It is often said that deregulation, especially during the last eight years, is one of the central causes of the financial crisis.... In fact, during the last eight years, federal spending on regulation in the category of finance and banking has gone up notably. This trend is similar to the one we have seen in the last 50 years.
Overall, it is hard to argue that deregulation of the financial services industry was rampant in Washington when the spending on finance and banking regulatory agencies kept growing so fast.
Veronique de Rugy at the American.
A popular myth among leftists is that the financial crisis was caused by "deregulation". Of course, when pressed on exactly what deregulation was involved, they usually can't give an answer, revealing a blind faith that whatever the problem it had to involve lack of regulation.
Among the minority of leftists that can give a more specific description of what regulation was lacking, the 1999 repeal of the Glass-Steagal act (which prohibited companies from pursuing both commercial banking and investment banking) is the most common reply. Yet there is no evidence whatsoever of that having any negative role.
The companies that contributed the most to the bubble and subsequently suffered the most were companies that were either pure mortgage institutions like Freddie Mac and Fannie Mae, pure investment banks like Bear Stearns and Lehman Brothers or an insurance company (AIG which invested heavily in Credit Default Swaps that insured dodgy mortgages). None of those companies had been affected by the repeal of Glass-Steagal.
Stefan Karlsson on the Deregulation Myth.
I wish to claim that democracy’s gravest defect has little or nothing to do with the defects traditionally ascribed to it. I maintain that its severest defect, indeed, a flaw so critical that it gives democracy the potential to destroy civilization, pertains to its effect in corrupting the people’s moral judgment...
If you or I were to threaten a neighbor with violence unless he handed over a specified sum of money, we would be universally recognized as engaged in extortion or attempted robbery.... Likewise, if I were to send a private Predator drone to Pakistan to fire explosive missiles into villages, killing women, children, and other innocent persons, I would be seen as a monstrous mass murderer, and demands would be made that I be apprehended and “brought to justice” or killed.
Yet when President Obama causes deaths in this way, no such demands are made. How did Barack Obama come by the right to kill innocent people? By democratic election to the presidency of the United States, of course. Most people actually believe, and act on the belief, that mere election to a political office can endow a person with standing to disregard the moral requirements applicable to people in general.....
Everybody understands, however, without any advanced instruction in the matter, that murder and robbery are wrong, and that no one has a justifiable right to bully his neighbors simply because he does like the way in which they are conducting their lives..... (yet) most people give a moral pass to such criminal actions when democratically elected functionaries take them. This presumed moral immunity by virtue of election to public office is... a montrous mistake in moral reasoning....
Robert Higgs on Democracy’s Most Critical Defect.
The essential dynamic of the market economy is that good businesses succeed and bad ones do not. There is a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure. It was badly run, it employed greedy and overpaid individuals, and the services it provided were of marginal social value at best. It took risks that did not come off and went bust. That is how the market economy works.
John Kay at the Financial Times on Too big to Fail is too Dumb an Idea to Keep.
Adam Smith never argued that the more selfish we are, the better a market works. His point, rather, is that in a free market, each of us can pursue ends within our narrow sphere of competence and concern—our “self-interest”—and yet an order will emerge that vastly exceeds anyone’s deliberations.
Finally, and most importantly, Smith argued that capitalism channels greed. He recognized that human beings are not as virtuous as we ought to be. While many of us may live modestly virtuous lives under the right conditions, it is the rare individual who ever achieves heroic virtue. Given that reality, we should want a social order that channels proper self-interest as well as selfishness into socially desirable outcomes. Any system this side of heaven that can’t channel human selfishness is doomed to failure. That’s the genius of the market economy.
And that’s the problem with socialism and all sorts of nanny-state regulatory prescriptions: They don’t fit the human condition. They concentrate enormous power in the hands of a few political leaders and expect them to remain uncorrupted by the power. Then through aggressive wealth redistribution and hyper-regulation, they discourage the productive pursuit of self-interest, through hard work and enterprise. Instead, they encourage people to pursue their self-interest in unproductive ways such as hoarding, lobbying, or getting the government to steal for them.
In contrast, capitalism is fit for real, fallen human beings. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand ... and thus without intending it, without knowing it, advance the interest of the society.” Notice he says “in spite of.” His point isn’t that the butcher should be selfish, or even that the butcher’s selfishness particularly helps. Rather, he argues that even if the butcher is selfish, he can’t make you buy his meat. He has to offer you meat at a price you’ll willingly buy. He has to look for ways to set up a win-win exchange. Surely that’s good.
