Last week, the Financial Crisis Inquiry Commission kicked off their first round of hearings on the causes of the economic meltdown on Wall Street. The commission is being compared to the the Pecora Commission launched in 1932 to investigate the causes of the Great Depression. The Pecora commission is beloved by those who believe the solution to every problem is more laws because it was used to justify a number of new laws, including Glass-Steagall. Of course, none of those laws addressed the real causes of the Great Depression. It was the introduction of unsound monetary policy and central economic planning pursued by the Federal Reserve that really threw everything off balance. The Fed was founded in 1913 to stabilize the economy and prevent a recurrence of the short-lived Panic of 1907, but instead it promptly produced the Great Depression which lasted more than 15 years.
The Pecora Commission was stacked with big government sympathizers who blamed the free market and the gold standard without question, and without any consideration of government interference in the economy. This panel is no different. Never will they contemplate how government steered us into this crisis, and what perverse incentives can be removed or repealed so that the market will function more smoothly. Never will they discuss how investment should come from savings, not debt. Never will it occur to them that fiat money, artificially low interest rates and the whole Federal Reserve System might be unwise and unstable, not to mention unconstitutional. The answer will always be more government regulation and oversight. It is predictable that this government panel will eventually come to the firm conclusion that government needs to be bigger, and that the market is just too free.
How sad is this when exactly the opposite is true?
It is big government that gives out tax breaks to engineer behavior, often creating large pockets of malinvestments. It is government that created the FDIC and the Fed as lender of last resort which all encourages moral hazard. It is big government that gives bureaucrats the ability to bail out cronies with taxpayer dollars while screaming that the economic sky is falling if they don’t. It is big government that every year adds new layers to the already labyrinthine regulatory code that smaller businesses can’t keep up with while simultaneously preventing new businesses from emerging. It is big government that misdirects economic productivity into bankrupt businesses that they consider to be too big to fail.
If this panel was serious about understanding the root of the problem, as they claim to be, they would have people testify who understand the crisis and saw it coming. To my knowledge, none of them have received a phone call. The problem is those people would say too many things the government panel would find inconvenient. They would point fingers at too many of the state’s anointed. They would recommend getting government out of the way of the free market and getting back to simply protecting contracts and punishing fraud. But the biggest fraud is perpetrated by the Federal Reserve. No one on this panel takes that viewpoint seriously. Instead, they will be asking people who are still scratching their heads at how they could have missed the housing bubble what new regulations they can put in place to prevent future bubbles. Thus, I don’t expect much real wisdom to come out of this current investigation.
["The Federal Reserve, New York" photo by eflon; CC BY 2.0]
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Jan 20, 2010
Militant Libertarian » Government is Too Big to Succeed
Jan 21, 2010
State of the Republic Address: Is That All There Is To A Recession? | Homeland Stupidity
Etho
Jan 26, 2010
I was talking about this with a friend the other day, an idea about a revised/sustainable capitalism. We were discussing that, given the market’s reliance on luxuries (and basis in – even in ancient Kemet, luxuries were the foundation of the monetary system), you could have a for-profit economic system that was theoretically indestructible. Mainly, you remove necessities.
Much earlier, in the Gilded Age preceding the depression, the majority of people (that is, lower to upper socio-economic class) could no longer afford to pay for the necessities they required to survive: food, housing, water. It would actually be quite easy to make a coherent argument that this is primarily what inflation applies to: the relative ease/difficulty of your money getting you what you need to live.
So you remove that aspect from capitalism, and you get an economic system that is virtually indestructible. Everyone gets an apartment, food and water, period. (NOTE: none of these were/are guaranteed by any Communist government, go read a book.) The government does not control any aspect of the economy including regulations, nor does it find you a job.
You may think that this would lead to massive amounts of laziness, but then you’d be clinically retarded for massively underestimating how materialistic the current era is. At the same time, it also provides jobs that won’t decline. Apart from your possible employment in the industries of everyday luxuries like iPods, cheese and milk, computers, marzipan, DVD players etc., you also have everyday jobs.
Farming is a job, electrical repair is a job, housepainting is a job, running garbage trucks is a job, being a firefighter is a job, etc.
Meanwhile, you let society go technologically insane, and if it suffers a crash, it won’t be as hard to un-crash. (Did You Know? Economics 101 teaches us that Depressions are necessary for capitalism!) Organically speaking, it’s much easier to recoup after the loss of a non-essential body part, and I truly believe that food and shelter are more essential to survival than Assassin’s Creed.
Most capitalists don’t understand their own beliefs, though (well, most everyone doesn’t) and I don’t expect you to be convinced by this (if you read it). But it was interesting to think about nonetheless, especially as I am Death In A Hot Tub (i.e., anarchist).
Michael Hampton
Jan 26, 2010
Interesting fantasy, Etho, but you forgot to mention where the apartment, food and water would come from.
And you’re reading the wrong economics books. Depressions occur when the market attempts to correct itself after large-scale mistakes; but those mistakes are only possible when government has interfered with the economy.
Brad Spangler
Feb 01, 2010
re: “They would recommend getting government out of the way of the free market…”
The market is NOT free. Please quit confusing matters by calling it “the free market”. That’s just leftover, obsolete Cold War propaganda. You could have said the same thing 100x more clearly by writing:
“They would recommend freeing the market…”