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.

Palinism vs. corporatism

Sarah Palin, corporatist scourge? That's the thesis of James Pethokoukis in "Why Wall Street should fear Sarah Palin". "Corporatism", just to be clear, is distinct from "capitalism" -- the former is used to describe an alliance between the state and corporate business, while the latter is used simply to describe free market activity. And they're not just distinct, they're in opposition, since the the more the state is involved in economic activity, even if in support of certain corporations or economic sectors, the less markets and trade are free. One variety of corporatism, for example, is the notion of a national "industrial policy", of the sort that once was popular when Japan was more economically ascendant than it is now; another variety would be so-called "crony capitalism"; and still another is fascism, once quite the rage, but now of course fallen out of fashion. It's important to note, as an earlier post made clear, that versions of corporatism appear on both the left and right ends of the political spectrum.

The rise of the Tea Party phenomenon, however, has given added weight to the anti-corporatist right, and Sarah Palin is indeed front and center in that opposition. Here's a passage from her Facebook page, as quoted by Pethokoukis:

Of course, the big players who can afford lobbyists work the regulations in their favor, while their smaller competitors are left out in the cold. The result here are regulations that institutionalize the “too big to fail” mentality. … The president is trying to convince us that he’s taking on the Wall Street “fat cats,” but firms like Goldman Sachs are happy with federal regulation because, as one of their lobbyists recently stated, “We partner with regulators.” … You’ll find the name Goldman Sachs on many an Obama administration résumé, including Rahm Emanuel’s and Tim Geithner’s chiefs of staff. We need to be on our guard against such crony capitalism.

And here's Pethokoukis' own assessment:

Palinomics, embryonic as it is, seems to be rooted in “free-market populism,” a version of conservative thinking that is pro-market rather than pro-business. It says the role of government is to help markets function more fairly and efficiently for everyone, encouraging competition and “creative destruction” (which Palin specifically mentioned in her book). Pro-business policies, by contrast, can end up subsidizing favored companies, raising barriers to entry and otherwise entrenching the status quo.

All of which makes for an interesting potential conflict within the Republican Party itself, since, as that earlier post indicated, that consummate Party insider, Newt Gingrich,  may well be a leading figure of the "pro-business" as opposed to the "pro-market" politicians.

No charity for you, say German rich

SPIEGEL ONLINE: Negative Reaction to Charity Campaign: German Millionaires Criticize Gates' 'Giving Pledge'

SPIEGEL: But doesn't the money that is donated serve the common good?

Krämer: It is all just a bad transfer of power from the state to billionaires. So it's not the state that determines what is good for the people, but rather the rich want to decide. That's a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?

SPIEGEL: It is their money at the end of the day.

Krämer: In this case, 40 superwealthy people want to decide what their money will be used for. That runs counter to the democratically legitimate state. In the end the billionaires are indulging in hobbies that might be in the common good, but are very personal.

He's worried about tax write-offs, which of course are there for the express purpose of encouraging charity, but never mind. Very tempting to say something about an unhealthy historical affinity between German capitalists and the state, for which a  tacked-on modifier like "democratically" doesn't help much. But that would be stereotyping, and this is probably just this particular specimen, Krämer with an umlaut. The sad fact is that there's an unhealthy affinity between some capitalists and the state everywhere.

Thanks to Freakonomics

Capitalism vs. corporatism: a meeting of left and right?

Here's a comment on a theme that needs a lot more attention than its gotten so far -- the distinction between capitalism, in the sense of free trade, free markets, and free enterprise, and what we might as well call "corporatism", in the sense of state support for, and involvement with, selected corporate favorites. Corporatism often hides under capitalism, and, on the left especially, is often mistaken for it. But, as the note makes clear, they are two very different political/economic entities, and corporatism has its proponents on both the left (as in, e.g., state control of the economic commanding heights) and the right (as in, e.g., using subsidies as a means of shifting tax money from one sector to a more favored one).

The meeting of cats and dogs left and right comes up in a reference to another post, by an environmental blogger named David Roberts, criticizing Newt Gingrich's advocacy of energy subsidies, and it has the better substance:

Says Gingrich, "a low-cost energy regime is essential to our country." That is one doozy of a non-sequitur. Surely a conservative ought to know that money government spends on energy subsidies is taken from elsewhere in the economy. The externalized health and ecological costs of fossil fuels are paid by the public, with money taken from elsewhere in the economy. Fossil-fuel subsidies don't reduce costs, they shift costs. The burden is moved from energy companies to the public. The result is what we have today: energy that looks cheap because most of its costs are hidden from view. ...

There is no plausible interpretation under which Gingrich could be characterized as pro-market. He is pro-business, or more precisely, pro-some-businesses, which is very different -- the opposite, even -- of pro-market.

via Instapundit