Free marketers hoisted by own petard…

September 30, 2008

(Copyright 2008)

The WALTHER REPORT

By Tony Walther

Something occurred to me. If we really do have a free market economy then government would have nothing to do with it. It would make no difference who is president of the United States. Well we must not have had a free market economy since I have been alive because it seems as if the economy is usually the number one issue in presidential races, sometimes trumped by war. And if the economy is good, the president gets the credit.

An exception might be Bill Clinton’s presidency. He was re-elected, but then because he could not by law serve a third term, Al Gore ran. Even though the economy had been great by all accounts, Gore ran a super close race with George W. Bush (you’d of thought he should have won by a landslide with the good economy under his party’s presidency). Although Gore did receive more votes, due to a quirk in our election laws, namely the Electoral College, and some questionable ballots, and finally a Supreme Court ruling, Bush won. However, the economy was showing signs of weakening in the waning days of the Clinton presidency, as I recall.

And while this time we have the housing bust, at the end of the Clinton terms it was the Dot Com bust. Both the result of a runaway economy and wild speculation.

What I am trying to get at here is that it is apparent that we have a fairly free economy, but government involvement for most of our memories and especially since 1929, has always been there.

For most of the last four decades, since the time of Barry Goldwater, the Republicans have been led or led around by the conservatives, who pretend to want as little government involvement in the economy as possible. Of course they like special tax favors for their investments and they like various other “incentives” for their investments, but they somehow don’t see that as government intervention. They do see environmental controls for such silly things as clean air and clean water as government intervention. And don’t even talk about good working conditions for employees, such as provided by health and safety regulations.

Then when it looks like the economic freight train is going to derail, suddenly George W. Bush, who had practically claimed himself as the mother of all conservatives, through his treasury secretary calls for the most massive government intervention in history, a $700 billion bailout for Wall Street. That kind of caught everyone by surprise. The hard corps conservative Republicans in the House didn’t know what to think, I suppose. It sounded like something that might be called for by a Democrat. Then to add insult to injury a plan was pushed through, over a weekend as I recall, without even consulting them. But I wonder if they would have not voted for it nonetheless, I mean Republicans don’t usually turn down what I would call corporate welfare (not to be confused with welfare for folks who need it – that’s the realm of the Democrats). But then the e-mails and phone calls came in from the constituents, and in a rare sign of power to the people (something that sounds left wing) they, the right wing, found themselves for political reasons forced to vote no, even after they had supposedly gotten major reforms from the original draft, and their own leadership told them to vote yes.

Now we are in the interesting and kind of amusing position of seeing a split among the Republican ranks. There’s also a rift in the Democratic ranks over the issue too. But could it be that the Republicans are now being hoisted by their own petard of free market economy and no government intervention? And why are they accusing the Democrats of defeating the bill, when Republicans failed to deliver enough votes themselves?

I think the naysayers on both sides of the aisle are hoping that something awful will happen, and maybe Monday’s stock market plummet was awful enough or only the beginning of that something awful. Each party wants to blame each other for the woe and misery and then feel like they are forced to vote for the bill or a revised bill, and then get the credit. That’s the trouble. A lot of lawmakers are more worried about credit for something than saving the populace from major financial calamity.

There’s duplicity among both the Democrats and Republicans in Monday’s defeat of the bailout bill. I’ve already mentioned the position of the Republican holdouts. But now I just saw an interview with Democratic congresswoman Sheila Jackson of Texas. She said she voted no because there was not enough relief in the bill for folks on Main Street. But she blamed the Republicans who promised to deliver yes votes for the bill’s defeat (what about her no vote and the no votes from her own Democrats?). So, she wants the cover of voting no on something seen as a giveaway to Wall Street, then be able to blame the Republicans if things really do go as bad as predicted without a bill.

There is an interesting article in Time online by two economists who say the bailout is the wrong approach.

Before the vote, Speaker of the House Nancy Pelosi gave heck to the Republicans for the mess that had been caused under their administration. Now of course that was politics, making sure the taxpayers knew that the Democrats were forced to vote for such an extraordinary and costly measure by Republican mismanagement and noting the hypocrisy of free marketers (Bush and Co.) demanding government intervention. The Republican holdouts in the House claimed afterwards that they were insulted, using that as cover for their deed. It gave them an excuse to vote no, as if they were calling Pelosi’s bluff and saying no we don’t want government intervention, and look like they were standing up for the taxpayers at the same time, probably knowing they would eventually vote for a bill. Or, for all I know the bailout as proposed just goes against their grain.

It’s pretty apparent that in looking for who is at fault for the wild speculation and overdrawing and over extension of credit there is plenty of blame to go all around, from the profligate ways of individual citizens to the irresponsible business practices of the investment community. And certainly both Democrats and Republicans have contributed. For example, both parties wanted Fannie Mae and Freddie Mac to dole out mortgages big time to keep the economy flying high. The Republican constituency was primarily among those who lent the money and the Democratic constituency was both those who lent and borrowed. Well, let’s face it, both parties really serve the interests of money, but they have different philosophies or approaches.

Many economists are saying that some type of bailout bill must go through and go through ASAP and at least one economist I read said that the whole idea of a bailout in wrongheaded, that the market needs to correct itself. He said that bankruptcies will be part of that correction, that often companies are taken over by other companies in bankruptcies. One flaw in that logic is that often when a business goes bankrupt jobs disappear and never come back.

We are in the unfortunate position of having all this happen with a lame duck president, who as you can see is powerless – it’s a pitiful sight. He deserves this. But we as a nation don’t (or maybe we do). And we are a little more than a month before an election and a few months more until new leadership takes over.

Maybe we just need emergency action by the Federal Reserve to pump liquidity into the system and the FDIC to protect bank deposits in the interim and allow the time that might be needed for truly better legislation to repair and reform the economy.

No one seems to know what will happen in the meantime. We probably have to almost experience total disaster before we know what to do. Kind of an economic Pearl Harbor. But we can’t depend upon the leadership of Bush. Been there, done that.

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