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One ray of light, one bolt of gloom
Although the financial meltdown is a disaster for the country, Mr. Oros said, “the opportunity going forward is unprecedented. It is fantastic. It is as if I had been training for this for the last 40 years of my career.”
Oros is currently a partner in a private equity firm. The rest of the article, however, is deeply scary. It's about how much lawyers and lobbyists are benefiting from TARP and related measures. Consider this form of optimism:
“It is a good time to be me,” said John L. Douglas, a partner in Atlanta at the law firm Paul Hastings and a former lawyer for bank regulators who helped create the agency that administered the last federal bailout, the Resolution Trust Corporation.
We're in a race to see whether politics will become the dominant means of allocating financial wealth in this country. That could be the single biggest domestic issue today, but too few economists are speaking up about it.
Posted by Tyler Cowen on December 29, 2008 at 12:55 PM in Current Affairs | Permalink
Comments
We're in a race? The government already allocates something like 30-40% of GDP every year. The race ended many years ago.
Posted by: Mercutio.Mont at Dec 29, 2008 12:58:33 PM
I don't have a horse in this, but I'm just curious if there's any talk of revisiting Kondratiev in view of what happened:
http://en.wikipedia.org/wiki/Kondratiev_wave
Posted by: Unit at Dec 29, 2008 1:11:49 PM
Paul Krugman, I think Tyler is referring to economist like you!!!
Posted by: thehova at Dec 29, 2008 1:39:51 PM
Great post!
Would you like a Link Exchange with our new blog COMMON CENTS where we blog about the issues of the day??
http://www.commoncts.blogspot.com
Posted by: Steve at Dec 29, 2008 2:25:38 PM
Tyler,
This is an important discussion you have started, and coupled with the fact that no other public intellectuals are speaking up about it, the onus is on you and your readers to continue this debate. At the same time, one of the reasons I believe economists are not speaking up as much as they should is because the the real underlying problem is a political/judicial issue rather economic. Granted that Adam Smith spoke of these problems in the Wealth of Nations (something like "legislative advice from business interests should always be viewed with suspicion") and Mancur Olson outlined the long-run effects of special interests on political institutions and ultimately economic growth. Distributive issues are addressed extensively in economics, and the field surely offers solutions. But in this case, the solution needed is to minimize the ability of private and corporate interests to influence legislative outcomes.
In order to accomplish this, we need radical change. The legislative process needs to be independent from external interests. Why not ban lobbying altogether and instead replace it with a transparent process in which documented evidence is presented in support or against a piece of legislation, much like a court case is decided? That way business interests and the public have their say.
How about a "Federal Reserve" model of government, where ALL the major divisions of the legislative and executive branches are run by an independent, corporate-style boards? Imagine the Environmental Protection Agency given the power to freely tax based on their independent assessments of pollution levels. We need to take away from Congress the power to spend our tax dollars. They should only really be carrying out a couple of functions; 1) Appointment procedures (ie. deciding who is going to sit on these boards, the Supreme Court should have veto power over who gets appointed,) and 2) Giving final approval, along with the President, to the various policies which the independent boards decide is best. Congress should be allowed to send the policy proposal back to the boards, but only a certain number of times. Lobbying or influence peddling for access to these boards should be outlawed and punishable by life in prison, because it is tantamount to treason.
While these are clearly not very well thought out, it is a start. Democracy as we know it is a failure and we need radical institutional change. Someone needs to start talking about it. Our only other hope is the internet, which I believe will enhance Democratic functioning via improved transparency and coordination. Thanks for all your hard work!
Hinjew
Posted by: Hinjew at Dec 29, 2008 2:36:30 PM
A writer named Ayn Rand used to write about this concern all the time. But whenever someone mentions her, the number of comments before someone dismisses it as "high school thinking" can typically be counted on one hand.
Posted by: Scott at Dec 29, 2008 2:37:16 PM
"We're in a race to see whether politics will become the dominant means of allocating financial wealth in this country"
The scale of the issue depends in part on whether you think Blagojevich is a) an exception, or b) an example of what might be expected if you caught more politicians on tape. I think the latter. But another way of looking at it is; if he was willing to settle for $1,000,000 for a Senate seat, he's too poor a businessman to allowed to make those decisions.
