As I think I have made clear over the last several months, I don’t think we’re just “going through a bad patch” as I am being relentlessly told. I think that demographics and poor policy choices have come together to reduce growth below what it otherwise might be. That is the unfortunate nature of time-shifting future growth. Eventually the future shows up and if growth is not as robust as you thought it might be when you took the steps that resulted in the time-shifting the results can be pretty bleak.
The financial sector is far too large; the healthcare sector is far too large; the education sector is far too large; the military-aerospace sector is far too large; the construction sector is far too large. An enormous amount of capital is tied up in these sectors.
The sources of future growth are frighteningly opaque.
If the federal government is bound and determined not to decrease the cost of healthcare, the only other practical strategy is to cut everything else to pay the rising healthcare costs. I think that’s a sucker’s game but there you have it. It is fantastical to expect a weakening private sector to support ever-higher federal spending.
There will be an irresistible groundswell of pressure for economic engineering to turn things around. The impulse to “do something” will be overwhelming, especially as election year approaches. That’s next year if you haven’t been paying attention.
Government is inherently status quo-ist. The future’s industries have no lobby. That’s why we’re still desperately trying to reinflate the bubble, an effort that I believe is not only futile but counterproductive.
There are things that could be done which I doubt we will do. For example, the federal government could engage with state and local governments to produce a uniform code of environmental, banking, insurance, etc. regulations analogous to the UCC to make it easier to start and operate businesses. There are trade liberalization agreements languishing for lack of attention. We could also stop trying to prop up failing companies, industries, and business models.
When things aren’t going well it’s hard to have confidence in the future and the uncontrollable and unplanned developments of the market but IMO those are where our best hopes reside. The very fact that they are uncontrollabel and unplanned is why they are hated by would-be economic engineers and central planners.
What you’ve just described is a feedback loop, and in my view a parasitic feedback loop. We’ve made these bad policy decisions in the past due to a desire to “do something/make it better”, it got better for a bit but was it a result of the engineering or just the normal course of things and the engineering and the policies that it necessitated weren’t so burdensome at that point. And each time things got “bad” the same cries for more and more engineering. Now, we’ve gotten to a point where the allocation of resources is so goofy it can’t be sustained.
Unwinding it will take a long time and likely be very costly. And government, or more accurately elected officials, have little incentive to do anything when the costs are lower (i.e. now) when they can kick the can down the road. So we’ll likely deal with this when it gets so bad the can can’t be kicked anymore.
Exactly, and existing industries do so they can get resources diverted towards them by elected officials (GM, Chrysler, etc.). Basically, government is circumventing the market process and in so doing rewards those who are either stupid, foolish, reckless, or all of the above, so long as they have good political ties.
Yep, because that means you have no control over them. Would be economic engineers and central planers are about power…their power. Sure they blabber on about how it is for the betterment of others, but not really. Seriously, why is the businessman a greedy self serving pile of dog crap, but the bureaucrats are wonderful people who care about everyone else more than themselves.
Steve:
The frequently heinous actions of greedy businessmen have helped create the need for power hungry bureaucrats. Thalidomide creates a demand for regulation — a completely understandable demand. Likewise contaminated food, dishonest banking, unsafe cars, poorly-maintained aircraft, etc….
Which is why I argue — contra many — that ethics and morality have an important place in business and the obligation of a CEO does not end with his need to deliver a rising stock price.
There’s a feedback loop there as well. But in this chicken-and-egg situation we know which came first. The impetus for government regulation comes directly from the unethical and immoral behavior of business. It’s the same relationship as murderers and homicide detectives. You can argue there are too many detectives, argue that the detectives abuse their office, or that they extend their mandate, but one murder — one botulism outbreak, or Lehman Brothers and they’ll be calling for the homicide cops anyway.
(As a side note, I think because of the internet a new regulatory force is appearing.)
“The sources of future growth are frighteningly opaque.”
They always are. That’s why you have to create an environment conducive to those who can see through the haze. A bunch of government “experts” and “blue ribbon panels” is just a fool’s errand.
You can set up two states of the world: if you invest and take risk………1) you win, you win, you lose, you lose……..or 2) you win, give the government the spoils and you semi-win, you lose, you lose. You see that tall, slender thing in the air? That’s entrepreneurs giving politicians the finger right now. They’ve had it.
“The frequently heinous actions of greedy businessmen have helped create the need for power hungry bureaucrats.”
(picking myself off the floor) Good thing we don’t have any greedy politicians involved in heinous actions (snicker). The difference, Michael, is that politicians have the power of the state, and the power to trade other people’s money for votes and favors…….to heinous businessmen. More heinous businessmen get thrown in jail from time to time (unless the politicians are their partner in crime) than politicians, and are subject to the market. Both systems stink, but your faith in government borders on child-like.
Drew:
I said nothing about faith in government.
In fact I implicitly accepted the reality that government behaves badly viz the homicide cop analogy.
What I said was that government regulation exists in large part because of bad behavior. And I said business should not be exempt from moral and ethical expectations. If you have an argument with either of those propositions, why not make the point?
First sentence, yes. Second sentence no.
They aren’t so foolish that they expect to re-inflate any bubbles.
For a politician “status quo” is trying the same thing. This has become disconnected from expectation of outcome.
A safe choice for a politician can be a “solution” that doesn’t surprise the voters, doesn’t have a huge downside risk, even if it doesn’t have an actual upside either.
Are we going to have a chicken or the egg debate? That is I don’t disagree about the dynamic. My point is that while the businessman can be greedy and bad, he doesn’t have much power. He can’t force you to buy his product. The bureaucrat on the other hand can force you.
That is where your argument is weak. Yes businessmen can be greedy and some can even be bad and do things that good/moral people would not like at all. But at the end of the day their power is limited. The bureaucrat on the other hand is backed by the government which has a monopoly on the use of violence. Be wary of the businessman, but be afraid of the bureaucrat.
Right, that is why there are no policies to stop the slide in housing prices, to reverse the trend.
lol
“What I said was that government regulation exists in large part because of bad behavior. And I said business should not be exempt from moral and ethical expectations. If you have an argument with either of those propositions, why not make the point?”
Fair enough.
1. Who ever said business should be exempted? Not me.
2. Who believes that regulation has been an effective (and also cost effective) tool to control it? Not me.
3. Who believes that regulation is “largely” a byproduct of bad business behavior rather than largely ideologically driven and job perpetuating meddling? Not me.
I’d submit that the costs of regulatory capture approach the denefits of the regulatory regime.
Here’s the trick. I can give you a much simpler narrative.
Housing prices were in a steep decline, and voters and lobbyists (esp. RE related) said “do something!” And so congress, in stimulus mode, did something.
That was all they had to do, in a strict, short-term, and shallow political sense.
This “they tried to re-inflate bubbles” thing plays a tin-ear to that. Or, it sets up a straw man to be appalled about. What a funny one-two that is! Make up a more unrealistic narrative, and then get agitated by your own invention.
No, this was never about re-inflation. If it had been, they would have had to go whole-hog and get the liar loans going again. Nobody made a move in that direction. They might have set up Freddy and Fannie to swallow past bad loans, but they sure didn’t go so far as to spin up new ones.
Talk about playing tin ear. Governments are backed by guns and have unlimited power, without fear of voters? Seriously?
You think this is Syria you nutjob?