Monday, October 10, 2011

The Problem of Not Recognizing the Problem

There was an almost-good article today at Christianity Today.  It deals, in general, with the ethics of, and blame for, financial problems in our country today.  While some good points are made in the article, I had to give it the “almost-good” rating because of this:

Both sides of the political aisle are to blame for the Great Recession and its repercussions on the American (and world) economy. Republicans recycled the old Reagan mantra of the 1980s that "government is the problem, not the solution," blindly applying it to our financial regulatory institutions while failing to recognize that even the most free-market economists point to the need for careful government regulation of the financial industry. In doing so, they let the Labrador off the leash. But seeking to appease their own constituents, Democrats pressured quasi-government lenders Freddie Mac and Fannie Mae to offer easy loan terms to Americans of modest incomes, relieving them of the self-discipline of having to save for an adequate down payment on a house.

While ‘both sides’ (as if there could only be two) of the aisle are to blame for the problems, it is not for the reasons the author states.  The problem is that no one, including the Republicans, really acts as if government were a significant part of our financial problems.

I’m not sure who these “even the most free-market economists” this author has in mind are, but there of plenty of economists who will point out in great detail how and why the current maze of governmental attempts at regulation of the economy in general are the direct cause of all kinds of problems.  You can locate these economists at places like the Mises Institute, the Cato Institute, The Foundation for Economic Education, and The Heritage Foundation.  You will find some policy matters about which these groups will disagree.  But one thing they do daily is offer evidence for the proposition that, in matters economic, the government very often is the problem.

Government would be doing quite well if it could only manage to punish economic fraud and theft.  It mostly fails to do that.  On top of that, governments propagate a good deal of their own legalized fraud and theft.

But even when governmental financial rules and regulations have purported good intentions, they often fail the “have you considered the unseen side of things” test.  Take something as innocent-seeming governmental insurance of savings accounts.  While it sounds nice, think of how it has perpetuated the idea that a bank account is a riskless investment.  There are no riskless investments.  The only way to make it appear that there is comes with government stepping in to “rescue” depositors and failing banks.  If the premiums for this “insurance” really covered the cost, that would be one thing, but they do not.

We learned this in the 1980s when there was a cascade of ‘savings and loan’ failures.  The government simply supplied billions (or at least hundreds of millions – dollars went a bit farther in those days) of other people’s money to bail out investors who had been told for years that there was no risk to their investments in savings and loan institutions.  There was plenty of risk, and some of that risk was created by the incentives placed on the savings and loan institutions by previous government regulations!

Most of us wouldn’t know a free market if it slept in our bed.  (OK, I wasn’t sure how best to say that.  But you get the idea.)  A free market is simply what happens when individuals are allowed to interact economically without government restraint, other than punishment for theft and fraud.

When governments intervene in other ways, the individuals (and the ‘market’ they create) are no longer free.  Neither economic preclusion, nor requirement are compatible with freedom.  To say otherwise – as does this Christianity Today article – is utter nonsense.

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