwide competition has devalued those who skills are easily duplicated in lower-cost places. The premium for education has increased. Inequality itself is not a problem, but the perception or reality of lack of mobility is the trouble.

Americans celebrate inequality of results when those results are based on merit or effort AND when they believe opportunities are available to all. They know it is not fair to treat unequal talent or effort equally. They strongly object when they feel the system is rigged and that political influence queers the results. In the market economy, people tend to move up and down the income latter during their lifetimes. A Tax Journal analysis of individual income tax returns found that 58% in the lowest income quintile in 1996 had moved to a higher income segment by 2005. reference.

Enter crony capitalism. This is the pernicious system that sits at the confluence of political and economic interests, where firms and individuals prosper or fail based on who they know rather than what they do. When the boundaries between political and business power are blurred, you know you have a problem. Business and government should not be competitors, but neither should they be run by the same people, either at the same time or in serial order.

I have been reading "Confidence Men" about the Obama Administration's response to the financial crisis. They chose to maintain and actually strengthen the link between Wall Street and Washington. Firms like Goldman-Sacks increasingly supplied the brain trust to Administrations, especially to the Clinton and Obama Administrations. They are not corrupt in the sense of stealing money or overtly allowing their friends to rip off government money. But they bring with them a mindset that protects the big Wall Street firms and their outsized bonuses.

Meanwhile, other government entitlement programs designed to ameliorate inequality actually exacerbate it. In 1979, for example, households in the lowest income quintile received 54% of all transfer payments. In 2007, those households received just 36%.
So the problem is with crony capitalism. I think we can all agree that it is wrong to exercise political power in order to benefit specific private individuals. And it is the sign of a sick system when entrepreneurs need to stop in the Halls of Congress to found or defend their businesses. The alliance between government, Wall Street & activists helped crash our economy in 2008. Yet those who did the deed got away unscathed. Many got bonuses. We should be enraged but let's get at the right villains and change the right system.

As Rhinhold says next door, the OWS seem to be demanding more of what got us all into trouble in ther first place. They really don't have the right focus, but they have the right general idea.

Posted by Christine & John at November 28, 2011 8:04 PM
Comments
Comment #332506

Let’s add to this politicians who enter office as moderate income and after 30 years in office have bank accounts worth millions. You scratch my back and I’ll scratch yours. The politicians pass the corporate and business laws and as a result of insider trading, are able to become rich. If we did these things, we would go to prison. So, are the decisions made by politicians (regulations) designed to help the country, or to enrich themselves?

Posted by: Mike at November 28, 2011 11:13 PM
Comment #332515

There are some that have been saying this for decades…

http://www.lp.org/news/press-releases/libertarians-to-occupiers-crony-capitalism-is-the-problem

“It’s true that 99% of Americans do not enjoy the special benefits of crony capitalism. Crony capitalism is very different from real capitalism. In crony capitalism, government hands out special favors and protections to politically well-connected businesses.

“The TARP bailouts, Solyndra, and the military-industrial complex are all facets of crony capitalism.

“Libertarians love free markets and hate crony capitalism.

“Unfortunately, hypocritical Republican politicians have taught a lot of Americans to think that ‘free markets’ means freedom for government and big business to engage in crony capitalism.

“That’s not what free markets are. A free market is where the government leaves businesses alone, does not attempt to pick winners and losers, does not stifle competition, does not hand out corporate welfare, and does not absolve businesses of liability for their actions. Most of our economy today does not resemble a free market at all.

“It’s unfortunate that so many businesses today go to the government begging for handouts and special treatment. I wish they wouldn’t. But the real problem is the politicians who choose to give those favors to them, at everyone else’s expense.

“I hope the Occupy protesters will start to direct their anger away from Wall Street and big businesses, and toward our government, which has done so much to destroy free markets and entrench crony capitalism.”

Posted by: Rhinehold at November 29, 2011 7:36 AM
Comment #332522
As OWS themselves become increasingly grungy and irrelevant, the debate they helped launch is developing into something beyond their vision.

As you and others jump onto the OWS bandwagon C&J you have the chutzpah to tell us they are becoming increasingly grungy and irrelevant?

How come it is you guys always blame the cops for the bank getting robbed. Why not the robbers as the OWS people seem to be doing.

C&J you are wrong on the income inequality issue not being the problem it is the reason for the lack of mobility.

What is the difference between conservative ideology and crony capitalism? Conservatism causes crony capitalism when practiced.

