One ray of light, one bolt of gloom

by on December 29, 2008 at 12:55 pm in Current Affairs | Permalink

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.

Mercutio.Mont December 29, 2008 at 12:58 pm

We’re in a race? The government already allocates something like 30-40% of GDP every year. The race ended many years ago.

thehova December 29, 2008 at 1:39 pm

Paul Krugman, I think Tyler is referring to economist like you!!!

Hinjew December 29, 2008 at 2:36 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

Bill Nichols December 29, 2008 at 2:37 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.

roversaurus December 29, 2008 at 3:50 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.

y81 December 29, 2008 at 4:30 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.

Anonymous December 29, 2008 at 8:36 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.

Kevin Carson December 29, 2008 at 9:04 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.

Gabe December 29, 2008 at 11:03 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?

carping demon December 30, 2008 at 3:07 am

Got here late, so you may need both hands.

Ayn Rand = “high school thinking”

Alan Brown December 30, 2008 at 7:58 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.

John Dewey December 30, 2008 at 9:57 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.

Alan Brown December 30, 2008 at 3:56 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.

Tony December 30, 2008 at 6:45 pm

Some editions of that book are heavy enough that throwing copies of it at people might get you arrested for assault…

Mark December 30, 2008 at 6:55 pm

I am absolutely afraid that things will get ugly, very ugly, in this way.

In my own limited experience with “big” projects in an institutional setting (~$5 million per project, university setting), success by external measures was much less valued than satisfying internal political considerations.

Scary, indeed.

Mark

PD Quig January 2, 2009 at 9:25 am

I suggest that everyone get a copy of “The Creature From Jekyll Island,” read it, and pass it around to friends.

http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212

The Federal Reserve is a cartel whose aim is precisely to make the American taxpayer guarantee and even fund the cartel’s bad loans.

It may already be too late to kill the Fed before it completely destroys the United States…which is also part of its ultimate goal of world socialism funded through the IMF/World Bank.

Paul in NJ January 2, 2009 at 6:38 pm

Hinjew opines that “the solution needed is to minimize the ability of private and corporate interests to influence legislative outcomes.” Just a little problem there: you instantly run afoul of the First Amendment — you know, where citizens get to petition Congress for a redress of grievances and all that. And who defines a ‘private’ interest? I’m a private citizen and therefore I’m a private interest. We all are! Would he ban himself from giving Congress a piece of his mind? Or do I misunderstand him?

“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.”

Tell you what: you write up a system where every decision, large and small, isn’t bogged down in this ‘court case’ system for fifty years, and I’ll vote for it. After we all debate it for fifty years, of course. ;}

“Imagine the Environmental Protection Agency given the power to freely tax based on their independent assessments of pollution levels.” No, thank you. (shudder)

“No one pretends that democracy is perfect or all wise. Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time.” Winston Churchill, Speech in the House of Commons, 11 Nov. 1947.

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