So a free market can channel the greed of a butcher. But that’s not the only thing it can channel. It can just as easily channel a butcher’s noble desire for excellence of craft, or his desire to serve his customers well because he likes his neighbors, or his desire to build a successful business that will allow his brilliant daughter to attend better schools and fully develop her gifts. Capitalism doesn’t need greed. What capitalism does need is human creativity and initiative.
Jay Richards explains why Greed is not Good and It is not Capitalism.
Since the Great Depression, the American public has generally approved of an active, interventionist federal government. In a perceived crisis, most people want the government to “do something.” Of course, most politicians and government functionaries, for perfectly understandable self-serving reasons, are quite pleased to respond to such public demands for action ― after all, taking such action promises to butter their bread more thickly.
Franklin D. Roosevelt enthusiastically supported an approach whereby the government would “take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” Likewise, more recently, despite the great confusion that prevailed about the current recession’s causes and about the best means of moderating or reversing it, Barack Obama, soon after taking office, declared, “The time for talk is over. The time for action is now.” In both instances the president was presuming that successful therapy can be administered without a sound diagnosis. This presumption is foolish, however, if one’s interest lies not in mollifying a bewildered electorate, but in implementing a genuine remedy for the perceived problem...
Yet, one thing we do know: Many Americans now believe many things about their government that are false, and they expect much from the government that the rulers cannot provide. The public at large embraces myths about what the government can do, what it actually does, and how it goes about doing it...
Robert Higgs on Diagnostics and Therapeutics in Political Economy.
I go through life constantly bemused by all the weight that people put on partisan political loyalties and on adherence to the normative demarcations the parties promote. Henry Adams observed that “politics, as a practice, whatever its professions, has always been the systematic organization of hatreds.” This marshalling of hatreds is not the whole of politics, to be sure, but it is an essential element. Thus, Democrats encourage people to hate big corporations, and Republicans encourage people to hate welfare recipients.
Of course, it’s all a fraud, designed to distract people from the overriding reality of political life, which is that the state and its principal supporters are constantly screwing the rest of us, regardless of which party happens to control the presidency and the Congress. Amid all the partisan sound and fury, hardly anybody notices that political reality boils down to two “parties”:- those who, in one way or another, use state power to bully and live at the expense of others; and
- those unfortunate others.
Robert Higgs on Partisan Politics.
The whole modern world has divided itself into Conservatives and Progressives. The business of Progressives is to go on making mistakes. The business of the Conservatives is to prevent the mistakes from being corrected.
GK Chesterton
The vast majority of Christians in America have accepted the Constantinian notion that the primary political task of the church is to rule, to be in charge. What that means at the very least is that Christians are to play a prophetic role in the political court of Washington DC. Second, it means that most Christians have accepted the modern dichotomies of left/right, liberal/conservative, Democrat/Republican.
In accepting these two "truths" the problem becomes clear. As Christians, instead of identifying ourselves as primarily kingdom citizens, we see ourselves first and foremost as Democrats or Republicans, conservatives or liberals. The Sermon on the Mount gets eclipsed by the political platforms of the DNC and the RNC. We like to say that we transcend such earthly contrived political conventions, but we can point to very little evidence to show that this is indeed the case. James Dobson is clearly a conservative Republican and Jim Wallis is obviously a liberal Democrat. The only truth they speak to power is their own Republican or Democratic truth to the power of the other party. The criticism of their own is basically absent or woefully inadequate at best. It appears that both men desire to play the role of Nathan in David's court, but they find they only have influence in that court when "David" is part of their own party; and then their prophetic denunciations are reserved only for the opposition outside the court and not those who are in power. They have very little of a prophetic nature to say to the king from their own party whom they serve. In other words, the church cannot speak truth to power because the church itself is up to its armpits in power and, therefore, has a stake in such power.
In cosying up to the principalities and powers, Christians on the left and the right have chosen the politics of power over the politics of witness; indeed, they cannot even imagine, in spite of what they say, what the politics of the Kingdom of God might look like apart from the politics of left and right.
Allan Brevere on Why the Church in America cannot Speak the Truth to Power
Democracy means simply the bludgeoning of the people by the people for the people.
Oscar Wilde
A "limited government" is a contradiction. Either it is limited (in which case, the entity doing the limiting is sovereign), or it is government. It cannot be both.
