Wall Street Vs. Main Street
Today, Dack sent me a link to a quote by Bernie Sanders:
“Also, I think that we have got to be—we on the left have got to be thinking big and learn a little bit from our right-wing friends who are able to pivot on a dime. For years now, they’ve told us that we can’t afford—that the government providing healthcare to all people is just unimaginable; it can’t be done. We don’t have the money to rebuild our infrastructure. We don’t have the money to wipe out poverty. We can’t do it. But all of a sudden, yeah, we do have $700 billion for a bailout of Wall Street. So, my view is that, included in what we do, there should be a significant stimulus package, a really significant one, which addresses healthcare, which addresses sustainable energy, which addresses the infrastructure, which creates substantial number of jobs, addressing many of the long-term unmet needs of this country. ”
-Bernie Sanders
http://www.democracynow.org/2008/9/22/sen_bernie_sanders_robert_scheer_and
Here is my problem with where we are at in the economy, our government, and in turn, Bernie Sander’s ideas for fixing this mess.
First off, our national spending is so ridiculous and beyond our means that our debt just keeps skyrocketing, which kills the dollar and further boosts the speculative bubbles in things like oil. The thing it is important to remember is that we DON’T have the money to just pull this 700 billion dollars out of our magic hat. The fact that credit is basically frozen in our country is a scary thing. With market liquidity essential frozen, how are we going to get it back once we bail these companies out? How are we going to get the engine moving along again? The fed has already gutted interest rates so much that they can’t really go that much further so, in my eyes the only real way out here that will most likely be through inflating the money supply, higher taxes, and a general loss of wealth all around. It is important to note that simply printing larger stacks of money in order to pump dollars into the money supply only further drops the value of our dollar. The problem here is that we are at the end of the road. We keep engaging in more and more drastic measures in order to give our economy time to recover. With a trillion dollar bailout and gutted interest rates, what other options do we really have? What emergency measures can we really take to give us enough time to recover before we simply ignore the lessons of the past and go back to “business as usual” (which is always what seems to happen post-recession/depression).?
In my view, we can either limp along a while longer or we can take our medicine now. However, will we learn the right lessons from either path at this point? I don’t think so and that is what angers me or depresses me.
Bernie Sander’s quote just epitomizes that fact and highlights it in giant bold letters to me.
I brought up this example to Dack:
“If buying a $10,000 plasma screen t.v is going to overdraw my account, how is buying a $10,000 guitar any wiser of a move?”
If you want to dig deeper into this example, one can say, “Well, if you learn how to play the guitar, you can make your money back by playing music. So, it is an investment into a trade.”
Much in the same way, this “main street bailout” rhetoric seems to be focused on the concept of developing human capital through investing in things like healthcare, education, etc.
On paper, that looks fantastically smart. However, we have to ask ourselves about what caused the problems on Wall Street to begin with.
It is my argument that at some point, these gargantuan companies simply became too large to effectively oversee. After all, it is extremely tough (if not impossible) for a group of small individuals to oversee companies with tens of thousands of employees throughout numerous countries. Stack on the incentives that such companies have to corrupt the overseers and you have a classical “Who watches the watchmen?” scenario. That only gets crazier as the number of people needing to be overseen grows higher. At some point, you end up with entire oversight bureaucracies existing to watch other bureaucracies (which creates an EXTREMELY tenuous balancing act!)
On a deeper level, we have to ask why these companies became so huge to begin with. Could these companies have become so gargantuan without the Fed regulating interest rates (and in turn, influening lending and the flow of capital)? Would banks be able to lend as much money or “prime the pump” as much as they can with a Federal Reserve? Bringing questions about the Federal Reserve into the picture are only the tip of the iceberg when it comes to explaining how mega-sized comporations come to exist due to government intervention. A whole slew of questions regarding minimum wage, tarrifs, protectionism, barriers to entry, and other such subjects could also be introduced here in an attempt to explain how corporations get large with government involvement. However, before you even start to address the big picture of how all of these intervention mechanisms merge and create these gargantuan companies to begin with, people normally toss up 1,400 defense mechanisms. The reaction tends to fall somwhere in between telling a 6 year old “there is no Santa Clause” and telling a senior citizen that you want to cut social security. To really get a place where we can address these problems as a culture and nation, we need to be asking some tough economics-based questions and demanding real answers. We need to take a good hard look at where we are and how we got here. I think we honestly need a healthy debate about our economy where everyone doesn’t just treat it as a given that we actually need a Federal Reserve (which we didn’t even have until 1913). Until that kind of discourse happens, what is going to change?
Frankly, I think that having a large economy provides us with services, technology, and resources that we all want. However, my position is that it has to arrive at it’s size through natural (and not artificial or manipulated means) or it will inevitably end up in a position where it can’t sustain itself and collapses under its own weight like a body builder pumped up on steroids.
To move back to the human capital argument, my question is, “What is any different with this approach than the failed policies of Wall Street coporatism?”
My argument is that investments into human capital (education, health care, etc) require large amounts of money to be invested. That investment inevitably creates large bureaucracies, larger government, and larger institutions. The problem with “bigger is better” is that when you have a marriage of big government and big business, the institutions designed to help people inevitably end up corrupt, full of communication issues, etc.
Here is a great example of this:
http://blog.wired.com/defense/2007/08/2-washers-1-mil.html
Another solid example is massive amount of hurricane Katrina fraud that happened. We had people people scamming FEMA that weren’t even living in the region at the time of the hurricane! A simple google search will pull up the fact that millions of dollars just “disappeared” due to the Iraq War and Katrina. This isn’t some sort of esoteric or arcane knowledge that only a few have access to or a conclusion that requires a degree in economics to come to.
