What was it that got us into this recession, anyhow? Is it the banks' fault? Is it the consumers fault? Is it the government's fault?
Yes, yes, and yes!
What got us into this recession is greed - not capitalism. We cannot blame 'the market' for the recession, as markets do not act on their own. People act within rules of the market. Thus, people - bankers, consumers, creditors, debtors - not the market, got us into the predicament we are in. People bought houses they could not afford; banks promised loans they could not support to people that should not have gotten loans; people bought too many things on credit and let their finances get out of control; banks let them do this.
Greed! Not capitalism! These two things can go toghether, but are not by any means synonyms.
Captalism functions on the principle of a profit motive, and that may lead some to think that capitalism bases itself on greed. But one can have profit as their motive without overextending themselves, just as consumers may be motivated by money and material pleasures while keeping these desires in check. The problem is NOT that banks and consumers were motivated by material gain, but that they let this cloud their judgment; they ceased thinking about the long tern (can I afford to make this loan or buy this Hummer?) and did without thinking.
Greed!
My hope is that the era of frivolous spending is over. (That is a quote from our frivolously spending president for which I no longer have the link.) What many - including Obama - don't realize is that recessions are the economy's natural way of making us take stock. When spending gets out of control and people are spending more than the economy can monetarily support, recessions slam on the breaks by penalizing irresponsibility; loans must be defaulted on, business gets slower, jobs get cut, and prices and spending go back to a nice even keel.
What worries me, though, is that our very spend-hungry president is working to ensure that the good times artificially keep rolling! He is working to make sure that loans get forgiven or bailed out, jobs get artificially reproduced, and the irresponsible are saved from consequences of irresponsibility.
This will not fix the problem (as any economist worth anything will tell you), but it just postpones the inevitable. If a recession would naturally occur because we are spending out of control, the best way to curb it is make it so that spending cannot remain out of control. Our president and congress, though, are redistributing wealth precisely so that it CAN remain out of control. instead of making it so that those who have no business buying a four bedroom house can no longer pay their mortgage, the president will just make everyone pay four the four bedroom house. Instead of making sure that those who bought too much on credit must go into bakruptcy, he will make sure that we all pay for her things. Instead of ensuring that mismanaged banks be eliminated by forcing them to close under economic pressure, we are all going to pay for them to misrun their businesses.
My fear is that we will not have learned our hard-won lesson about greed's ability to tank an economy. My fear is that our leaders will protect the guilty (banks, greedy consumers) by punishing the innocent (those who don't need bailouts will pay for those who do.) My fear is that, in the process, all of this recession business will be for naught, as no one will have learned anything at all.
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But one can have profit as their motive without overextending themselves, just as consumers may be motivated by money and material pleasures while keeping these desires in check.
ReplyDeleteIt sounds like you'd say that "greed" is the name for excessive/unchecked profit motive in casual conversation. I have a similar perspective, that "greed" usually means short-sighted profit motive. (In the same way, I think that "morality" is used as a term for not-short-sighted pragmatism). Short-sighted profit motives cash in on the future to enjoy the present, and that's exactly what we're seeing.
My rant on the subject is that you can't make it illegal to be greedy. If people can make more money doing something harmful than they would doing something useful, that's at least as much your problem as theirs. We're apparently dumb enough as a society that it's cost-effective for diamond companies to buy up half of the advertising blocks on some stations, and I hate it. Should I push for the government to put a cap on diamond advertisements?
I do think government intervention and subsidies could help sometimes (even though it pains me to say it), but IMO it wouldn't help much unless we tried to shape incentives and not consequences. We don't even try to reward "good" behavior, and for that matter, we don't even consider enforcement (punishment) in the cost of political decisions. We just assume that if it's illegal, people will stop doing it, and they certainly won't try to find loopholes, because everyone can't be a criminal...
>>>I do think government intervention and subsidies could help sometimes (even though it pains me to say it), but IMO it wouldn't help much unless we tried to shape incentives and not consequences. We don't even try to reward "good" behavior, and for that matter, we don't even consider enforcement (punishment) in the cost of political decisions.
ReplyDeleteThis is one of the things that worries me: we are not punishing the guilty with natural consequences (bankruptcy, etc.) Those who issued predatory loans, let them go under rather than subsidize and reward them. Those who bought houses they could barely afford; let them go into hock, rather than reward them by immunizing them from consequences.
A recession hurts more when you don't learn anything from it.
And, yes, as a believer in capitalism (as the best of imperfect systems), it is frustrating that you can't outlaw greed. What you can do, though, is punish it with the natural consequences that are available: overextended companies tank, those who spend what they don't have go bust.
There is also a flipside to capitalism: we can pick the work we do and how much we spend. If someone wants to make a lot working themselves to the bone, they can. If someone else would rather than an enjoyable but lower paying job, they can. We get to choose whether we would rather than piece of mine and leisure time or material things.