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Power vs. knowledge
Arnold Kling weighs in:
We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon's bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.
He refers to Paulson as "the American Mussolini."
Posted by Tyler Cowen on October 15, 2008 at 09:53 AM in Political Science | Permalink
Comments
How long before Tyler decides Mussolini's plan is not "better than nothing"?
Posted by: Gabe at Oct 15, 2008 10:04:25 AM
Purely an academic question, and one I'm sure has been answered many times before, but, just for my benefit:
Concerning the constitutionality of everything going on here--I've been assuming all along that the Paulson Plan, as it was passed in Congress, was an Article I issue, and that the constitutionality of it was at least feasible. But, if the Paulson "injections" are, in fact, not voluntary, does this become a question of eminent domain? Does eminent domain apply to paper?
Posted by: Brandon at Oct 15, 2008 10:22:40 AM
Too much is being made of the "not voluntary" issue.
The treasury did speak to the banks beforehand and the banks likely agreed to the plan's details (have you seen anyone complain???).
HOWEVER, no bank can ADMIT to needing/wanting the injection without sending a negative signal about its financial health. So... we will all pretend this is not required by the banks, or "non-voluntary".
Posted by: sd at Oct 15, 2008 10:35:35 AM
Short term we are going in the "wrong" direction -- banks too big to fail are getting even bigger, government bureaucracies are getting larger / more intrusive. Good thing we have "conservatives" in office (pause for derisive laughter).
Assuming this is necessary and it works, we will need to unwind it.
If some financial institutions are "too big to fail", then we need to make them smaller once we are out of the immediate crisis. This will make the breakup of AT&T seem simple.
Posted by: ZBicyclist at Oct 15, 2008 10:46:01 AM
Power was already damn decentralized, across many banks, investment banks, mortgage originators, and hundreds of thousands of households.
Posted by: Robert Olson at Oct 15, 2008 10:46:52 AM
Ben Graham: Buy a dollar for fifty cents
Ben Bernanke: Buy fifty cents for a dollar
Posted by: Andrew at Oct 15, 2008 11:06:20 AM
http://finance.yahoo.com/tech-ticker/article/95602/Treasury-Seizing-Stakes-In-Nations-Biggest-Banks
"The collective force-feeding is designed to remove the stigma of taking government funds and blah blah blah"
Damn this trouble-making free market! We had a completely free market in banking until today. The free market is what got us here and the government will rescue us from it.
Posted by: Andrew at Oct 15, 2008 11:08:05 AM
I usually resonate with Prof. Kling's writing. But this time, I find "the American Mussolini" remark shocking.
Posted by: Yan Li at Oct 15, 2008 11:11:12 AM
Agreed. Mussolini won an election or two.
Posted by: Brandon at Oct 15, 2008 11:15:40 AM
Robert Olson,
That is the appearance of decentralization. The most essential power to our banking system was centralized in a single institution. Every other bank was simply an arm of this institution.
Posted by: Yancey Ward at Oct 15, 2008 11:15:48 AM
sd is absolutely right. If the recapitalization is not marketed as involuntary, then a bank that avails itself sends a negative signal to the market.
What's the alternative program?
At the same time, I agree with Kling who I paraphrase to saying to truly f@&k up you need power.
Posted by: John B. Chilton at Oct 15, 2008 11:19:48 AM
The good news: the people are so angered by the bailout that there's no chance of a populist installment of fascist dictatorship.
All this strikes me more as keystone cops than meinkampf.
Posted by: Andrew at Oct 15, 2008 11:23:36 AM
To sd and Chilton, I suppose I concede the point, but since when do government officials "market" their actions so as to make them appear unconstitutional?
Says Bush, "I got Pelosi to follow me on the bailout plan; of course, I would have killed her if she refused."
Posted by: Brandon at Oct 15, 2008 11:24:56 AM
Hey I have long thought of FDR as American Perone.
Just don't do something stand there seems like a better and better approach to me.
Andrew when you state "Damn this trouble-making free market! We had a completely free market in banking until today. The free market is what got us here and the government will rescue us from it." Do you see any irony in that we in the USA are doing pretty well all things considerd? Or were you being sarcastic?
Posted by: floccina at Oct 15, 2008 11:30:24 AM
Now, there are rumors that the Democrats plan to re-appoint Paulson as Treasury Secretary.
Garbage.
Posted by: ogmb at Oct 15, 2008 11:31:11 AM
Are there any countries other than Cuba and North Korea who have completely government run banking system?
Posted by: floccina at Oct 15, 2008 11:32:20 AM
The good news: the people are so angered by the bailout that there's no chance of a populist installment of fascist dictatorship.
I am concerned that the more "anger" there is floating around the more likely it is that we'll get a fascist dictatorship.
Posted by: fish on a bicycle at Oct 15, 2008 11:45:44 AM
I wonder: Ten years from now when historians appraise the Bush administration, who will be considered the worst cabinet secretary?
Many Bush-haters would say Rumsfeld, but I wouldn't be surprised if Paulson comes out with a worse reputation. At least Rumsfeld seems to have good intentions and have been working on behalf of the country. (Granted, both men have enormous challenges and I am not saying the financial crisis has an easy solution.)
Posted by: Dirk at Oct 15, 2008 11:47:08 AM
Paulson as Mussolini?
There is an amusing parallel between the original Paulson Plan and Mussolini's much trumpeted but disastrous invasion of Greece.
Both situations were retrieved by foreign intervention - in Mussolini's case from Hitler; and in Paulson's from the British Treasury.
Posted by: Diversity at Oct 15, 2008 12:13:09 PM
Plank N° 5 of the Communist Manifesto by Carl Marx
"Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly". Is it Paulson and friends case?
Posted by: Massimo GIANNINI at Oct 15, 2008 12:24:02 PM
"ust curious what the probability is that Team Bush will create some kind of 'emergency powers' act (a la Egypt) where he stays in power indefinitely and suspends the Constitution. Bloomberg's making his own case for a third term."
P(crackpot hypothesis) = 0. Bloomberg is going through democratic channels to change the term-limits law.
Posted by: mw at Oct 15, 2008 12:27:00 PM
hah. bitter people, clinging to guns and small government.
Posted by: B.H. at Oct 15, 2008 1:12:30 PM
Dirk,
What about Gonzales?
Posted by: josh at Oct 15, 2008 1:21:01 PM
Worst Bush cabinet member? All "good" nominations so far, but I'd vote for Rice. Up to her neck in the Iraq War; can't think of successes elsewhere.
Even Sarah Palin admitted in her debate with Biden that the administration has blundered badly in the mideast (giggling while she said it).
Posted by: zbicyclist at Oct 15, 2008 1:33:53 PM
Financial crisis often, usually, leads to bad political outcomes. Nazi Germany etc
In this case, it looks like Franks, Dodd, and Maxine will be writing new regulations for our financial institutions. That is scary. They are all for more regulation - the kind where the government redistributes wealth based on a political spoils system. I am afraid of the future direction as in fear we run to the left.
Posted by: DanC at Oct 15, 2008 1:49:08 PM
