Ezra Klein references the old Shaggy hit “It wasn’t me” to characterize Alan Greenspan’s testimony yesterday. It’s not just Greenspan, Robert Rubin is pulling it too. The point isn’t that these people have plausible deniability, they don’t, the issue is that there’s no real recourse anyone has to hold them accountable. They can lie to your face because there’s no consequence. I noted below that institutional investors demand risk so that they can have an opportunity for high returns. This isn’t necessarily just from on high, pension funds need the high returns to fulfill their obligations, and those obligations were entered into by labor and management. The fact is that we don’t have the economic growth to come through over the long term through a conservative investing strategy, so the managers start rolling the dice. If they fail and it blows up, they’re fired, and if they luck out, they’re heroes for the day.
It wasn’t just the big shots. Unless you’re a prodigy (i.e., you’re a 2 year old reading this weblog) and you’re an American you lived through the real estate bubble of the mid-aughts, and you know people who treated their homes like ATMs. People who bet on a “sure thing” future which never came about. Yes, there were greedy mortgage brokers and shady speculators, but if it wasn’t for the avarice of the average man and woman it wouldn’t have been so widespread. But here’s the difference: the average American has experienced a lot of economic distress or insecurity. There have been real consequences for their bad calls. The unemployment rate is high enough that anyone who isn’t a shut-in knows someone who’s been negatively impacted. Not so for Sirs Greenspan and Rubin. The high & mighty are too big to fail, they may have their reputations tarnished but ultimately their lot is one of comfort and ease. This is of course not atypical, it’s most of human history.
I think the ultimate long term problem for American society is that many Americans now perceive the elites as rent seekers and not engines of productivity. The vision of the expanding pie is starting to recede, and once the spell is broken I fear for the well being of the “virtuous circles” which economists praise.
Razib Khan’s degrees are in biochemistry and biology. He has blogged about genetics since 2002, previously worked in software development, is an Unz Foundation Junior Fellow and lives in the western US. He loves habaneros.
April 8th, 2010 at 4:16 pm
“In this population, a higher intake of fruits and vegetables was also associated with other lifestyle variables, such as lower intake of alcohol, never-smoking, short duration of tobacco smoking, and higher level of physical activity, which may have contributed to a lower cancer risk”. That opens the possibility that the effect of the “other lifestyle variables” is large enough that the fruit-&-veg diet is actually associated with a higher risk of cancer.
April 8th, 2010 at 5:39 pm
I will work harder!
April 8th, 2010 at 8:56 pm
I think the ultimate long term problem for American society is that many Americans now perceive the elites as rent seekers and not engines of productivity.
“Rather than try to come up with an economic theory to explain Fed policy, I would suggest a more cynical approach. The goal has been to transfer wealth to banks and to the holders of mortgage securities. The thinking is that those constituents are more important to the economy than taxpayers.” – Arnold Kling
April 9th, 2010 at 4:39 am
Sorry about the first comment: clearly Greenspan = cancer, in my mind.
April 9th, 2010 at 8:11 pm
Here’s the problems I have with blaming average citizens for greed in the financial meltdown:
1). When, in the entire history of money, has there been a shortage of people asking for money (eg. mortgages)? In fact there’s always more people asking for money than there is money.
2). Knowing this, there were (and are) systemic controls in the finance systems. People who’s job it was to provide gating systems. People who hold job titles like mortgage broker, banker, regulator, Chairman of the Federal Reserve, and so forth;
3). Then the political class decided that government is evil, regulation is bad, and all those people should not do their jobs, at least not as traditionally understood. All requests for money were worthy and equally good;
4). Now here’s the eye popping part. An anti-government, anti-regulation ideology is one thing. But the political class decided not to abolish the regulators, gate keepers, evaluators, and so on. All those people kept their jobs. They were paid to do nothing or become cheerleaders for spending and consumption. High class salesmen and women.
There used to be fiscal controls on irrationality, greed, and just plain bad ideas. Then those controls were systematically dismantled and we didn’t even get any savings from dismantling the fiscal controls. How stupid is that?
The fact that citizens wound up bailing out the people who failed us all, and the failing class of former protectors got paid handsome bonuses, is a travesty.
April 9th, 2010 at 8:29 pm
i think one qualification needs to be that “the people” is to a great extent taxes which go from productive high earners (think real entrepreneurs) to bail out rent seeking high earners. though much of history the rent seekers (“nobles”) had the reigns of power. the productive class of high earners before the modern era was not really similar to what we have now, because anyone who made their wealth through trade and production was aiming to produce a rent seeking lineage. the masses through primary production, the peasants, were the real objects of theft at that point.
this is not to negate that the implicit guarantee to financial elites by the body politic doesn’t involve a transfer from the middle class to the elite. but there are economic elites which historically have generated real value-add, innovation & economic productivity. these are not the sorts of domains which people find “systematically critical” though, they’re optional engines of growth.
April 12th, 2010 at 2:15 am
By “virtuous circles,” are you referring to negative feedback loops? Could you give any examples?
April 12th, 2010 at 2:26 am
positive.
affluence leads to a sense of security and well being, and allows for an increase of trust within a society. increased trust allows for greater coordination and economies of scale, which lead to more affluence. you can reverse the direction.