Wednesday, December 15, 2010

Big banks and state capitalism

Very good post by Ross Douthat here: "Tyler Cowen's Counsel of Despair", commenting on a pair of great posts by Cowen. The gist of Cowen, as related by Douthat: the recurring financial crises in capitalism are a product of the state's perpetual willingness to "socialize" (i.e., bail out one way or another using taxpayer money) the failures of financial institutions, which in turn induces entirely rational willingness by those institutions  to take on greater risk -- a willingness that no amount of regulation by bureaucrats will ever be detailed or micro-managerial enough to overcome. And size isn't the problem -- many small banks can fail in waves too, as the Savings and Loan bust a while back demonstrated, and a few large institutions can behave in stable, relatively low-risk ways, as the example of the Canadian banks in the latest crisis indicates -- so Douthat's addition to Cowen seems not just beside the point but may well be counter-productive in the usual unintended consequence manner. The basis of the problem is rather what Cowen referred to as "state capitalism", and part of his solution deserves his own words:
Breaking up the large banks would be striking at symptoms rather than at root causes, namely the ongoing growth of political power and the reliance of that power upon an ongoing inflow of capital.
If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take. It would mean that our government no longer needs to worry so much about financing its activities.

21 comments:

  1. This comment has been removed by the author.

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  2. TARP was not socialist--it was corporate welfare, right out of the Reagan-era economic playbook. In some weird way, the authentic left and the hick-libertarian right agreed, re the opposition to TARP--the big banks should have been allowed to crash and burn, file for bankruptcy, etc. New deal Dems should have opposed it (a few did, but Demo leaders did not). Which is to say, the teabagger--and morfi's labels and categories don't apply: TARP in effect revealed Obama and the Demos as a corporate, capitalist party

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  3. TARP in effect revealed Obama and the Demos as a corporate, capitalist party

    Still confused, I see. TARP and other similar efforts certainly have shown Obama and his Democrats as a corporatist, but not a capitalist party. It's true that the post uses the term "state capitalism", but that's far removed from the notion of the free market that capitalism in its original sense espouses. For more on the difference, see these posts

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  4. you're confused morfi. Goldman -Sachs, one of Obama's financial allies, is capitalist with a capital C.--banks and financiers are in the business of investments, speculation, stocks, bonds, etc. (not labor or industry or technology). And TARP was a bailout of the banks and financiers--a handout, actually.

    Intervention of some type does not in itself make it not capitalist. Adam Smith himself was for govt. intervention when markets were way out of whack (tho real Smithians are usuallly aware of a labor theory of value and would not, or should not have approved of TARP).

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  5. Adam Smith himself was for govt. intervention when markets were way out of whack

    Just, I suppose, as Marx was for free markets when governments were out of whack? And it turns out that everyone is just a mushy, Third Way kind of guy whenever they think anything gets "out of whack", however that might be defined or known?

    Well, maybe not. There may well be a role for state intervention within a generally capitalist system, but that's still distinct from the working of markets which is capitalism as such. Obscuring this distinction is what leads to the confusion of capitalism with such abuses as corporate welfare, among the many other manifestations of corporatism. One of those manifestations, by the way, was the explicitly corporatist ideology known as fascism.

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  6. As per usual you're mostly quibbling over semantics, not the problem of TARP-like corporate-welfare itself (or justice for that matter). Bailouts and global finance assisted by the govt. may not be small-town, mercantile capitalism, but it's still part of capitalism, and TARP was hardly the first. Most supply siders approved of a bailout when done by the Reagan admin to help out the S N L crisis.

    JP Morgan, or JP Morgan Jr., or JP Morgan III--they're all in the business of making money (not...goods, products, widgets, services etc), even if JP I played poker, and JP III studies zen with other corporate execs (at least that was the case until they dissolved a few months ago).

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  7. TARP-like corporate welfare is a bad thing, economically, politically, and morally -- because it uses other people's money to reward the bad (i.e., overly risky) behavior of a few, and thereby encourages more such behavior. It doesn't matter whether TARP was the first, or whether Reagan did it too. And it's simply not a part of capitalism as such.

    By the way, everybody is in the business of making money -- along with JP Morgan, there's the plumber, mom and pop, manufacturers, retailers, and even you and me. That's how we live.

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  8. Again, you overlook history , including classical economics: TARP or the S n L crisis or FDR's recovery programs were hardly the first instances of a govt. intervening economically. Smith and Ricardo discuss it. AS did Aristotle, I believe. There you go, morfi: start over with Aristotle (not too fond of the JP Morgans or Blankfeins of his days--ie the lending classes were considered usurious). Heck even Aynnie Rand was not a complete social Darwinist and loved her some Stagirite: A is, indubitably, A.