Posted by: j2t2 at November 29, 2011 2:27 PM
Comment #332523

A free market cannot exist in an industrialized society. It will eventually and inevitably develop into a set of oligopolies. By its very nature, a free market will concentrate wealth in the hands of a small number of corporations and/or individuals, eventually discouraging competition and innovation. It’s similar to a poker game. Played long enough, one player will eventually capture most of the chips. Through labor, other players will continue bringing small numbers of chips into play for their antes, but once one player builds up a large enough stack, it can be used to crush the others.

The solution is simple yet paradoxical. A free market will only function when government intervenes, through regulations, oversight, breaking trusts and oligopolies and monopolies, and through redistribution of the chips.

But how to form a government of “we the people” that can regulate the oversight of the ‘free market’? To the greatest extent possible, the government needs to be free from the influence of money. To avoid the negative influences of the free market cronies and oligopolies, the politicians need to be insulated from bribery. How?

First, publicly funded elections. Second, repealing constitutional travesties such as the Citizens United decision. Third, oveturn the legal concept that money is a form of free speech.

J2t2,
You hit the nail on the head. When practiced, conservatism causes crony capitalism.

Posted by: phx8 at November 29, 2011 3:04 PM
Comment #332525

j2t2

Crony capitalism has been the hallmark of liberal policies. The Obama administration created whole new venues for it. They believe in industrial policy, i.e. government planning economic directions. This easily degenerates into crony capitalism.

Excellent examples of crony capitalism are Fannie, Freddie and Solyndra. They socialize risks and privatize profit.

Re OWS - even a broken clock is right twice a day and even a blind squirrel sometimes finds a nut. They identified a problem but failed to understand the causes or propose viable solutions. Time for them to return to bridges and let competent adults take it from here.

phx8

Yours is the Marxist critique of capitalism that should have been left in the dustbin of history. In fact, the market has not done that over the course of the last couple centuries, despite constant predictions that it would.

Re regulation - there is probably not one serious person who wants to get rid of all regulation. The rule of law is necessary for the functioning of a market economy.

But regulations are tools that must be used carefully. Regulations themselves can also become the tools of crony capitalism, as regulations and rules protect existing operators and prevent competition from new players.


Posted by: C&J at November 29, 2011 4:47 PM
Comment #332527

C&J,
The word ‘Marxist’ is usually used as a pejorative by conservatives; that, along with other words such as ‘socialism’ are shorthand insults used as a substitute for thinking. Marx was right about some things, wrong about many others.

As a result of crony capitalism, among other things, capitalism nearly ended in the 1930’s. It nearly ended again in 2007-09. Yes, it was that bad, and we still haven’t come to terms with just how bad the credit crunch and the failure of the financial sector truly turned out to be. Only massive government intervention saved the system.

The Great Depression resulted in a hybrid form of capitalism and socialism, with varying degrees of centralized planning. The more pragmatic the approach, the more successful the model. Economic models ranged from one ideological extreme, the USSR, to another, the US. Germany, Italy, Japan, and other successful economies developed models in between the two ideological extremes.

Conservatives want to abolish entire departments of the government, including the EPA, Energy, and… I forget the third… but the idea has been brought up repeatedly by many conservative presidential candidates.

That is the nature of conservatism today.

Posted by: phx8 at November 29, 2011 5:21 PM
Comment #332530

Phx7

Marx is a pejorative for me too, but I was not using it as an insult in this case. The Marxist analysis of the free market is that it is increasingly concentrated in the hands of fewer and fewer people until the misery of the proletariat becomes so great that a violent revolution follows, where the streets run red with blood. Marx thought this was science and so did many of his followers.

Your analysis, perhaps minus the blood part, sounded a lot like this.

I hate Marx. I understand that I am not rational about this, but part of my family is Polish and we suffered mightily from the totalitarian cousins Marxism and Nazism. I don’t make a distinction. Both left my relatives dead, enslaved them or put them in concentration camps, sometimes all three in inverse order. The Nazis killed faster, but the communists kept at it for a longer time, probably killing more in total.

Both systems were right about some specifics, but as a whole was rotten and pernicious.

It is also not true that the USSR and the US were on the extremes, while others were in between. Rather, countries like the U.S. and Sweden were actually much closer to each other than either was to the USSR. The USSR could be grouped with Nazi Germany, Mao’s China. I see the universe of systems as multidimensional w/o extremes.

I do not use socialism as a pejorative term. It depends on how it is applied. Locally or in small polities socialism can work well. My home city of Milwaukee had socialist mayors for many years. The built sewers and parks. Socialism in a larger country is dangerous because it concentrates power. But there is a big difference between democratic socialism, which tends to be self-limiting and revolutionary socialism that gets lots of people killed.

