Friday, February 20, 2009

Uncle David

David Brooks, who spent the last 8 years as an apologist for the Bush administration, has found a new calling fawning over the new administration. Brooks appears, above all, beholden to, or at least, unseemingly enamored with, power.

In his latest column he writes:

Our moral and economic system is based on individual responsibility. It’s based on the idea that people have to live with the consequences of their decisions. This makes them more careful deciders. This means that society tends toward justice — people get what they deserve as much as possible

Over the last few months, we’ve made a hash of all that. The Bush and Obama administrations have compensated foolishness and irresponsibility...

The stimulus ... will almost certainly force people who were honest on their loan forms to subsidize people who were dishonest on theirs.

These injustices are stoking anger across the country...

Let me put it this way: Psychologists have a saying that when a couple comes in for marriage therapy, there are three patients in the room — the husband, the wife and the marriage itself...

In the same way, ... a common economic landscape emerges, which frames and influences the decisions everybody makes.

A few years ago, the global economic culture began swaying. The government enabled people to buy homes they couldn’t afford. The Fed provided easy money. The Chinese sloshed in oceans of capital. The giddy upward sway produced a crushing ride down.

These oscillations are the real moral hazard. Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate.

It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.

The way I remember it, "Moral Hazard" refers to policy that rewards, and therefore encourages, bad behavior. "These oscillations", Brook's mindless assertion aside, are of course, the opposite of a moral hazard, they are the natural consequence of our collective economic behavior.

Brook's seems to feel "moral hazard" is something akin to theodicy. To him, these oscillations present moral hazard apparently because the righteous are suffering. Were that the case, capitalism itself is a moral hazard -- doing the "right thing" improves ones chances, but does not guarantee, success. Even within his frame, his analysis is poor. In as much as we, as a society, tolerated -- and all, in the short term benefited from -- bad economic policies that led us naturally to where none among us is without sin.

In as much as these oscillations are the products of the invisible hand trying to return sick markets to health, its does not make sense at all for government to intervene to protect the disease.

Government can, of course, act to reduce the pain. The happy reality is that it can do so without showering money on Brook's "idiots". It can change tax policy to help good companies squeezed by unnaturally tight credit. Arguably, if it can be done in a reasonably fair and corruption-free manner, government ought to be lending directly. It certainly should be helping people who have lost their homes incomes and health care. Even some level of deficit spending on infrastructure projects.

In other words, we can all agree with Brooks, that government should help people -- including those who were irresponsible -- suffering in this economic downturn. But its hard to agree with Brooks that the government should be trying to preserve those economic structures that led us here. Concretely: Its hard to defend the proposition that propping up failed banks, and then demanding that they engage behavior they would otherwise themselves deem too risky and pouring 200 million more into Fannie Mae and Freddie Mac and increasing the riskiness of their portfolios are parts of the sensible way forward.

Actually executing this is a near-impossible task. Looking at the auto, housing and banking bailouts, we’re getting a sense of how the propeller heads around Obama operate... they seem to be driven by a spirit of moderation and restraint. They seem to be trying to keep as many market structures in place as possible so things can return to normal relatively smoothly.

What is apparent to Brooks, may not be apparent to all. Whatever drives policy like mortgage cramdowns it is neither the spirit of moderation and restraint nor a fundamental respect for market structures.

Of course, the nominally conservative Brooks apparently shares with Obama the belief that only the government can (best) address our current problems. The liberal Krugman disagrees with them. Of course, Krugman is, in his heart, an economist while they are both products of politics.

And they seem to understand the big thing. The nation’s economy is not just the sum of its individuals. It is an interwoven context that we all share. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent. The greedy idiots may be greedy idiots, but they are our countrymen. And at some level, we’re all in this together. If their lives don’t stabilize, then our lives don’t stabilize.

That is a rather perverse spin on it.

In the end, these people -- "our countrymen" -- run a protection racket. They hold our economic well being hostage to their over-sized profits. If we don't pay them off, we risk our store being burnt down.

Brooks, enamored with power, would make an odd virtue out of paying protection money or negotiating with terrorists.

In all these examples, the short term interest is contra the long term interest. It used to be that liberals, following Keynes, more privileged the short term against the long term and nominal conservatives were more willing to bear short term pain in the service of long term gain.

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