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  9. Again you overlook simple logic -- who first talked about "govt. intervening economically" is irrelevant. To repeat myself: "It doesn't matter whether TARP was the first, or whether Reagan did it too."

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  10. the Govt. intervening economically would be irrelevant only to a vegas sort of libertarian simpletons--the hicks who think income tax a part of communism or something. There's no "pure capitalism" under any form of govt. except maybe like the wild west, or perhaps pirate raids. (and is economics a matter of logic? nyet. Lets see your "logical economics". Which is to say, I doubt you know anymore about syllogistic than you do about the labor theory of value). Then, for a social darwinist, the real question is..why be reasonable at all? Pure brute force, cheating, lying, crime will do as well as democracy. And thats really the code of most vegas glibertarians (the Caponay-Seigel school of econ).

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  11. "Govt. intervening economically" isn't irrelevant, it's bad, as I've said. What's irrelevant is who first talked about it, as I've also said. Try learning to read.

    And then try learning to think. The question of why be reasonable isn't just for so-called social Darwinists, it's for everyone. The answer to that question is that "pure brute force" does NOT do as well as democracy -- even though lefties, as you illustrate, tend to think it does.

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  12. No, you need to recall yr Biz Admin 101 at Waterloo or whereever--like, cost-benefits analysis of a TARP like policy. Many if not most high-powered financiers who hate Marx as much as you do supported the bailout--from a purely ...selfish viewpoint, it was probably good for the execs (tho not for Americans). You don't sound like some posh downtown money man, anyway, morfi. You sound like yr hangin' at the bunker with some glibertarians, listening to the Noog, takin' in the Bud, NRA, and Der Fuhrer posters.

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  13. I think its CowEn...

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  14. Given "mature" economies where interests seek to protect themselves though any means including politics the biggest thing that invigorates western economies is the creative destruction of new disruptive technologies and foreign competition. The mess of the last collapse was in part due to the technology that enabled the creation and distribution of the new collateralized debt. Think of GM and Ford before the Japanese invasion. The robber barons of the last century did not give up power unions had to take it. The growth of wealth in the west during the last century was so enormous what is shocking is how normal it feels to us. The "corrections" we experience from time to time are really not very significant. Certainly not big enough to justify the angst of the chattering classes.

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  15. Thanks for the comment, Larry, and I largely agree with it. In my view, the so-called "robber barons" have suffered from a bad press, and have actually been the creators of a great deal of the wealth that, as you rightly note, has flooded through the world in the last century or two. In that context, as you say, the accompanying financial fluctuations are a very small price to pay. That said, however, I think it's also worth noting that these fluctuations are often exacerbated by misplaced political and bureaucratic intrusions on the wealth creation process, which I think was the point of the Cowen piece.

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  16. Protectionism of any sort--ie tariffs, trade limits, etc-- generally has been considered a type of intervention, and often supported by unions (ie, unions opposed NAFTA). So Larry argues for some old school New Deal protectionism!

    For that matter the unions often were taking on the robber barons (such as steelworkers vs Carnegie) via democratic politics: collective bargaining was voted in, more or less. So does the Aynnie Randian, union-bashing sort also oppose the popular vote, ie Congress? Looks like it

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  17. So Larry argues for some old school New Deal protectionism!

    Still can't read, can you J? What he actually wrote was "... the biggest thing that invigorates western economies is the creative destruction of new disruptive technologies and foreign competition." (My emphasis.)

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  18. still can't reason, can you little man.

    Collective bargaining and protectionist policies were voted in legally. In effect, the Ayn Rand-log cabin-GOP sort argues...let's make voting illegal

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  19. Complexity, respect for others, tradition, relationships: these are some of my favorite things; few appreciate how much we owe our ancestors which did not start with 1776 nor even 1066. I some times think the greatest benefit our democracy and respect for law provide is that we can have an orderly change every few years. No side or group ever has all the answers and we cannot appreciate or even comprehend the consequences of laws, regulations, new inventions.

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  20. all of our wealth comes from the people (their skills and attitudes), the ground (soil, minerals water etc, technology and the foundations, the capital that exists in the broadest sense and our traditions. The various policies and supersfluity of politicians and their activities, the crimes and greed of some, the unpaid efforts of many do not amount to a lot. We are wealthy in spite of ourselves.

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