John Sampson on Limited Government.
The long history of Christendom is astonishingly plentiful in magnificent moral, intellectual, and cultural achievements... But it has also been the history of a constant struggle between the power of a the gospel to alter and shape society and the power of the state to absorb every useful institution into itself.
David Bentley Hart, a historian of ideas, in Atheist Delusions: The Christian Revolution and Its Fashionable Enemies.
Daniel Webster said, We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.
Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.
and quantitative easing.
The nation state. Interesting phrase. It is different from the state, which is ancient. The nation state as we know it is a modern invention -- also called the managerial state. The idea is that the state survives and is independent from its head. It has a life that exists outside the dictator, president, monarch, or whatever. It is also called the impersonal state, and its heartbeat is the bureaucracy, and it certainly has a genesis in the late medieval period. It is the only state anyone in the developed world has known for centuries.
Jeffery Tucker at Mises.org.
Critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out.
The Economist on Economists.
I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.
Glenn Stevens, Governor of the Reserve Bank of Australia quoted by Dirk J Bezemer of the University of Groningen. Dirk proves that the common wisdom is wrong and lists a number of economist who saw it coming. The full article is worth a read.
Long gone are the days when economists thought deeply about how life actually works. Adam Smith, Adam Ferguson, Anne-Robert Turgot – the great "moral philosophers" – all died hundreds of years ago. Since then, the trade has gone bad. They're all numbers guys now. An economist, of the modern variety, is a statistician...an extrapolator...and a mountebank. If numbers go up two months in a row, he predicts they will go up another one. He rarely stops to ask whether his numbers really make any sense.
Bill Bonner on Bubble Deniers.
In 2005, Americans saved nothing. Not even aluminum foil or string. Now, the savings rate is approaching 5% of disposable income - a big turnaround.
We know from logic and experience that saving money - not spending it - is the key to getting wealthier. Saving money gives you capital. And it’s capital accumulation - in the form of factories, roads, ships, buildings, machines…and raw savings - that gives people the ability to produce more. It may take a man with a shovel a whole day to dig a decent grave. Give him capital - in the form of a backhoe - and he can bury everyone in town. That’s why capitalism works. It rewards the fellow who saves his money.
Yet every yahoo economist in the year of our Lord 2009 takes news of rising savings rates like the death of Michael Jackson. If households don’t consume, they reason, how can a consumer economy grow?
The problem is that you can’t really grow an economy by borrowing and spending.
Recent history proves it. Despite the biggest splurge of borrowing and spending in history, the US consumer economy barely grew at all.
Bill Bonner on the Great Credit Contraction.
What distinguishes the Austrian School and will lend it everlasting fame is its doctrine of economic action, in contrast to one of economic equilibrium or nonaction. The Austrian School makes use of the ideas of rest and equilibrium, without which economic thought cannot get along. But it is always aware of the purely instrumental nature of these ideas.
The Austrian School aims to account for prices actually paid in the market, and not just prices that might be paid under certain never-realizable conditions. It rejects the mathematical method, not because of ignorance or an aversion to mathematical accuracy, but because it does not place importance upon the detailed description of the condition of a hypothetical and static equilibrium.
The Austrian School has never succumbed to the fatal illusion that values can be measured, and has never misunderstood that statistical data has nothing to do with economic theory, but belongs to the history of economics alone.
From the Memoirs by Ludwig von Mises.
Poor Bernie Madoff. The man has been ordered to spend 150 years in the hoosegow. What for? Who did he kill? A century and a half seems a little excessive for a financial crime. You could hold up three liquor stores and rape a whole convent and still not get 150 years. With a little bit of good lawyer-ing, a history of child abuse in the family, and good behavior in the big house, you'd be back on the street in 18 months.
But all the papers seem delighted. "Locked up for Life!" says one of today's headlines. The judge "threw the book at him," says another. His victims wanted him to get no mercy. The judge gave him none, imposing the maximum sentence. He is "extraordinarily evil," said the man on the bench.
Justice has been done. Right? ......
But, what is the point of keeping Madoff in prison? He represents no threat. Rather than pay $30,000 per year to keep him locked up, we suggest that he be forced to do community service work. He should be pressed into service as the next head of the Federal Reserve after Ben Bernanke's term expires in December. With Madoff in the big office, there would be no longer any illusions about what sort of bank the Fed is running.
Bill Bonner puts the evil of the century into perspective.