Re Marx - Marx was hopelessly out of touch even in his own time. He was a good story teller, however. In that way, BTW, he was much like Hitler. There are good things in Marx, but generally what is good is not original with him and what is original with Marx is not good. Marx might has been as “harmless” as Herbert Spenser if not for the real villein in our story, Lenin. He was the truly evil man who made Marx operational. The 20th Century was largely a struggle between freedom and the various state-centered revolutionary socialist religions, communists and Nazis.

Posted by: C&J at November 29, 2011 6:05 PM
Comment #332532

C&J,
I was not referring to you in re the usage of anything to do with Marx as a pejorative. When other conservatives use the term ‘Marxist,’ they probably mean something more like Leninism or Stalinist economic philosophy. They tend to confuse ‘big government’ with centralized planning, and progressive taxation as an example of socialism. It makes it nearly impossible to toss around ideas of political philosophy.

I’ve said it before, and I’ll say it again. It’s not the size of government, but what the government does. Small governments can be evil, large governments can be benevolent, and vice versa.

Posted by: phx8 at November 29, 2011 7:40 PM
Comment #332533

phx8

Size matters. At some point any organization becomes dysfunctional.

You are right to an extent about the size, however. I should probably stick to the term “limited” government, i.e. a government that effectively carries out its core functions but does not presume to intrude into most areas of society.

Posted by: C&J at November 29, 2011 8:13 PM
Comment #332535
Crony capitalism has been the hallmark of liberal policies.

Right C&J until Obama there was no crony capitalism. The good ol’ boy network didn’t exist. Darth Vader.. er umm I mean Dick Cheney didn’t hand out no bid contracts to his old firm Halliburton by the handfuls.

Excellent examples of crony capitalism are Fannie, Freddie and Solyndra. They socialize risks and privatize profit.

Bit C&J it was your boy Reagan that started the socialization of corporate risk with the S&L bailouts remember. It is conservative ideology.

They identified a problem but failed to understand the causes or propose viable solutions.

Seems to me C&J you have misidentified the problem as being crony capitalism. Crony capitalism is a result of conservative leadership and ideology. Income inequality is the result of deregulation of the “free market”


Time for them to return to bridges and let competent adults take it from here.

The “competent adults” were the ones that got us into this C&J what are they going to do, go to war and cut taxes or more unfunded medicare reform?

You sound like your parents C&J with your constant insults about the young people manning the OWS sites.

Posted by: j2t2 at November 29, 2011 8:47 PM
Comment #332540

One of the big problems here is that people are understanding the term “Free Market” in a way it wasn’t originally supposed to be understood. When I was a child, we didn’t take the term “free” with such dogmatic inflexibility. It was well understood that the government should intervene sometimes, and that not every price would be the pure result of market activity. The outcomes of the market were not put on top of a pedestal and worshipped.

Worse yet, though, you talk about “crony capitalism” as if the last thirty years didn’t happen. Your people made one change after another that effectively gutted regulation, and let companies on Wall Street engage in lucrative fields that brought with them system-endangering risk. You essentially have said, “If it profits them, it can’t be bad!”

Your people practically built a system, the K street project, in order to bring the Lobbyists in, and increase their influence. You corrupted so many aspects of our government, it’s probably going to take decades to undo the damage.

Ah, but one company fails, in part because it’s not given an additional loan when it comes begging, and we’re the crony capitalists.

It seems to me that whatever screwup your side did, you seek to make people people oblivious about it, and then either project or scapegoat that flaw onto us. That’s not to say that some of our people don’t deserve some criticism, having bought into that corrupt culture, but getting your side to admit your ideas were bad is like pulling teeth, and meanwhile, you seem intent on falsely convincing people that they don’t have a better choice than that.

Posted by: Stephen Daugherty at November 30, 2011 7:33 AM
Comment #332546


C&J, Freddie, Solyndra? It is good to see you addressing crony capitalism in a bipartisan manner. Not!

J2t2, Reagan?

The first bailout of the banking industry was initiated by Secretary of the Treasury, Alexander Hamilton, in 1791. Right after the federal government assumed responsibility for the debt incurred by the states during the Revolutionary War.

“Conservatism causes crony capitalism when practiced.”

“J2t2,
You hit the nail on the head.”

Enter: the DNC and the moving of the Democratic Party to the right. Clinton signs The Great Sucking Sound Treaty and trashes Sherman by signing GLB. Obama surpasses Bush to become the greatest recipient of crony capitalist dollars.

OWS events have taken place in cities around the globe to no effect.

Wall Street soars as central banks agree to end credit crunch.