Posted by: Bill Nichols at Dec 29, 2008 2:37:43 PM
That could be the single biggest domestic issue today, but too few economists are speaking up about it.
Perhaps they were too busy making the case that threat level Orange in the financial sector requires Someone in Power To Do Something.
Arnold Kling has been warning everyone about this development before Congress enacted TARP. Libertarians warned about this in the abstract for sometime, but libertarian bandwagoners abandoned the, er, wagon, en masse as the crisis deepened and gloom overcame principle.
Posted by: guy in the veal calf office at Dec 29, 2008 3:04:44 PM
I am confused to hear Tyler say this.
Didn't Tyler talk about how something needed to be done about the financial crisis in the Fall?
I recall reading him say something needed to be done to free up capital.
Posted by: roversaurus at Dec 29, 2008 3:50:03 PM
"Libertarians invented outrage over government waste, bureaucracy, injustice, etc. Nobody else thinks they are bad, knows they exist, or works to stop them."
From Libertarianism in One Lesson.
But the real question is how much is being directed inappropriately. For all Tyler's alarm, he hasn't mentioned any numbers.
Posted by: Mike Huben at Dec 29, 2008 4:22:04 PM
"We're in a race to see whether politics will become the dominant means of allocating financial wealth in this country."
That seems a little overwrought. Obviously, if large numbers of distressed assets are being sold, people will need lawyers and lobbyists to comply with and/or influence the rules and procedures for those sales, but the big money will be made by the people who make appropriate judgments about which assets to buy and at what price. I mean, Bill Gates has lots of lawyers to deal with securities law, antitrust, IP etc., but, in the end, it's the products that determine how much Microsoft is worth.
Posted by: y81 at Dec 29, 2008 4:30:05 PM
This reminds me of one of my (very few) favouite new forms of taxation. Lobbyists have to register. For the privilege they should pay the relevant Treasury a substantial annual fee. This fee should be related to the turnover of the interests represented. The fee should rise smoothly as a per cent of turnover from about 0.1% of turnover for the smallest interests represented to about 10% for the largest.
Posted by: D iversity at Dec 29, 2008 4:32:53 PM
In many countries, government is the primary allocator of financial wealth. The United States is unique only in that the legislative and, increasingly, judicial branches have a disproportionate role in doing so and the executive branch, hardly any.
Posted by: at Dec 29, 2008 8:36:54 PM
Mike Huben said:
"But the real question is how much is being directed inappropriately. For all Tyler's alarm, he hasn't mentioned any numbers.:
Define inappropriate.
Posted by: John Pertz at Dec 29, 2008 8:41:02 PM
As Mercutio said, that race ended long ago. Corporate capitalism as we've known it for the past century or so has been built on structural foundations created by the state. The central function of government under state capitalism has been to subsidize the operating costs of big business, create entry barriers, and restrict competition.
Corporations play the same role in running the state that the big landed interests did under the Old Regime. The "market" is something allowed to operate in the interstices of a system defined by the organizational interlinkage of big government and big business. As Brad Spangler put it, the bagman who collects the money in a holdup is just as much a robber as the guy who holds the gun. And the nominally "private" corporate economy is just as much a part of the real state as the nominally "public" people on tax-funded salaries.
Posted by: Kevin Carson at Dec 29, 2008 9:04:38 PM
Another example: today Treasury gave GMAC 6 billion in TARP money, even though GMAC is not a bank and is not viable. But a few months ago, Treasury denied TARP money to National City, which was a bank and which may have been viable, for reasons that Treasury is not obliged to explain. This was a purely political decision to allocate resources to GM instead of National City.
Posted by: FE at Dec 29, 2008 9:46:17 PM
"That could be the single biggest domestic issue today, but too few economists are speaking up about it."
I recall Tyler speaking up about it...he said "The Paulson Plan is better than nothing"...did you forget about that?
Posted by: Gabe at Dec 29, 2008 11:03:26 PM
I've always thought that we need to have more Representatives as the 435 number was decided upon nearly 100 years ago (with brief times of up to 437). We're a far bigger country and are constitutionally allowed to have one Representative per 30,000 residents. It would at least make our Representatives more accountable to their constituents and make gerrymandering quite a bit harder since the districts would be much smaller.
