Economic Crisis

Chris Dierkes

Chris Dierkes (aka CJ Smith). 29 years old, happily married, adroit purveyor and voracious student of all kinds of information, theories, methods of inquiry, and forms of practice. Studying to be a priest in the Anglican Church in Canada. Main interests: military theory, diplomacy, foreign affairs, medieval history, religion & politics (esp. Islam and Christianity), and political grand bargains of all shapes and sizes.

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7 Responses

  1. Freddie says:

    I’m just not qualified to render an opinion on the various economic effects of what nationalization would mean versus buyng up bad assets. What I can say is that I think that there is resistance to nationalization based on the idea that such a thing is an affront to capitalism/the free market, and my point to Conor is just that a government underwriting a bank’s balance sheet is no less an affront to the market than nationalization. If there are sound economic and pragmatic reasons for not nationalizing, then I support not nationalizing. But I do think for a lot of people who, like myself, lack the background in economics necessary to meaningfully sort the economic consequences, there is a kind of psychological resistance to terms like “nationalism”. But we long ago crossed into territory decidely far from our free market ideals.Report

  2. Chris Dierkes says:

    good point. if the left wants to make some longer term hay out of this crisis then they are going to have to get at that resistance. one way is by showing that the right-wing ideology of late that claimed the mantle of free-marketdom was far from. Paulson’s bailing out of his Goldman Sachs buddies (while leaving his rival Lehman to fail) being a classic example.

    I’m not really sure Obama is that guy though. He’s instinctively more market-oriented. Cass Sunstein called him “University of Chicago liberal.” But we’ll see. If it gets as bad as I’m worried it might, then he’ll do whatever he thinks he has to do to prevent collapse.Report

  3. E.D. Kain says:

    Rapid fire. Three long posts in practically as many minutes…. 🙂

    I think nationalization could easily play out as a short-term fix, wherein nationalization is temporary and results in re-privatization. More on that later…Report

  4. Rortybomb says:

    Nationalization is a bad word, especially when it is best read as “orderly bankruptcy” in usage.

    I am very interested in the long-term hay the left, myself included, can make out of this crisis. Two points, and I hope Freddie takes them in his response:

    1) I don’t think there is room for a “free-marketdom was far from” for liberals. Dividends were cut and financial institutions given free rein, there was an increased financialization of capitalism, with profits going less to workers and more to stock buybacks and executive salaries – and the whole thing collapse.

    I don’t think arguing for a more purer market is a good move for the left – a good liberal line is that markets are great, but need a strong referee to keep the whole thing from turning into a madhouse.

    2) More importantly for the left, we need to frame the 2001-2008 bad credit period as Americans racing to stand still while trying to get access to health care and education and stability under a period of intense inequality.

    There’s a natural tendency to think of all this bad debt as a Wall*E critique of lazy Americans buying too large TVs or immigrants and payday loan sharks swindling each other. I don’t think that is the (whole) case – I think it is far more that much of what has worked for middle Americans is being unwound, and can use the crisis to put a more liberal agenda of shared prosperity (cynical maybe, but I actually do believe this cause->effect).

    But I’ve already written too much.Report

  5. Dave says:

    I have a post in process on this that will go in greater detail on a few points above but I wanted to comment on rortybomb’s post:

    1. The cutting of dividends did not give Wall Street free rein. That was done by a combination of a) the SEC, who in 2004 allowed the Wall Street i-banks to relax leverage requirements, allowing them to lever up like hedge funds, b) the Fed, who cut the fed funds rate down to 1% and held it there for a year, which not only flooded the market with liquidity but also, indirectly, made investments like mortgage backed securities and CDO’s attractive, c) absolutely no one in our government taking note of the mess that was being made in the subprime mortgage business going back as far as 2003, and d) the lack of any sort of regulations that would have helped foster transparency in the credit derivatives markets (this I place directly on Greenspan’s shoulders).

    2. Paul Krugman has already beaten you to that with his arguments of wage stagnation (or something to that effect). I’m sure there have been others as well but I do not recall them off the top of my head.

    The Left already has enough to make hay about with idiot politicians and Alan Greenspan trumpeting the “self regulatory” aspects of free markets. I don’t believe in “self regulation”. I believe that people, if given the opportunity, will act in their self-interest with little regard for others. This can have catastrophic consequences. Limiting this is important.Report

  6. Rortybomb says:

    I look forward to reading that post.

    1 – I think #1 is a great summary. By dividends, I just meant the more overall idea that an increase of the financialization of the economy and a deference to financial markets both in rhetoric and in policy, tax and otherwise, hasn’t seemed to pay out for the working and middle class – it would be one thing if 2001-2008 were champagne years for the median earner, but the data doesn’t play that out.

    As opposed to, say, inequality, market collapse is hardly an issue for just the Left to get in arms about. But it’s important to be rigorous with why self-regulation breaks down – Eugene Fama would agree with you about traders “act[ing] in their self-interest with little regard for others” but he thinks markets are always perfect, for lack of a better word. Is it just a few bad apples, or is it in the very nature of a financialized economy?

    2 – Ha! I wish I was that original of a thinker. Krugman is great, but my argument is cribbed from Elizabeth Warren’s work moreso. Speaking of, I wondered recently if, given it’s large correlation with bankruptcy and money troubles, the most appropriate response to an “austere age” would be having less kids. I wonder if there are a lot of second and third children that won’t be born cause of the credit crunch – something that should worry people concerned about demographics issues, and perhaps not just social conservative ones.Report