Posted by: jlw at November 30, 2011 2:59 PM
Comment #332562
C&J you are wrong on the income inequality issue not being the problem it is the reason for the lack of mobility.

Hmmm

I hate to be the bearer of good news just as the Occupy Wall Street movement is gathering steam, but protesters can stop worrying about rising inequality and go home. New evidence suggests that the super-rich got hit by the recession much harder than the rest of the 99 percent. This doesn’t mean that they will be filing for food stamps any time soon. But it does mean that, contrary to progressive mythology, natural market forces might be restoring some semblance of cosmic justice.

New data from the University of Chicago’s Steven Kaplan shows that, despite government bailouts, in 2008 and 2009 the adjusted gross income of the top 1 percent—a disproportionate number of whom work in the financial industry—fell to 1997 levels. All in all, the fat cats took a 20 percent income hit, compared with the 7 percent lower earners suffered in the aggregate. Few economists believe that the super-rich will ever reclaim all their pre-bubble earnings.

But if the wealthy are not as well off as they once were, the middle classes were never as poorly off as liberal pundits claim. Indeed, their case that income disparity is growing rests on the notion that national productivity grew four times faster (1.95 percent per year) than median household income (0.49 percent per year) between 1979 and 2007. The remaining 1.46 percent in annual productivity gains, they postulate, must have gone straight into the Swiss bank accounts of the rich.

But there are enough holes in this argument for a Zuccotti Park cleanup crew to drive a fleet of garbage trucks through. For starters, Northwestern University economist Robert Gordon has pointed out that this analysis is based on the common price index, a number that both overstates the growth in real income among the haves and understates it for the have-nots. Indeed, globalization and big-box shopping outlets such as Walmart—the very forces that liberals blame for inequality—have vastly reduced prices for modest-income folks who shop at such venues. But the Paris Hiltons of the world who patronize stores like Versace and Roberto Cavalli haven’t benefited as much, because these businesses are almost completely immune to competitive price pressures. Once the productivity data is adjusted for such factors, Gordon found, the gap between the rich and poor grew only by 0.16 percent per year—or one-tenth of the 1.46 percent that liberals tout.

But none of this says anything about what Cowen has dubbed the “personal well-being gap”—the only gap that matters. Indeed, this gap, which measures the difference between basic goods that average people and gazillionaires like Bill Gates can afford, has been steadily closing. Gates might have personal physicians, private jets, and multiple computers. But thanks to technology-driven increases in productivity, almost everyone can afford bypass surgery, vacations and Internet access.

In America, well-being mobility, in a sense, comes to you without you having to go it. You don’t have to be income-mobile to improve your quality of life. But that doesn’t mean that Americans don’t have income mobility. Far from it. Odds are, anyone who makes basically sensible life choices such as going to college, getting and staying married (preferably to a working spouse), and working full-time will find themselves in the top income quintile in their peak earning years.

This allows more Americans to be “threshold earners”: After they reach a certain income level, they can trade more work for greater leisure, a luxury that only the filthy rich enjoy in poor countries. Were this not the case, the ranks of the Zuccotti Park protesters might have been thinner by about a third. A recent survey by business analyst Harrison Schultz and Baruch College professor Hector Cordero-Guzman found that about 30 percent of them had individual incomes between $50,000 and $150,000-plus (about the same percentage as are under- and unemployed). These people have obviously decided that they have enough money, and that they’d rather use their spare time protesting than working.

Surplus wealth, then, is driving the Occupy Wall Street movement as much as the alleged growth of income inequality. Somewhere, Joseph Schumpeter, the political economist who predicted that the very wealth that capitalism generates will undermine the intellectual case for capitalism’s existence, must be saying, “I told you so.”


http://reason.com/archives/2011/11/01/dont-mind-the-gap

Posted by: Rhinehold at December 1, 2011 1:56 AM
Comment #332565

Rhinehold how misleading, this Reason magazine article. Of course the rich took a hit those 2 years with the financial meltdown but they have recovered unlike those in the middle class.

Are all these Reason articles so misleading? Perhaps it should be called “Excuse” instead of “Reason”.

Posted by: j2t2 at December 1, 2011 8:37 AM
Comment #332571
As OWS themselves become increasingly grungy and irrelevant

Jack (or C&J) thinks that if they just keep repeating this lie it’ll somehow start to sound like truth. Despite such despicable efforts to discredit this movement their lies ring so very hollow — and the vast majority of Americans seem to already know this.

That’s because the truth of the matter is this:
400 of the richest Americans now own wealth that is equivalent to that of half of the American population as a whole. Thousands of Americans have been and are losing their jobs and their homes, while corporations have been and are being bailed out with billions of dollars by our government. American government has proven itself to be completely unwilling to prosecute rampant corruption and theft, and confront gross inequality or widespread and growing poverty and clearly has absolutely no answers at all for the many struggling people who these politicians are so richly paid and compensated in order to “represent.”

