Friday, December 19, 2008

What the hell just happened?

This has been an extraordinary fall. For all the prognosticating, for all the deliberation about what appeared to be relevant issues and directions, I would not have guessed we'd be where we are.

First, oil is under 40$ a bbl. While I would have expected volatility at the oil production plateau, this is way more than I would have expected. This financial crisis has apparently created so much demand destruction to push price down into the 30s. Wow.

And the financial crisis. For a long time I've wondered about the structural instability of our system. To the point wher my students I'm sure got sick of it. The debt financing of everything scared me. And with Fourth Turning saecular financial problems in the back of my head, I thought it could be exciting (but not in a good way).

However, it's the response that has been truly shocking. Everybody over a certain age remembers when communism and the ruskies were the bad guys - nay evil even. But, the response to this financial crisis has been one huge governmental intervention after another, each more unaffordable than the last.

I almost don't care what perspective one takes on this, let the socialists and the free marketers argue out their ideologies.  I think there is no way to prove this mess one way or another. Our system is mixed enough that both sides will 'prove' they are right and the other wrong no matter what.

But I simply cannot believe how quickly we've handed over everything to Big Government. It was completely economic, not political. For all the talk of Obama's lefty-ness, the change was in the economy. 

I simply cannot believe that the country that self-defines as capitalists, and further seeks to export democratic capitalism across the globe, turned so quickly and so thoroughly to the government for everything.

Real capitalists let unprofitable businesses fail. Real capitalists let the owners of bad debts eat those losses. Real capitalists let those who are truly underwater go bankrupt. Those are the risks, and the gains and losses associated with those risks. But no, here we are putting 700 billion into the banking system (hint - maybe those house prices should  fall), 50 billion into autos, all so these guys don't fail.

If we want to run a more socialized country, I guess that's ok. But I am dubious that we'll see the benefits of that at the citizen level. In a decent system such as that, I would hope for decent schools, daycares, health, pensions, and even college for the citizenry. Funny thing is that here, every time we decide to publicly fund something, we do it so that it only helps those on top.

Take college. The government spends untold amounts on college, but the students who go to college end up deeply in debt. A huge chunk of that govt funding goes to the research profs in the form of grants that never penetrate down to the student level. Take farm policy. Many more billions of dollars, none of it going to the 40-head family farm dairy operation. Where's it going? To multi-million dollar agri-business operations.  So neither the college tuitions, nor the survival or extinction of family farms are a result of free markets. But instead of the govt intervention helping the little guy (If we're going to suport anybody I'ld prefer the small entrepeneur and the citizenry), it goes to the top.

So, if we're going to run a more interventionist economy, and a more social-welfare society, fine - but our track record suggests that it will be those who are at the top already who benefit the most. 

Private rewards and public losses isn't fair to anyone.

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