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| Home Front Economy |
| From Market Economy to Political Economy |
| 2008-11-29 |
| Hat tip Instapundit By Charles Krauthammer Today's extreme stock market volatility is not just a symptom of fear -- fear cannot account for days of wild market swings upward -- but a reaction to meta-economic events: political decisions that have vast economic effects. As economist Irwin Stelzer argues, we have gone from a market-driven economy to a politically driven economy. Consider seven days in November. We may one day go back to a market economy. Meanwhile, we need to face the two most important implications of our newly politicized economy: the vastly increased importance of lobbying and the massive market inefficiencies that political directives will introduce. Lobbying used to be about advantages at the margin -- a regulatory break here, a subsidy there. Now lobbying is about life and death. Your lending institution or industry gets a bailout -- or it dies. You used to go to New York for capital. Now Wall Street, broke, is coming to Washington. With unimaginably large sums of money being given out by Washington, the Obama administration, through no fault of its own, will be subject to the most intense, most frenzied lobbying in American history. That will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians. First, bank presidents are gravely warned by one senator after another about "hoarding" their bailout money. But hoarding is another word for recapitalizing to shore up your balance sheet to ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn't pushing money out the window with too little capital precisely the lending laxity that produced this crisis in the first place? Never mind. The banks will knuckle under to the commissars of Capitol Hill. They control the purse. Prudence will yield to politics. Even more egregious will be the directives to a nationalized Detroit. Sen. Charles Schumer, the noted automotive engineer, declared "unacceptable" last week "a business model based on gas." Instead, "We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car." |
| Posted by:g(r)omgoru |
| #4 This issue was settled 80 years ago. Even Reagan couldn't get the decision reversed. It will be interesting to see what happens after this round of government aggrandizement. |
| Posted by: Nimble Spemble 2008-11-29 13:54 |
| #3 to the gun safes? |
| Posted by: Hellfish 2008-11-29 12:59 |
| #2 What gets me is... they're going to cut the achilles heel of entire industries (like the slow death of a thousand duck-nibbles the oilfield's been suffering the last twenty years, or the faster one it may face under Da Zero...) but it's not going to work, but after all the bankers have gotten their bailout and still have their working capital and their priveliged access to leverage... what are the rest of us in the crippled industries supposed to vote for? A free market where the looters get to keep their money and we don't have any (or a job?) A socialism run for the benefit of the rich connected people on the coasts? Where are the proletariat supposed to go? |
| Posted by: Thing From Snowy Mountain 2008-11-29 12:55 |
| #1 The Russians I know here are bewildered by what is going on. They don't understand why we are "turning into commies", as one of them put it. |
| Posted by: Cornsilk Blondie 2008-11-29 12:12 |