These facts are what gave birth to the Occupy Wall Street movement and it is not going to go away just because some wealthy, powerful people and their hired violent goon squads desperately wish it would. These truths are in the process of ushering in brand new political ideas as well as new political language — and this completely terrifies the wealthy and the politicians they own, along with the status quo supporters who follow like sheep behind both mainstream political parties.

Case in point:
GOP message man “frightened to death” of Occupy
Frank Luntz frets the movement is damaging Americans’ perceptions of capitalism

LOL. What a hilarious headline that is! Luntz, as usual, is more worried about the “perceptions of capitalism”! As opposed to being frightened, worried or concerned about the REALITY of American capitalism. How it has utterly failed and made destitute so many people because it was ALLOWED to morph into a Plutocratic Oligarchy — Capitalism without any Morality or Social Conscience. And the way it morphed was through the use of the blatant lies and trickery crafted by Luntz and others just like him. Those who only want the greedy, immoral status quo to be able to remain permanently undisturbed. Others such as Jack (or C&J).

These people may not realize it, but those who have been relentlessly attacking OWS sound like delusional old farts who are desperately trying not to notice that the tide has turned, and will no longer be running in their favor.
Indeed, because the balance has now shifted so dramatically the time where the “perceptions of capitalism” in America (and worldwide) only needed to be manipulated and controlled in order to continue to favor and monetarily benefit the wealthy status quo are now well and truly OVER. Because the Reality of capitalism in America (and worldwide) is simply too great, has adversely affected far too many people, and can no longer be ignored or lied about so glibly.

There is nothing irrelevant at all about the OWS movement. Instead, it is the inevitable result of greedy, wealthy, immoral people who actually thought that trying to hide and control the “perception” of what they were actually doing would always be more important than the Reality of what they were doing: relentlessly cheating, stealing from, and seriously harming and killing other people.

Just watch as OWS explodes and uncovers all the empty attempts of the status quo to try to keep using lies to control the “perception of capitalism.” Reality is more powerful and unstoppable. Reality is why the OWS movement is the future. Our Reality will Occupy Everywhere.
You’ll see.

Posted by: Adrienne at December 1, 2011 3:17 PM
Comment #332577

Adrienne

As I wrote, the OWS focused on the right problem, but misidentified the causes and the solutions. If you oppose crony capitalism, you need to oppose the unholy alliance between big businesses and big government. That means we don’t extend them by creating new opportunities for their collusion.

Re OWS - Let’s see how long they keep it up before annoying the crap out of the 99%. Most of the OWS protests are in cities controlled by Democrats and/or liberals. IF/when the cops move it, it is Democratic mayors who sent them in a majority of the cases. So it is sort of out of conservative hands.

j2t2

There has always been crony capitalism. The crony part existed before the capitalism part, BTW. In ancient and medieval societies all enterprise was owned or controlled by government to the extent that technologies and organization allowed. Governments granted monopolies or rights to do business.

But Obama has expanded the opportunities for crony capitalism. BTW, Obama does not do this personally. He creates conditions where it can happen. Cheney also did not hand out contracts.

Re S&L and other bailouts - I have said many times that government needs to guarantee the financial system. That does not mean they have to guarantee the profits. It is wrong when the same guys who ruin the business make money from it. It is wrong when Reagan, Bush or Obama is in office. It happens. It happens more now.

Re sounding like my parents - I suppose so. They criticized the hippies and didn’t like the weirdos I hung around with and sort of was back then. They were right for the most part.

Stephen

If you were a kid during the 1970s, you witnessed to collapse of the post-war system and the crashing of the liberal ideas of the 1970s. Reagan did not smash a functioning system. He picked up the pieces of one that had fallen apart. BTW - for all his faults, Carter began some of the reforms that became the “Reagan revolution”

Posted by: C&J at December 1, 2011 5:48 PM
Comment #332599
But Obama has expanded the opportunities for crony capitalism. BTW, Obama does not do this personally. He creates conditions where it can happen.

What exactly has he done that hasn’t been done under GWB and Cheney C&J?

Cheney also did not hand out contracts.
Perhaps not personally C&J but he is the Mr. Crony Capitalism poster boy.

C&J, It was the collapse of the global economic system we saw in the 70’s. The run on gold and dollars in the late 50’s and early 60’s led to the Nixon shock,in a nutshell. The 70’s also saw the rise of OPEC. These 2 items continued the inflation on the ‘60’s.

