Change in the air?
Not long ago, any mention of an economic policy that involved anything other than the mantra of free markets would have been dismissed as backward thinking or worse, communist. That's changing. In today's New York Times, there's an article that refers to the free market as a false idol (albeit with that question mark that allows the headline writer to claim some sort of objectivity), and I find that heartening. It's not a very deep article, but it's instructive on a basic level.
One thing it mentions that I'd like to expand on, though, is the notion that even the Bush administration is acknowledging the need for regulation.
The Bush administration and the Federal Reserve have in recent weeks put aside laissez-faire rhetoric to wade into real estate, wielding new rules and deals they say are necessary to protect Americans from predatory bankers — the same bankers who, only a year ago, were being lauded for creativity. Were the market left to its own devices, millions could lose their homes, the administration now says.That's accurate, as far as it goes, but don't for a moment think that Bush is getting ready to abandon his Friedman-esque policies in favor of strict regulation. He's never done it before, and if there's one thing you can count on from Bush, it's that he's going to screw the average person in favor of his base--the super-wealthy, not the evangelicals who followed him over this economic cliff and are now responding to the faux-populism of Mike Huckabee--and the corporation over the corporeal.
See, Bush has been faced with this sort of situation before--a meltdown of markets and loss of public trust in financial institutions, so it's instructive to look at what he did the last time. Fortunately, Naomi Klein has already done the research--chapter 14 of The Shock Doctrine deals with the dot-com bubble burst and the 9/11 market crash. See if you can pick out some similarities. From p. 297:
"The twin demands of a sagging economy and an urgent new war on terrorism have transformed the philosophical heart of President Bush's agenda," confidently declared John Harris and Dana Milbank in The Washington Post eleven days after the attacks. "A man who came to power offering himself as an ideological descendant of Ronald Reagan has emerged nine months later as something closer to an heir of Franklin D. Roosevelt." They further observed that "Bush is working on a large economic stimulus package to stave off recession. He said a weak economy needs its pump primed by government with a big infusion of money--a basic precept of Keynesian economics that was at the heart of FDR's New Deal."
Sounds a lot like Bush's recent statement that the economy is strong, but needs an stimulus, doesn't it? What Klein points out in the section that follows is that Bush's "Keynesian economics" was really a gutting of the federal infrastructure in favor of cost-plus, and often no-bid contracts given to private companies covering everything from technology, media, communications, engineering, education and health care. More Klein, this time from p. 300:
The Department of Homeland Security, as a brand-new arm of the state created by the Bush regime, is the clearest expression of this wholly outsourced mode of government. As Jane Alexander, deputy director of the research wing of the Department of Homeland Security explained, "We don't make things. If it doesn't come from industry, we are not going to be able to get it."Why should this case be any different? Any regulation of the mortgage industry will undoubtedly favor major lending institutions and so-called free-marketers and not the people who've been hammered by the bad decisions made by those lenders.
The so-called free-marketers aren't going down without a fight, however.
“Every regulation reduces people’s freedom,” said David R. Henderson, a libertarian economist at Stanford University’s Hoover Institution. “The more regulation we get, the worse we do.”First of all, who is this "we" who does worse under regulation, because it certainly isn't the average person who's already at the mercy of corporations who can usually afford to steamroll them in any dispute? Would that "we" include all those mortgage lenders who made bad decisions in who to lend to, or who were deceptive about the terms of those loans, or who were less than open about the value of the securities they sold based on what Atrios has termed "big shitpile"? Are they more free? Or are they the stupid people who can't read a contract? I doubt it's the latter Mr. Henderson is calling out.
Mr. Henderson is critical of the Bush administration’s effort to freeze mortgage rates, and the new rules proposed by the Fed intended to curb nefarious lending. They undermine the sanctity of contracts, he said, while making mortgages harder to gain for everyone.
“The way they justify it is that you’ve got to protect the stupid people who can’t read a contract,” Mr. Henderson said. “But they’re treating everyone as stupid.”
I imagine there will be some regulation in the next couple of years, though I suspect any meaningful regulation will take place sometime after Jan. 20, 2009, and won't be as far-reaching as I would like, seeing as the financial industry has powerful allies in the Senate. Regulation generally follows meltdowns, and this won't be an exception. But what follows regulation is always a loosening of those regulations, as a new group of MBAs enters the workforce and is certain this time the market will regulate itself (assuming they know it has melted down in the past--history isn't their strong suit), and as a new group of consumers comes of economic age and buys into their system. And given this trend, I'm guessing the next one will occur sometime around 2019 to 2020.