You can see many examples of leeches and flies feasting on the bloated belly of our government just by looking around or looking at history. O honestly ask anyone who favors main street bailouts how they think that things would be any different now?
When your goal becomes helping people (on a super sized scale) and government becomes the mechanism for enacting that help, then you create bureaucracies, institutions, and business that exist exclusively to “help people.” However, those institutions (and the corresponding payrolls) dry up if the problems really get fixed and everyone plays things honestly. At some point, you end up with an racket with distorted prices and scamming. When that happens, the government’s focus shifts from “helping people” to fixing the problems that the government intervention caused in the first place (assuming they can even address the monolithic problems they created at that point).
At some point, in the wake of government “help”, you end up with a military-industrial complex, an educational-industrial complex, a welfare-industrial complex, etc. What are the results? With the military-industrial complex we have incentivized war, tied it to our economic health, and created a disincentive for peace and diplomacy. With the educational-industrial complex we have $150 textbooks, testing companies like ETS, and a whole host of other issues. When government decided to “help” our society combat drug abuse and addiction, we created a network of prisons that incarcerate millions and a a whole industry dedicated to “fighting drug wars” abroad and aiding corrupt foreign governments in Latin America. I could go on, but I don’t think I really need to. Our distrust of Republicans and Wall Street scam artists seems to have no bounds. Yet, the left never seems to make any compelling arguments for why we should just “trust” the government to fix all of our societal ills by putting them in charge and ratcheting up the tax burdens on everyone. The assumption inevitably seems to be that the population will be informed enough, smart enough, or have enough of an interest to hold the people in charge accountable. I ask you this: Where was that accountability in 2004? Where is that accountability now? We have at least 45% of the country willing to vote for McSame. Are these going to be the people “watching the watchers” so to speak? Really?
This is the problem with the “oversight/regulations will fix everything!” mentality.
Those problems are only compounded when you have unprecedented seizures of power in the executive branch and people in government basically saying, “subpeona me or send me a sternly worded letter and see if I care or show up to testify!”
The “oversight/regulation fixes everything” argument usually is connected with an attempt to opine for some non-existent “golden age” of American life or politics when things were supposedly “A-ok.” In almost all cases the arguments for “better times” obscure the nuance and details of the tradeoffs involved in those “better” eras. It is my argument here that there has not really been any time in our history where we have truly addressed problems with “the whole” of government. We always seem to simply end up fighting a part of government and leaving the rest for the next generation. By the time the next generation rolls around, the heads of the hydra have grown back and it is back to square one.
Madison had a pretty solid quote in Federalist #51 that is pretty relevant here:
“In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.”
In my view, the only way that gets feasible at all is to have a government that is small enough to actually be subject to oversight . Anything less than that will simply not “oblige the government to control itself.” You might control a bit of the beast (government) at a time, but unless you reduce it in size, you aren’t really controlling it, you are just controlling a part of it (and the whole ends up controlling you). The “empower the people (with healthcare, insurance, education, etc)” rhetoric seems to want to keep the government at the same size but make us all a mighty Heracules capable of taking it down as a group and rendering it unnecessary. That seems just as naive as the reverse (“trickle down” economics) because the government has absolutely no incentive to actually let us get strong enough to actually challenge its hegemony through empowerment. Part of the problem is that empowerment requires so much time, resources, and integrity that it is ridiculously simple to corrupt people along the way and undermine the whole process. It is much easier to destroy a work in progress than it is to build the “work in progress.”**
As it currently stands, our options seem to come down to, “Which head of the hydra do we want to deal with at this moment?” Do we want to deal with the Wall Street ™ head (Republican corporatism) or the Main Street ™ (welfare state corporatism) head of the hydra?
Somebody needs to start cutting these heads and burning the stumps because unless we do, we will never get strong enough as a whole to fight and win.
Don’t get me wrong, I don’t blame people for being pissed at Wall Street and their golden parachutes. Who isn’t pissed at these guys? Who doesn’t think that these rich jerks (who have fleeced people just trying to make mortgage payments) deserve to foot most of the bill for this mess?
I think this quote sums up popular sentiment rather nicely right now:
“When you have the free market and the privatization of profit but the socialization of the losses, that doesn’t make any sense” Gabriel Onofrio (Neighborhood Assistance Corporation of America)
While I stringently object to anyone deluded enough to call our economy or financial system a “free market”, I can sympathize with people being pissed as hell over getting fleeced by this organized racket. The answer is not to go with the Sanders Solution ™, though.
The question is, where do we go from here? Fiscal responsibility and smaller government? Or do we just transfer the excesses of Wall Street down the road to Main Street?
The competing arguments seem to be, “Bail these companies out and let things continue as if nothing has happened so we can keep getting rich off of your sweat and blood” (Republicans) or “Bail EVERYONE out and spend more…just spend it on the ‘little guys’ too and not just the fat cats” (Democrats).
Maybe I’m missing some secret piece of the puzzle here, but the fact that these two approaches are the dominant and competing approaches on the table right now is precisely why my odds aren’t on economic recovery or renewed prosperity.
Just my 2 cents.
-E
**For a good cultural “tie in” see this article:
http://www.overthinkingit.com/2008/07/31/the-philosophy-of-batman-political-sociology-edition/
In the article’s view:
“In this way, strengthening social ties instead of perfecting government institutions could potentially solve Gotham’s governance problems.”
As explained above, I disagree and view such a statement as hopelessly optimistic, especially given the ending of The Dark Knight. However, despite the weak assertion that I disagree with at the end of the article (that I just quoted), I still find the article to have a lot of worthwhile points. The links to the other sections of philosophical analysis on The Dark Knight are also interesting reads as well.