Reagan and his trickle on economics did the long term damage to this country and led us to where we are today. 1929 redux.

Your right about Carter, he did more in 4 years than Reagan did in 8 to make the country a better place. Reagan ushered in the return to the same conservatism that took us to the brink in the ‘20’s.

Posted by: j2t2 at December 2, 2011 12:46 PM
Comment #332617

j2t2

What Obama did to increase opportunity for crony capitalism is to increase government spending on a variety of fronts and increase the scope of government “investment” in private concerns.

Re the 1920s

That was a good decade in general. The prosperity of the 20s did not cause the collapse of the 30s. Scholars still disagree about the causes of the depression. Keynes himself predicted that the Treaty of Versailles with its unpayable debts placed on Germany was unsustainable. The Fed did not expand the money supply when it contracted. Fascists/communists came to power in Europe. And then to all this, extra government spending, first by Hoover and then more massively by Roosevelt, distorted the economy and made recovery more difficult.

Re the collapse of the 1960s/70s. Johnson’s Great Society was also a big contributor. We can discuss the precise causes, but clearly the idea that Reagan wrecked a working systems simply ignores chronology.

Posted by: C&J at December 2, 2011 6:32 PM
Comment #332623

I find it interesting that Obama is to be absolved of so many things because he had a single house run by republicans to contend with, but Reagan is the purveyor of all evil with both houses being controlled by democrats and during the collapse of 2008 Bush was contending with a democratic controlled house and seante.

Seems to me that democrats are admitting they are weak and unable to lead…

Posted by: Rhinehold at December 2, 2011 7:16 PM
Comment #332624
Re the 1920s That was a good decade in general. The prosperity of the 20s did not cause the collapse of the 30s.

Just like ‘00’s were a good decade in general well until the bottom dropped out as it did in ‘29. Private sector debt was a factor both times, coincidence? The parallels between ‘29 and ‘08 leaves one top wonder C&J. Lack of regulations, wild speculation, and so on. The revisionist that would tell us it was the new deal that caused/prolonged the great depression are the same ones that tell us cutting taxes on the rich will create jobs this time around.


Seems to me that democrats are admitting they are weak and unable to lead…

They, the Congress, are weak in that they usually need a 2/3rd’s majority Rhinehold. They are weak in that they try to reach a consensus on issues with the repubs who would rather see the government shutdown that to see it working.

Posted by: j2t2 at December 2, 2011 8:42 PM
Comment #332627

j2t2

There was no shortage of regulation in 2008. And the proximate cause of the collapse was weakness in the sub-prime sector, which was essentially controlled by government mandates.

The prosperity of the 1920s did not cause the crash. There were lots of reasons for the collapse, as I mentioned. Just as the prosperity of the 00 did not cause the collapse of 2008. Of course, there is such a thing as a business cycle, so we cannot have unbroken good times. We did have good times from 1982-2008, with only minor downturns. That was a good run. We should try to figure out how to get that back.

Re cutting taxes, it depends on how you do it. I believe in across the board tax cuts (i.e. not just for the rich) but also targeted toward investment. However, I am not a great believer in Keynesian stimulus. If that worked, Obama’s stimulus would have worked.

Posted by: C&J at December 2, 2011 9:24 PM
Comment #332631
There was no shortage of regulation in 2008. And the proximate cause of the collapse was weakness in the sub-prime sector, which was essentially controlled by government mandates.

There were plenty of regulations in 2008 C&J I will give you that. Unfortunately the regulations from the new deal Glass Steagall act, put in place to stop banks from getting to big to fail were AWOL. Canada had the tougher regulations and didn’t have the problems we did, which tends to prove this point.

Lack of regulation that would have kept the CDO’s etc. from becoming such an easy gamble for the banks, rating houses and AIG were non existent. The cause of the financial meltdown were the derivatives cooked up by Wall street,C&J. They worked so well for the banks that the banks had to go hunting for people to loan to, hence the sub prime loans. The sub prime loans were a result of the CDO’s C&J without them the sub prime loans would have not happened.


We can spend all of our time blaming the government but then we will find ourselves right back in the same crisis in a few years. In fact that is part of the problem, ideology that is inflexible when it comes to economics. The government mandate nonsense is what I an referring to C&J. There is plenty of blame to go around but this rigid ideology of conservatives only clouds the issue.

The fact is Greenspan and Capitalism is to blame. We were led to believe in the magic of the self correcting “free market” that is capitalism. The Congress and the previous administration are to blame for allowing unregulated derivatives. The people who thought the bubble would never end are to blame. Government mandates are not.

