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RnB added a favorite at Leave Islam
May 27, 2010
I strongly suggest that George Akerlof and Robert Shiller are every bit as guilty of "not thinking" as those whom they accuse of that weakness. In fact much of their argument demonstrates and egregious lack of awareness of legislation, regulation, guangos and their impact on the decision making of private businessmen. They have fallen for a number of lies, which I hope Mark Thoma will see through. First, keep in mind that if a lie is repeated often enough, many people will come to believe it to be true. One lie began when Greenspan pretended to be an advocate of free markets, in accordance with Ayn Rand's ideas, whilst imposing interventionist policies. Anti-capitalists, and many capitalists, have fallen for and promoted his deception, as do Akerlof and Shiller. This financial crisis was neither a failure of laissez-faire capitalism nor of Ayn Rand's ideas, it was a failure of intensive regulation —with Greenspan's hypocritical contributions. From The American Competitive Enterprise Institute: "While the Dow collapses, we have a bull market in government regulations. The 50-plus departments, agencies and commissions are now at work on 3,882 rules; 757 will affect small businesses. More than 51,000 final rules were issued from 1995 to 2007.” That’s nearly 54,000 NEW regulations, added to what was there before, in only 12 years! That is hardly Rand's laissez-faire capitalism; that’s massive socialist/fascist government interference! At root, those are the very ideologies Rand spent her lifetime hoping to save Americans and America from. Now, when the effects of those destructive ideologies from Washington hit the fan, everyone is blaming laissez-faire capitalism instead. They are ridiculous, uninformed, or dishonest. Greenspan dropped any pretense of understanding Rand's arguments well before he became head of the Fed., and he then became a major part of the problem. His monetary policy and suppression of interest rates (at 1%!!), when Rand would have said “let the market decide”, were an appalling government intervention. Add in the HUD, CRA, CDS, Fannie Mae, Freddie Mac, Sarbanes-Oxley and the recipe for a catastrophically distorted market, including the trading of derivatives, was complete. Those who suggest the cause was deregulation, or lack of regulation enforcement, are not looking at facts. Edward Cline wrote, "Reason and rationality flee when force becomes a factor in men’s decisions, to be replaced with the pragmatism of punishment-avoidance or a risk-free shot at easy money." So imagine YOU are the CEO of a large financial organization. Your competitors are complying with the regulations ("punishment-avoidance") and appear to be making good money for their shareholders, while things are getting tight for your firm. What do you do? Or, imagine YOU want to buy a house, and the government directly or indirectly tells your lender they will protect him from default provided he ignores your poor financial situation and keeps the mortgage interest low. What do you do? In either case YOU do the pragmatic thing: you join in, trusting in the state's easy-money guarantees. As a CEO, if you are able to understand the fraud in the government’s game (as did John Allison of BB&T), you build yourself some protection for when the government's house of cards collapses. As a homeowner you ensure that you have enough income to pay, but you cannot tell how much that is because the whole home ownership system is so distorted! 'Animal Spirits'? What absolute nonsense. Most people believe the "government is here to help" (say by regulation), so they don't protect themselves. The animal spirits argument is nothing short of an attempt to evade that fact. The 'you' in the two examples above, would not have dared to engage in the risky lending or buying that lead to the crisis, were it not for the handful of people in the U.S. government who believed they were smarter than the free market and who installed legislation to distort it. Without those people, lending rates would have adjusted themselves years ago, paper money would not have been printed like it grew on trees (e.g. “helicopter Bernanke”) and the present crisis would never have materialized. Capitalism is the only *moral* system because it let's a man keep what he produces, to use as he sees fit; it was the American system (though flawed from the start). An historical and geopolitical look at nations shows that those which are more free have citizens who prosper more by their own effort, and live more peacefully. Free markets made America great, from 1776 to the late 1800's, and then serious regulations began. Even America's poor were wealthy compared with the middle class of other nations. Ayn Rand was right, and should not be blamed for a protegé's failures. The oft repeated Big Lie in all this is that markets need regulation to ensure a stable economy, when the worst instabilities are caused by regulation. The vernacular form of that lie is, "I'm from the government and I'm here to help you". The present dominating ideas in Economics are, for the most part, those of people who have not seen through that lie.
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