Where Politics Don’t Come Properly
FOR years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth . This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.
Well before the financial crisis erupted policy makers treated home masters as a protected political class and gave mortgage-backed securities privileged regulatory steep . Furthermore , they allowed and encouraged high leverage and the expectation of bailouts for lenders , which had been practiced numerous times, including the precedent of Long-Term Capital Management in 1998. Without these mistakes , the economy would not have been so invested in leverage and real estate and the financial turning point would have been much milder.
But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in spheres like health care. Not only have we failed to learn from our faults , but also we’re repeating them on an ever-larger scale.
Lately the surviving major banks have reported lively profits, yet in large part this images astute politicking and lobbying rather than commercial skill. Much of the emulation was cleaned out by bank failures and merger , so giants like Goldman Sachs and JPMorgan had an easier time getting back to profits . The Federal Reserve has been lending to banks at near-zero interest rates while paying higher interest on the reserves the banks hold at the Fed. “Too big to fail” policies mean that the large banks can raise money more cheaply because everyone knows they are safe counterparties.
President Dwight D. Eisenhower warned of the birth of a military-industrial complex . Today we have a financial-regulatory aggregate , and it has meant a merger of power and privilege. We’ve created a class of politically defended “too big to fail” establishments , and the current proposals for ruling reform further secure this notion. Even more worrying, with so many definite and implicit financial guarantees , we are courting a bigger financial crisis the next time something chief goes wrong.
We should stop using political attractions as a means of managing an economic sphere . Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction and not heeding the main lessons of the financial crisis. Finance and health care are two separate reports , of course, but in both cases we’re making the general mistake of digging in permanent political protections for special interest groups.
If these initial deals are falling apart, it is only because reform met with unexpected resistance . Even after Mr. Obama’s speech Wednesday night, we’re still at the point where the medical sphere is enshrined as “too big to take a pay cut,” which is not so far transmitted from the banking motto of “too big to fail.” In finance and health care, a common political dynamic has created similar trends, namely, out-of-control costs , weak accountability, and the use of immediate revenue patches to postpone dealing with fundamental tasks .
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