C&J If prosperity weren’t to blame wouldn’t we still be prospering instead of recovering from the bubble that was the prosperity in the ‘20’s and the ‘00’s?

If that worked, Obama’s stimulus would have worked.

It did work C&J. It did what it was designed to do. Because you demand an instant cure to years of abuse doesn’t mean it can happen overnight. Tax cuts, and spending can only do so much but in this case it saved us from calling this meltdown Great Depression II.

Posted by: j2t2 at December 2, 2011 10:37 PM
Comment #332636

j2t2

And Europe had even tougher regulations and they are not doing very well, are they?

I agree that it was a failure of regulation, but it was not that they were too light, just wrong. And the Freddie Fannie contribution to the problem was very large.

Re the Obama stimulus - It was indeed sold as a more or less instant cure. Recovery summer was a couple years ago. Fiscal stimulus is supposed to work fast.

It was a failure of good regulation. We still do not have them. The Depression era regulations were no longer applicable and we didn’t adapt new ones.

Posted by: C&J at December 3, 2011 12:21 AM
Comment #332641
It was indeed sold as a more or less instant cure.

So was the TARP program of the previous administration C&J. Yet because it was just more of the same failed trickle on economics it failed to get us out of the real problem, the financial collapse. The banks got the money, refused to loan it out and gave themselves bonuses for their failures. Meanwhile housing is suffering and many are sideways on their mortgages, dragging the economy down. The self correcting “free market capitalism ” as practiced.


And Europe had even tougher regulations and they are not doing very well, are they?

The European banks didn’t have derivative regulations C&J or they would not have had to bail out the banks.

It was a failure of good regulation. We still do not have them.

Of course we don’t C&J the “free market capitalism” ideology that drives the country has failed and we still believe it is the answer, go figure. This is another aspect of the rigid ideology that has led us to the brink. The financial institutions should not be part of the “free market capitalism” but conservatives cannot separate the wheat from the chaff and therefore it is an all or nothing ideology that drives the nation down the road to ruin.

Posted by: j2t2 at December 3, 2011 8:45 AM
Comment #332650

The TARP program more or less worked at its task to support the financial system. It was not supposed to jump start the economy, just preserve the system. I was not fond of TARP, but I think it was necessary.

The Obama stimulus was born of arrogance and the believe that government could run the economy. It failed. That would not be so bad, but it cost a lot.

Re the bonuses - that was completely Obama mismanagement. He was in charge when the bonuses happened.

Re free markets - the market creates constraints. I don’t believe that we should - and we never had BTW - a completely free market. The government has a monopoly on issuing currency. Central banks control (or try) the financial system. It is not a hands off system.

What grew up over our lifetimes was a greater crony capitalism. You identify it with Republicans, but it is more a domain of Democrats. Think of the Democratic-Goldman-Sacks revolving door.

We MUST have government involved in finance. It depends on how it behaves. When government works to maintain the integrity of the system, it is doing its job. But politicians try to use the system to work their own social goals (as in Fannie, Freddie and Franks) and some of them are actually rippling it off.

I wrote about both these things and I deplore them. For me, the solution is for government to do its regulation efficiently and elegantly. This means doing its basic job well, but not trying to branch out into other goals. Both Republicans and Democrats fall into this trap. They do things like try to increase the numbers of home owners or guarantee loans in poor communities. These may be valid goals, but the means of using the financial system is wrong.

The market is much like nature. You can do lots of things that are very different than what nature would provide, but you have to respect some basic constraints. When we fail to work within either natural or market laws, we get trouble.

But even if we manage everything perfectly, there will still be disasters. Humans do not have the ability to understand, let alone manage all the systems in play. That doesn’t signify that we can abandon the whole idea.

My ideology tells me that freedom is a good thing. I cannot prove that empirically. But I will go for freedom as opposed to dependency or control whenever I can. I don’t think I will abandon that ideology, even if it means that I will be poorer. If liberty is the price of prosperity, I choose less prosperity. But I don’t think that is the choice.

Posted by: C&J at December 3, 2011 12:06 PM
Comment #332659
The TARP program more or less worked at its task to support the financial system. It was not supposed to jump start the economy, just preserve the system. I was not fond of TARP, but I think it was necessary.

When I speak of the rigid ideology of conservatives C&J this is what I mean. Yes the trickle on TARP plan worked to bail out the big guys at the expense of the taxpayers.Yes it worked to get money into the hands of the wealthy bankers for bonuses and bailouts. But what it didn’t do was get the banks loaning money again which is what it was supposed to do. Had we not been subjected to 40 years of the conservative ideology known as trickle down economics perhaps we could have had a bottoms up approach and helped the taxpayers whose mortgages were the result of the financial meltdown.

