September 17, 2010

And Government Busts Our Boom

Justin Katz

After a brief lesson in economics — which is most likely to be ignored by those most in need of heeding it — Kevin Williamson notes that the tweaks and adjustments that central planners make to running systems are not light in their effects:

... It's easy to say: Well, we'll just raise the retirement age, or cut benefits, or means-test them, or raise taxes on the wealthy who receive them (which amounts to means-testing, but Democrats like that version better). And, yes, that probably is what we will do, eventually. But that does not get us out of the economic pickle: People have been making decisions for years and years — decisions about saving, investing, consuming, working, and retiring — based at least in some part on what are almost certainly faulty assumptions about what sort of Social Security, Medicare, and other benefits they will receive when they retire. When those disappear, a lot of consumption is going to have to be forgone — and a lot of capital dedicated to producing those goods and services for consumption will be massively devalued. Businesses will have to retrench, probably in a way that is more disruptive and more expensive than the housing-bubble recession necessitated.

A core reason that conservatives prefer natural mechanisms (such as price in the marketplace) to regulate human society, with slow, "soft" influences through culture, is that human decisions can be made rapidly and based on factors that have little to do with the topic at hand. One can look at the current landscape for retirement, say, and plan and predict, and while surprises and errors are always possible, at least there isn't the possibility that a one-party government will force through legislation that changes the entire regulatory and budgetary landscape.

My assertion may jar against assumptions that government programs ensure a baseline benefit that recipients, providers, and everybody in between can count on, but that's only true to the extent that government can find the resources to fulfill the expectations better than can individuals operating on their own behalf. When government fails to do so, it must take money from elsewhere — in huge quantities — often entirely unrelated to the service and bound up in the plans and expectations of others.

Moreover, as we learned with the housing/mortgage crisis, giving markets false reasons to decrease the influence of perceived risk on decisions can be very dangerous.

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...natural mechanisms (such as price in the marketplace)

You guys crack me up. So is a marketplace animal, vegetable, or mineral in Wingnutistan?

Posted by: Russ at September 17, 2010 10:07 AM

I completely agree. One of the biggest responsibilities of government is to provide stability and when it fails to do that, no matter how well-meaning the motives of the bureaucrats may be, the effects can be devastating. We had decent economic growth for almost 30 years under a 3% inflation norm not because 3% is some magic number but because it was always near 3%. A stable 10% inflation would have been nearly as good as what we had and far better than random swings between 3% and -3% even though the former seems more dramatic. The economy is terrifically resilient to bad policy, but it can only make adjustments when everyone know what the policy is. The economy won't recover until politicians like Obama stop thinking that they can fix things if only they make just the right changes. His policy failures have been less about the policies themselves (bad though they may be) and more about their scope and radical nature.

And Russ, I assume you are under the impression that gravity is a mineral? Perhaps evolution is a type of squash?

Posted by: Mario at September 17, 2010 10:41 AM

Hey, if you know what gravity is, you let me know. I recently read A brief History of Time and will admit that I don't quite get the theories on how that all works.

My point, of course, is that markets are regulated constructs in this country, hardly forces of nature (I'd say that's true of every market of any size - heck, even a decent sized flea market has assigned stalls, someone to clean up the garbage, etc.). Corporations themselves are constructs of the state and wouldn't exist without regulation. The question is what type of regulation is appropriate. To suggest otherwise is to offer up fantasy as fact.

btw, I recommend Taibbi's piece from "Rolling Stone" (should be required reading)...

Wall Street's Big Win

All of this is great, but taken together, these reforms fail to address even a tenth of the real problem. Worse: They fail to even define what the real problem is. Over a long year of feverish lobbying and brutally intense backroom negotiations, a group of D.C. insiders fought over a single question: Just how much of the truth about the financial crisis should we share with the public? Do we admit that control over the economy in the past dec­ade was ceded to a small group of rapacious criminals who to this day are engaged in a mind-­numbing campaign of theft on a global scale? Or do we pretend that, minus a few bumps in the road that have mostly been smoothed out, the clean-hands capitalism of Adam Smith still rules the day in America? In other words, do people need to know the real version, in all its majestic whorebotchery, or can we get away with some bullshit cover story?

Justin seems to me to have bought the bs cover story.

Posted by: Russ at September 17, 2010 2:02 PM
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