Secondly, remove the ability of the Senate to amend spending bills. They aren't supposed to be the ones holding the purse strings. The Senate can essentially get around the Constitution by taking small bills sent up by the House and adding massive expenditures to them.
Posted by: JordanT at Dec 30, 2008 1:10:03 AM
Got here late, so you may need both hands.
Ayn Rand = "high school thinking"
Posted by: carping demon at Dec 30, 2008 3:07:36 AM
High school thinking. No, such an ad hominem is the refuge of a weakened mind. As a newcomer to Ayn Rand, I am amazed by her prescience. How could she nail it so well? Read just a few pages of Atlas Shrugged. Of course, she didn't have characters who were actually named Paulson and Bernanke. Regarding economics, its has become so neutered by utilitarianism that it can only sit idly by while the men of system sweep in to take control of our property and lives. Yes, they say, "We have to save the system in the name of the 'public good'. Efficiency losses are a small price to pay. Free markets are just too unstable--and unfair." The real economic engines--life, liberty and property--are forgotten. If the system really is to be saved, economics needs to ditch utilitarianism and build a ethical and analytical system based on liberty, self-interest, and property rights.
Posted by: Adam at Dec 30, 2008 4:47:13 AM
If only Ayn had gotten her disciple Alan Greenspan to think beyond the CPI.
In any case, she was right about the threat of statism. It is now destroying the economy.
What has actually happened needs to be explained to the people. The government is not doing it. The mainstream media is not doing it.
The truth that this mess was created by government bungling and greed needs to put out there in an effective, moving way that indicts the guilty. We really have no other way to stop this.
Posted by: Alan Brown at Dec 30, 2008 7:58:41 AM
Hinjew: Congress is driven by lobbyists because of our winner-take-all elections. Whoever is most effective at lying to the most people gets in rather than the various political groups each getting the share of representation they deserve.
Do you think the Greens would have supported this bailout? Or any candidate of the religious right? Or any Libertarian? I doubt it.
But, as they demonstrated with Iraq, the current crop in Congress stand for nothing and fight for nothing except their own advantage. You could not possibly get away with that if we had proportional representation.
People say that PR would make it harder to reach consensus on many issues. I agree. Many stupid policies would never get off the ground.
Posted by: Alan Brown at Dec 30, 2008 8:08:49 AM
Kevin Carson: "Corporate capitalism as we've known it for the past century or so has been built on structural foundations created by the state. The central function of government under state capitalism has been to subsidize the operating costs of big business, create entry barriers, and restrict competition."
I agree this has happened in some cases. But I think the trend moved in the opposite direction at the end of the 20th century.
Presidents Ford, Carter, and Reagan deregulated several key industries: air transportation; trucking; railroads; and financial services (somewhat). Reagan removed oil price controls. Clinton deregulated telecommunications and banking.
Can anyone deny the enormous benefits to the economy, to consumers of removing government influence and removing barriers to entry in these industries?
Some large companies have benefitted greatly from government subsidies. But so have small companies. When the SBA guarantees loans made to small businesses, it is not creating barriers to entry. When the government exempts small businesses from minimum wage laws, it is not creating barriers to entry. The federal Office of Government Contracting was created specifically to assist small businesses in obtaining a share of government procurement awards. I'm not advocating these programs, only pointing out that giant corporations are not the only winners.
Posted by: John Dewey at Dec 30, 2008 9:57:07 AM
"The truth that this mess was created by government bungling and greed needs to put out there in an effective, moving way that indicts the guilty. We really have no other way to stop this."
Like I said before...most people dismiss it as high school thinking, but few novels/literary works that I've come across are so able to entertainingly-yet-effectively illustrate the motives and impacts behind statism as Atlas Shrugged.
Rand's philosophy has big flaws, but it also has some wonderful virtues.
Posted by: Scott at Dec 30, 2008 12:11:40 PM
Yes, but I doubt we can just throw this massive book at people and suddenly they will understand current events. We need to point out the principles being violated and lay the blame for what's happening on those committing the current crimes.
Reading John Galt's speech on every street corner will not do the trick, I'm afraid.
Posted by: Alan Brown at Dec 30, 2008 3:56:07 PM
