This post will be a hodgepodge. As usual, being so far behind the times, I recently discovered the wonder of podcasts. When looking for a podcast on accounting, I discovered the George Mason University's podcast "Econtalk." The first cast was pretty interesting, with some neat concepts. But the second podcast really stuck in my craw. First off, the guy who hosts the show, was educated at University of Chicago. For those of you not in the know--this is a very conservative economic philosophy. Their bias--which the host admits most frankly--is against government intervention in the free market. Fairly standard stuff. From his point of view, I would be dubbed an interventionist. I don't care for the term, I think the implied meaning doesn't really capture what I believe at all. Liberal economists (or faux economist students--like myself) don't really think of their vision as an intervention into a formal entity "The Market Mechanism" but as part of an entirely different mechanism, that requires public action in the form of rules, regulation, including private and public auditing and ratings entities.
What's worth writing about this you lunatic? You say free market principles have been prevalent for the last century? Well, sure. But for the first time in sixty years the prevailing winds are blowing my way. People actually want more regulation. And the good folk of Econtalk (they really do seem like nice guys too) are horrified by this. According to them, the essential cause of the current downfall was that the market wasn't really free. That regulation was in fact the cause of the crisis. To most of us, this seems ludicrous. But I can sort of understand their point, if only from the level that most socialists have long defended their beliefs, namely "No government or society larger than a village has ever practiced true socialism, so therfore you can't disprove it's legitimacy." Insert free-market capitalism and you've essentially made the same argument. There are always rules and regulation on the exchange of goods. I mean, there wouldn't be a market if someone didn't guarantee a free market space to begin with. Maybe I don't understand the theory. And I'll admit, I certainly haven't read any of their works.
They did raise an interesting point. They are, of course, opposed to the stimulus. On a couple of levels. For one thing, the market mechanism for dealing with failure is harsh. Nul-survival, if you can't make the grade, you go bankrupt, and the market dealt you the hand you deserve. On another level, they don't like the bank bailout for similar reasons, but also for the idea of moral hazard. On a more complex level though, they dislike the intervention in the market mechanism because from their standpoint it reduces market efficiency. Prolongs the pain. They say things like, bank failure isn't that bad. I find this reprehensible. In a healthy system that would be true. But Hank Paulsen's stand against Lehman nearly unhinged the system. If they'd let AIG go under, the banking system would have been effectively demolished. The auto industry would have tanked the next day. There literally would have been riots. Complete panic. I believe that they think that very unlikely. But for what reason? They also oppose the stimulus because they find the public works proposals, what they label as Keynsian economics, to be demonstrably proven false. They say that the last sixty years of economics have roundly disproved the idea that public works programs stimulate the economy. That's wrong for two reasons. 1) The Chicago school of economics has been THE school of economic thought for the last sixty years. No wonder there aren't too many studies that prove they are wrong. 2) There hasn't been a significant public works project other than The Big Dig (a total disaster), in the last sixty years. How could they have even done a study? And the last big public works programs were wildly successful, namely the New Deal, (and no I'm not disregarding The War.)
Here's what got me. They qualified their disdain for the public works programs by saying that they were not opposed to the idea of the programs and development. They were opposed to them being labeled as a stimulus. !!! !!! Only academics could give a damn. They were upset by the fact that the bill was perhaps a misnomer! Positivists are people who adhere to logic and law regardless of the emprical outcomes of their choices. People like this stun me. I like a good logical argument, and you'll see me make a lot of them. But sometimes, and this is what seperates the positivists from their counterparts, sometimes the rule doesn't fit. And where it doesn't fit, adjustments must be made.
However, I find myself agreeing with them. For different reasons. Calling it a Stimulus bill was a hat tip to George Bush. Fuck him. And his party. Enough nicey nice. And that was a mistake. Calling it a stimulus, and keeping Geithner and Bernanke (I like Bernanke, but he's part of the old system, with which I believe we need a clean break,) only served to prolong Bush era policies. The market is demanding something else. Which is why it hasn't calmed the markets at all, but instead only exacerbated the situation. You want to bail out the banks? Fine, call it what it is. The works projects should have been a different bill anyway. My other half thinks that they packaged them together as a way to get them through Congress. Maybe she's right. I don't know. As a matter of policy, I really think the Dems could have pulled it off. But not without a rhetorical flair and daring that they have not been able to carry off for sometime. Harry Reid must go.