What’s Wrong with the World

The fourth excerpt quoted above, from one of the very essays I read this morning after rolling out of bed, gets to the fundament of our political economy: owing to a variety of factors, some structural, and some political, our economic and political establishments (and are these not more or less the same people?) refuse to reinvigorate actual productive enterprise - by, say, incentivizing domestic production and exports - , proposing instead to return to an economy predicated upon asset inflation and debt-driven "wealth effects". Yes, we shall all prosper, if only we become still more indebted, ultimately, to Wall Street, and more dependent upon the casino of modern finance.

An excellent piece.

'Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization.'

"That’s brilliant. This feature had never quite crystallized for me. As another friend just put it to me, “One intriguingly incestuous aspect of a lender the size of USG is that when it charges less for interest it also has to pay less for interest.”"

I'd heard of this notion before but forgot to connect it to the current crisis.

Ron Paul came up with the catchy phrase "the inflation tax" to describe one form of USG fiscal irresponsibility. What would be a catchy phrase for this phenomenon? The indebted banker is acting as his own loan officer.

~~~There is a group of people that blames the government for this mess; there is another group that blames Wall Street. Constructive understanding will come when they all, as the kids say, embrace the healing power of “and.”~~~

Ain't it the truth. I wouldn't hold my breath though. I won't speak of the WS-blamers; they've got their own problems. I'm much more familiar with the arguments of the govt-blamers. The problem with them is that they will see Wall Street's sins as being caused in some way by government's sins further upstream. You know the drill: "If the market were really free, this wouldn't have happened," and then the bewailing of regulation, lobbying, state interference in the market, etc., begins.

It's the Marxist narrative in reverse: real Marxism would work, but we've never been able to get there because of capitalist opposition. Conversely pure capitalism would work, but we've not been able to get there because of government intrusions and regulations. Both narratives spring from the same Enlightenment-based amoral materialist source. The former keeps avarice a vice but makes a virtue of envy; the latter does the opposite.

Apart from Ayn Rand & her followers, I don't think many opponents of unlimited government make a virtue of *avarice*. But they do consider *freedom* good in itself, and a precondition for various virtues.

I've no doubt there are lots of short-sighted people on Wall Street who profit from our unstable economic condition, from the assurance of govt. bailouts, etc., from easy money, and who therefore want all these economic negatives to continue in the hopes that when the music stops they will either already have died rich or will be one of the ones to get a chair.

On the other hand, I tend to think that the _prescriptions_ of those who simply blame Wall Street and refuse to blame govt. are probably worse practically speaking than the _prescriptions_ of those who simply blame govt. and refuse to blame Wall Street.

Lydia:

On the other hand, I tend to think that the _prescriptions_ of those who simply blame Wall Street and refuse to blame govt. are probably worse practically speaking than the _prescriptions_ of those who simply blame govt. and refuse to blame Wall Street.

As in other areas of modern life, it is my view that until enough people learn to step away from the dominant civil religion, to reject it utterly -qua- civil religion and repent, it will be impossible to cherry pick any babies out of the bathwater.

i.e., zippy, "the worse the better?"

"On the other hand, I tend to think that the _prescriptions_ of those who simply blame Wall Street and refuse to blame govt. are probably worse practically speaking than the _prescriptions_ of those who simply blame govt. and refuse to blame Wall Street."

Perhaps, but then we've seen Marxism in action and have something to go by to make our determination. I for one would not be keen to live under an economy with no regulation of the market, Mises and Rand notwithstanding. I wonder exactly what that would look like, but my guess would be "not pretty." Thankfully, we'll never have to worry about it.

This is something folks with what I call liquidationist tendencies have to get through their heads. When Hank Paulson and Ben Bernanke told Lehman’s CEO Dick Fuld no government rescue would be forthcoming — when they gave him the pistol and indicated, “you know what to do” — they unknowingly triggered a panic that will ring down for decades as negative incentive for virtually every financier or policymaker in the world. “Not another Lehman” is the operating principle of finance capitalism now and for the foreseeable future. Contrary to what its promoters are saying, the financial reform bill recently passed by the Senate, and likely to be signed by President Obama within a few weeks, does not do away with Too Big to Fail; it consolidates it as hard and fast

