by Simon
•Simon is a young Bahamian with things on his mind who wishes to remain anonymous. His column 'Front Porch' is published every Tuesday in the Nassau Guardian. He can be reached at frontporchguardian@gmail.com
Many of the fundamentals of the U.S. economy are as unsound as the market fundamentalism which led to the near collapse of the financial industry and the resulting credit crunch that threatens everything from businesses attempting to borrow to meet their payrolls to individuals cutting back on overseas vacations.
One of the problems with a fundamentalist mindset is that it takes a point of view and converts it into the “truth, the whole truth and nothing but the truth”. This is as true for religious fundamentalism as it is for market fundamentalism.
Here’s how the venerable Economist magazine, in its September 20 edition characterized the current financial mess: “The government of the world’s leading capitalist nation has been sucked into the maelstrom of its most capitalist industry.”
With tongue-in-cheek clarity Washington Post columnist Eugene Robinson unmasked the mindset which led to this disaster, with U.S. taxpayers now responsible for bailing out key players of the financial services sector potentially to the tune of some $900 billion dollars.
In addition to the $700 billion package, don’t forget the $85 billion already proposed for AIG, $29 billion for the nuptial between Bear Stearns and JP Morgan Chase and potentially $25 billion for siblings Fannie and Freddie.
Back to Robinson: “The uber-capitalists of Wall Street are all socialists now. Free market ideology, it turns out, doesn't pay the mortgage. That appears to be a job for, ahem, Big Government.”
“Let's be clear about why we're facing a crisis that could pull down the global financial system. The irresponsibility of individuals who bought houses they couldn't quite afford pales in comparison with the irresponsibility of the financial wizards who built on those shaky mortgages a towering edifice of irrational faith.”
That irrational faith was a belief that the unfettered market can always correct itself and that nominal government oversight is usually best. Now the U.S. is in the midst of perhaps the largest state intervention in history.
A TSUNAMI
When dogmatic certainties were overwhelmed by a tsunami of bad debt, many of the fundamentalists pulled up anchor and sailed their yachts to Washington D.C. to beg Uncle Sam for help -- the same “Big Government” that is “the problem”.
To get a sense of how massive is this bailout, consider this fact. The potentially $700 billion package would allow the U.S. Government to buy lock, stock and barrel -- with $100 billion dollars left over -- Morgan Stanley, Goldman Sachs, Citigroup and even Bank of America.
Here’s another way to look at the size of this massive state intervention. Rather than the bank bailout, I am proposing a consumer recovery plan: The American Fairness & Prosperity Fund. It’s actually quite simple.
(By the way it seems that if you label it a rescue package, the bailout, excuse me, the rescue suddenly becomes more palatable to those who are footing the bill.)
Instead of spending just under a trillion dollars to cover the risky, greedy and irresponsible gamble of the relatively few, I propose giving each of the approximately 300 million plus Americans an equal share of the bailout funds that are now being marketed as a recue package.
My plan would cushion the effects of the current downturn with the added advantage of helping provide the 40 million Americans who lack health insurance with the money needed to purchase basic coverage.
The Fairness & Prosperity Fund would ironically also help homeowners to pay their mortgages. This is my version of the “opportunity society”. My plan appeals to the uber-capitalist in me because it would instantly create millions more capitalist-consumers and lessen government intervention.
Of course, this is all fantastic silliness. But in this silly season it makes several points. I’m often amused by the many devoted capitalists who propose capitalism for others while lobbying for socialism for themselves.
In case you missed it during the massive nationalization of its banking industry, the U.S. is also set to give a number of automakers and their suppliers $25 billion in low cost loans.
This pales in comparison to the socialist handouts Dear Uncle Sam has given and continues to dole out to corporate welfare kings and queens. Not only does this help to pick winners and losers at home, it also attempts to game the system for U.S. businesses abroad.
Even in the midst of the current crisis some members of the U.S. House of Representatives required pork barrel sweeteners to eventually support the bailout with over tens of billions of additional corporate handouts for everything from Puerto Rican rum producers to NASCAR owners.
Meanwhile other distressed industrialists and market fundamentalists are winging their way to Washington to ask for bailout/rescue funds. Still, though the financial system bailout will reward the relatively few who defrauded scores of consumers, we have little choice but to ease a credit squeeze that threatens us all.
DISPROPORTIONATE
Who pays for these trillions used for bailouts, hand-outs and corporate subsidies often described as measures which will bolster and protect the “free enterprise system”? The bills are disproportionately footed by small business owners and the American middle class with massive tax breaks for the big boys.
Government doesn’t always know best. But neither does the market. Unfortunately, according to columnist Roger Cohen, it “turns out that what the market knew best was to turn capitalism into a pyramid scheme for trading worthless pieces of paper.”
A modern capitalist economy requires as much freedom as possible for markets combined with smart and vigorous government oversight and regulation. Both government and the market need each other. The often simplistic hostility towards one or the other is an unproductive conceit.
The market is not an end in itself and is often dramatically irrational. It does not and cannot always correct itself. Capitalism, like faith, is not the problem. It depends on the type of faith and the type of capitalism to which you adhere.
I recently read a sign that should give pause to all fundamentalists: Belief + Doubt = Sanity. In order to maintain our economic sanity, we need just enough belief and just enough doubt about the market.
Warren Buffet has tended to eschew market fundamentalism, irrational exuberance, lack of sufficient regulatory oversight and unfairly low tax regimes for the wealthy.
The sage of Omaha has two adages we may wish to remember during this economic crisis. In a variation of a theme, Mr. Buffet reminds us that “What we learn from history is that people don’t learn from history.” Further, “You only find out who is swimming naked when the tide goes out.”
Fundamentalism being what it is, those who have a fanatical faith in the God of the Market will soon forget the need for humility regarding all human creations, including the market, and years hence will once again be caught swimming naked when the tide of history goes out.
Why leave out Government fundamentalism?
One of the major causes of this debacle is government guarantees for shaky mortgages.
One sure thing about economics is incentives matter. And if you provide incentives for the wrong behaviour, look what happens.
Posted by: Rick | November 29, 2008 at 05:51 PM