Monday, August 24, 2009

Bad Morals, Bad Economics

In the middle of this wonderful column yesterday on a possible public option for health care insurance, Krugman writes the following on the persistence of bad ideas in our public discourse on economics and public policy:
The debate over the public option has, as I said, been depressing in its inanity. . . .

But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse, a collapse that was averted only with huge infusions of taxpayer funds.

As he has over the past couple weeks, Krugman put the onus squarely on the shoulders of Pres. Obama who "hasn’t used the bully pulpit to confront government-is-bad fundamentalism." Except, of course, why should he? It isn't the public that needs to be convinced, at least according to recent polling data. Even some Blue Dogs seem to be working against their constituents express interests, as for example this piece from Think Progress notes on conservative Democrat Jim Cooper from Tennessee.

It is precisely those members of Congress - the Blue Dogs in the House and a few Senate Democrats like Max Baucus and Ben Nelson - who need to be convinced, and the bully pulpit will not work with them because (at least in the case of Baucus and Nelson) it isn't about sweet persuasion. It's about filthy luchre (as, again, Krugman notes).

In the midst of the very inconvenient reality that, once again, proves that unfettered capitalism of the kind advocated by conservatives, free-marketers, Friedman disciples, and business and banking lobbyists is ultimately self-destructive, that we are still debating whether or not to put back in place regulations to prevent another disaster should be embarrassing. When Republicans and others stand up and insist that regulating the markets may destroy them, it might be a nice idea to point out that stripping regulation actually did destroy them; it was government that saved them. While there was innovation in "financial instruments" and "investment products", most of them were nothing more than variations on Ponzi schemes that created what atrios called Jenga, that great kids game where you pull blocks out of a tower and pile the ones on the bottom up on top until the whole thing becomes unstable and falls over. With no one around to say, "Hey, guys, wait a minute, is this a good idea?", shrewd manipulators and insiders managed to get rich fairly quickly, then leave the structure to its own, inevitable, conclusion.

Regulating our financial sector should be a no-brainer. It allows for confidence among investors that the market will not hit some glitch that will not just trip it up, but bring it down; it also assures the rest of us that this sector of our society is answerable to our demand for stability and confidence over unfettered and unchecked privateering. The whole thing exists not only at the behest of all of American society, but for our benefit; there is no reason in the world why we should not reign in the ability of some individuals and groups to profit outrageously when such profit endangers the rest of us. To answer the tired question of what is too much profit - too much profit is the point at which that profit becomes a danger to the society that ensures the individual and corporation making that profit can still exist in safety and security. We reached that tipping point, and will be paying the price for it for years to come. The least we can do is put back in place some of the structures that prevented this kind of thing for decades.

Virtual Tin Cup

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