Something the anti-liquidationists need to understand is that the choice is not between the bailout we got and a liquidationist pile of rubble. The government could have ceeded the US gold reserve to the US banking system at a dollar price sufficient to back every US dollar liability in the economy. This would have rendered the banks rock solid leaving just the problem of equitably and fairly distributing the excess bank capital that would result, likely by bypassing the equity holders and paying it out over time to the bank depositers pro-rata. With the threat of catastrophic deflation eliminated, the government could go even further and require gold redeemability of all dollar holdings -- now possible at the new, much higher market price of gold -- ending inflation as well.

I know, I know. Gold had it its shot and got left behind for better methods that have brought us exponential debt growth (since debt denominated in currency that is itself debt-based is impossible to pay down), made trillion dollar budget deficits possible and eliminated our ability to decipher just what the actual financial position of the nation is (again that recursive problem of a government keeping its books in its own liabilities, kind of like a joint stock company rendering its balance sheet and income statement in its own stock issue).

I agree that the economic and political establishments are basically the same people. The financial reform bill is meant to strengthen them.

...the choice [was] not between [TARP] and a liquidationist pile of rubble.

Oh yes, it most definitely was, gold and other fantasies notwithstanding.

...eliminated our ability to decipher just what the actual financial position of the nation is...

Such an ability has never existed.

Everybody knows the "who watches the custodian" bit. No less true for the modern regulatory/administrative/distributionist State. You want it, you got it. But we have only begun the downward slide and whatever the nefarious role of the demon Wall Street, they will dance to the St Vitus tune played by the government. I would suggest the sophisticates here stop equating the two or even implying some kind of partnership. One takes the dole handed to them, the other takes the Nation, whole.

Meanwhile, Fannie and Freddie continue their multi-billion $ losses. Inevitably this is where the regulatory regime had to take us, driven by our urges to fix things, to make things right, to dispense both honesty and, what else, fairness, that virtue of which only government can bless us with.
It took time but here we are, and I suggest you be prepared to wade through a lot of rubble in the near future.

Ayn Rand, forever mocked, even while we witness the fruition of that which she warned and foresaw.
Me, I would prefer Jim Fisk J P Morgan over the trash that contaminates our nation and it's capitol, it's history and it's freedoms, that practices it's contempt even for the fools who believe in them.
Now, let us hurry, we have Europe to catch up with.

Myself,

'Everybody knows the "who watches the custodian" bit. No less true for the modern regulatory/administrative/distributionist State.'

I think it's more aptly described as the 'modern regulatory/administrative/redistributionist/corporate/managerial state.' Don't leave out the huge part that big business plays in this Leviathan.

"Ayn Rand, forever mocked, even while we witness the fruition of that which she warned and foresaw."

Conservatives don't need to resort to the work of a bitter atheist to disprove socialism. Rand may well have gotten the diagnosis right but her proposed cure is as bad as the disease.

Rob, I think I addressed the notion of a partnership in my opening comments. If it is one then there are junior partners and one very big senior one. The "huge" part you reference is therefore subsidiary to a "huger" part, and there may be former bondholders of GM who have opinions on this.
Or perhaps the public reviling of an executive before a Congressional committee.
Headline; "BP to Investigate Holder and Federal Government".
I think not & I hope you get the point.
As to Rand; Spare me, really, the "bitter atheist" bit. What has that got to do with what she foresaw? Would you consider the work of an unbitter agnostic?
The "cure as bad as the disease" is poorly timed, more so as we rush after Europe in a similar effort to destroy what we had. Thanks, but warts and all I'll still stick with Jay Gould & Jim Fisk. Better a Robber Baron then a Robber Government, and one run by the flotsam & jetsam of the human race.

There has been a major shift in power in 18 months, many fail to grasp the extent and the consequences, or don't want to.

"Better a Robber Baron then a Robber Government, and one run by the flotsam & jetsam of the human race."

johnt, hate to break it to you, but the Robber Barons and the Robber Government have shaken hands and are now working together to hose the middle class. At this point to apply percentages of blame is useless; when you're fighting Leviathan it doesn't matter too much whether you spear his left paw or his right.

Better a Robber Baron then a Robber Government...

johnt

So true. Beyond the vastly greater physical coercive power the Robber Government has compared to the Robber Baron, the modern Robber Government is also morally worse, much much worse.

johnt, hate to break it to you, but the Robber Barons and the Robber Government have shaken hands and are now working together to hose the middle class.

Rob G

Oh, johnt sees that perfectly well. He also sees that enabling the latter always enables its junior partner in crime, the former. The reverse is harder to manage; most people can easily see through claims of moral legitimacy made by individual robbers.

And now for a short, poetical lesson in progressivist divide-and-conquer politics:

    Rob G
    not me.

Roses are red,
Violets are blue,
If Rob G is a progressive,
Kirk and Weaver are too.