Tuesday, March 18, 2008

EJ Dionne's anti-capitalism meltdown

EJ Dionne of the Washington Post is normally someone I categorize as someone I disagree with, but understand. This column, however, goes off the rails.

Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries, and how government should keep its hands off the private economy. The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard.

1. What, exactly, is with his use of 'capitalists' in the first sentence? Couldn't that theoretically mean everyone in the private sector? Isn't the guy who runs the car wash down the street a capitalist just as much as the hedge fund manager jumping out of his 50th story office window? It's that kind of careless verbiage that will turn people off from your point of view, especially right off the bat.

1a. What conservative in his right mind would say that *all* capitalists are good and perfect? I see references to capitalism and 'the free market'. Part of capitalism is that businesses which are run poorly go out of business. What conservative disagrees with that? If managers at an investment firm flush the firm's assets down the drain with bad investments, they deserve to be out on the street. Who is EJ responding to? He makes a lot of sarcastic quips along these lines and it's a strawman argument.

2. How on earth does the government have its hands off of the financial sector? Is the federal reserve not a government agency? Isn't it generally agreed that the housing bubble was born and nurtured by too-low too-long interest rates courtesy of the fed? This is a recurring theme.

3. What conservatives believe that the government should pick up the tab for failing firms? That said firms are seeking relief is no shock; any number of corporations rely on political patronage and pork and corporate welfare. It's something worth condemning these *particular* capitalists over, and their governmental enablers. It's not a particularly useful club to use against conservatives unless he has concrete evidence of right-wing desire for bailouts.

But if this near meltdown of capitalism doesn't encourage a lot of people to question the principles they have carried in their heads for the last three decades or so, nothing will. We had already learned the hard way -- in the crash of 1929 and the Depression that followed -- that capitalism is quite capable of running off the rails. Franklin Roosevelt's New Deal was a response to the failure of the geniuses of finance (and their defenders in the economics profession) to realize what was happening or to fix it in time.

1. What 'capitalist' doesn't believe in the possibility of asset bubbles and recessions? The pure free market cure is to have bubbles pop, the asset (in this case housing) decline to a sustainable level, and whoever goes out of business as a result, tough. Now, I'm of the opinion that there ought to be *some* government action in response to situations like these. Some amount of lending, some amount of interest rate lowering, evaluate what laws and policies might be preventing a recovery, that sort of thing. But nothing in this, not even the collapse of Bear Sterns, is anywhere close to a 'near meltdown of capitalism', and it certainly doesn't repudiate capitalist principles. In THIS case, as with the tech stock bubble, the biggest losers are the guys with the seven-figure salaries. They're the ones with the most invested in failing outfits. And they're the ones who deserve to take the hit, not taxpayers.

2. Again, EJ brings up an example of government not doing enough and says the problem is with unfettered capitalism. The Great Depression, however, shows the opposite. Hoover and congress did several things to shove the economy into the dark depths of depression, notably the Revenue Act and the loathsome Smoot-Hawley tariff. Hoover tried to tax and spend and regulate his way to a good economy and made things worse. FDR could have pushed to remove the tariffs and lower taxes in order to help consumers and stimulate investment and entrepreneurship, but instead piled on more spending, more taxes and more regulation. One can argue that in the end government saved the day with spending on WW2, but it's difficult to blame the Great Depression on not enough government action.

The rest of the column goes on in similar fashion: pro-market types should feel sorry and embrace more taxes and entitlements. Lots of vitriol and emotion, but the end EJ only wound up defeating his own made-up mirage of conservatives and 'capitalists'. How exactly Bear Sterns et al. proves that taxes aren't high enough is beyond me.