As I have said in this space many times, blame politicians and regulators (who, to curry favor, wanted to spread home ownership around to all, even those who shouldn’t own, and messed around with lending and accounting standards, again, for political gain). And, of course, blame individual actors who speculated in real estate and financial assets in general.
But which regulatory system will emerge to prevent us from harming ourselves? One that chokes innovation and capital formation? Yeah, that’s the plan that seems to be emerging out of Capitol Hill. I wonder: Is it even possible to get back to a system of government that doesn’t overly meddle in the pricing mechanism of the market (capital markets and otherwise) that helps screw everything up? Governments should be neutral, favoring no one(ies), group of people or anything. The only minority group there is is the Minority of One. As in, you. And as in me. Governments should quit thinking in “us” and “them.”
The Financial Times struck the right chord (at first) in its story by Alan Beattie on Tuesday, stating at the outset of the decade, regulators and central bankers appeared to be geniuses. And there “appeared [to be] plenty of fiscal ammunition to spare.” The Fed had already massively cut interest rates, Bush cut taxes and the global slowdown was short, he writes.
Not even the shock of September 11, the invasion of Iraq, avian flu fears and skyrocketing oil prices derailed the global economy for long. But, as the global economy coped with one shock after another, “the global economy could not ignore its own excesses. As interest rates were held low across the world in the middle of the decade, so world bubbles in housing—and critically, the financial assets that were created to fund them—began to expand unsustainably.”
So, the author is correct: Central bankers blew it. (Why do we have central bankers anyway? What do they know that millions of propeller heads working in office towers around the world don’t know?)
But here is where his article gets interesting, and begins to go adrift, intellectually, well, to me anyway. Beattie continues: “The intellectual confidence born of the 1990s served policymakers badly. The state-of-the-art policy framework involved an independent central bank targeting inflation in consumer prices, not bubbles in asset prices.”
Okay, just how does one determine a bubble in some asset class? A group of unelected central bankers? Are they supposed to huddle on Liberty Street in New York and in Washington and in Brussels to, somehow, using a special crystal ball-computer program, identify and then slowly deflate bubbles? As if they have the magic that millions of individual people acting in their own self interest don’t possess?
The concept of some elite, enlightened government committee monitoring systemic risk, guiding the economy is as ridiculous as Obama’s health care plan. But then we have begun to regard politicians as omniscient. Consider the language of Beattie’s FT summation: “Most of all we are entering the new decade with a loss of confidence among the world’s governments, regulators and central bankers about how they should be running the global economy.”
Some of us have had that worry—about government’s ability to run anything in the private economy—since we were born. But notice his choice of words, “about how they should be running the global economy.” Sheesh. Individuals—private economic actors—“run” the economy. Governments shouldn’t, and, as Beattie indicated in his article earlier, can’t. Modern economies and human society are too complicated for government committees to magically manage the global economy. We need sensible regulations (i.e. about financial disclosure, reporting of profits and trading), but no government can “protect” us from ourselves. There will always be speculation (as there should be). Rules to prevent it will only make matters worse—as the “noutghties” proved.