The Obama stimulus was born of arrogance and the believe that government could run the economy. It failed. That would not be so bad, but it cost a lot.

Yes the arrogance of 40 years of failed conservative economic ideology. Almost half the stimulus was tax cuts C&J not programs to get the economy rolling again. Despite the lack of job growth the eight years prior to the meltdown. But this compromise was necessary to get the arrogant conservatives vote in Congress.

Re the bonuses - that was completely Obama mismanagement. He was in charge when the bonuses happened.

You can blame the cops for the bank getting robbed but the fact remains it was the banks themselves that “capitalized” upon the taxpayers money.

What grew up over our lifetimes was a greater crony capitalism. You identify it with Republicans, but it is more a domain of Democrats. Think of the Democratic-Goldman-Sacks revolving door.

I believe crony capitalism is just one of the observable results of the spread of conservatism this past 40 years C&J. The trickle on theory is just a part of the problem. The deregulation of banking another. But the real problem is the mindset that comes with the conservatives riding to power in America. I blame both political parties as well as the people of this country, whom I regularly liken to the people of Germany in the 20’s. This is a reason why I do so.

Remember it was the conservative deity Reagan that said “government is the problem”. This has resulted in the changing of the American belief system over the past 40 years C&J. We now set ourselves up for failure as a result of the negativity of conservatism. We expect lower standards from our politicians and we get them. We idolize the businessman who buys our politicians.

When we combine the negativity with the assault upon the government by conservatives, the intentional harm to the country when conservatives, as an example, going to war on a credit card while lowering taxes and reforming medicare without paying for the additional costs , we can see the conservative ideology for the failure it is.

When we add the conservative tendency to exclusivity to the mix we just keep going down the road to ruin IMHO C&J.

When we add the lower nature of conservative ideology into the same bag of negativity we see the true nature of conservatism. That is what IMHO separates the two ideologies as practiced, the survival of the fittest nature of conservatism and the all for one, one for all nature of liberalism.

My ideology tells me that freedom is a good thing….

Conservative ideology doesn’t have an exclusive on liberty and freedom C&J. Both concepts are widely respected by most ideologies, mine included. The difference between conservative ideology and more liberal ideology is the inclusion of others in the liberal ideology. Liberty for all not just the landed gentry.

Posted by: j2t2 at December 3, 2011 2:33 PM
Comment #332661

j2t2

I am just reading “Confidence Men” about the Obama handling of the bailout. Yes, they messed up the implementation and rewarded some of the bad guys. But the purpose is still clear. The government CAN and MUST secure the currencies and financial markets.

It would be nice if government could also do the same for bigger markets, but it cannot. Both TARP and the Obama stimulus had their dark side. Obama folks were mostly responsible for implementing both, BTW. But the TARP worked to fix the the system while the Obama stimulus mostly wasted money.

The stimulus was based on Keynesian theory, which indeed works well in theory but less well in the real economy. Keynesian have two big advantages. Politicians love it because it lets them spend money and the theory itself is not falsifiable. If it doesn’t work, they just say not enough was spent. But it doesn’t really work after a small bump, as we have seen over and over.

It depends on what you buy. If you invest in infrastructure that is in itself useful, it has a good effect. If you just spend money, it is like living off Hersey bars and Coca-Cola. You get the sugar rush but then feel bad. We have seen that happen under Obama too.

Re Obama Cops - the banks gave themselves bonuses with money government gave them. Obama boldly shouted about it, but in the end it was sound and fury signifying nothing. His Treasury Dept not only didn’t stop the bonuses, they positively helped by clearing away obstacles.

Re liberty - I have become landed gentry (sort of) because I bought land with money I earned the old fashioned way. I have more choices now that I have more money, but I had liberty when I was poor and I made good choices.

The “poor” deserve the chance to become not poor, but there is no affirmative right to get rich. MOST poor, in fact, do not stay poor. I didn’t. But it didn’t hurt me to have been poor. In fact it was good for my future.

Re government - Reagan was fighting against a leviathan government. He needed to push it down. Conservatives mostly believe in efficient but limited government, one that sticks to its core functions and does them well. We are more likely than others to actually pay taxes, give to charity and serve in the armed forces. We actually support government with our money, sweat and sometimes blood.

Unfortunately, Kennedy’s famous words about asking not what your country can do for you would now be thought conservative.

Indeed, I do NOT think it patriotic to merely assert your rights and get stuff. I think there are two sides to that equation.

Posted by: C&J at December 3, 2011 4:10 PM
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