Quick Bites Corner*, no 1
Gary R. Herbert posts HERE
”Invisible hand of the private sector—not heavy hand of
government—is the most effective way to #reform
#healthcare”
Comment
Incredibly
topsy-turvey Gary! Markets operate by very VISIBLE PRICES; governments work by INVISIBLE
lobbying, hidden influence peddling and secret exchanges of private favours - see
public choice theory. Whether
either is the effective way to reform health care or any other programme is
controversial.
[* An occasional series
of Lost Legacy observations]
9 Comments:
Sometimes the market conspires with itself and creates monopoly mentalities, like happened with the property bubble that trigger the financial crisis. Sometimes governments have to be heavy handed to prevent such disasters and protect consumers.
airth 10(?)
I believe the property market was boosted by politically inspired US legislation requiring lending businesses to make mortgages available to low income families at greater risk of defaults. This must have been a contributory factor in the failure.
"Heavy-handed" Governments may also cause what they seek to prevent.
This is not to argue against state action; it is only balancing thought before taking stances.
Gavin
"I believe the property market was boosted by politically inspired US legislation requiring lending businesses to make mortgages available to low income families at greater risk of defaults."
Sorry, but that is wrong. It was caused by bad and criminal lending on the part of banks not only in America but in Europe. It was also caused by the bundling up of these bad loans and selling them as legitimate investments that in due course blew up. It was also cause by rating agencies, who weren't preforming their due diligence, giving these bad investments high marks. It was also caused by governments believing too much in the infallibility of the free market and then not paying attention to the wrong doing. It was also caused by the limitations of capitalism, which few people bothered to think about. The central banks were also responsible with their monetary policies, which were probably politically influenced.
airth
We are not really arguing. Lending to fund property purchases to people who were high-risk borrowers, especially at 120% above valuation, was suicidal. This was encouraged by politicians.
This was not the only cause of the meltdown, of course, as you describe. I gave an example of the state interfering in markets causing problems, not generated by markets alone.
That's another reason why I disagree with Polanyi's thesis.
Gavin
"This was encouraged by politicians."
That is true but it does not exonerate the market place as you seem to suggest.
Politicians did have a hand (perhaps also an invisible hand) in creating the financial crisis of 2008, but not to the pivotal extent you suggest. Politicians were on the peripheral edge of this crisis, not on the cutting edge. Moreover, the heads of central banks, who were very responsible with their cheap money policies, weren't politicians. And neither were the banks, who were at the centre of the crisis, politically motivated or coerced by politicians.
Much of the financial crisis was caused by private banks, who over leveraged themselves to finance the property bubble. Nobody asked banks to behave so stupidly or take the disastrous risks they did, not even politicians. However, what politician and governments were truly responsible is for their overlooking and condoning the stupid behaviour of those capitalist, free market banks who almost brought down the entire system.
This suggests that the supposed rationality of the invisible hand is not always rational.
airth
I have recollections that the Democrats led demands that banks across the USA were 'ordered' to open mortgages to marginal customers in order to get them onto the property ladder.
Gavin
Gavin,
That is a weak argument and it shows your bias against government and a particular political party.
Nevertheless, the Bush administration also used cheap mortgages as a way of getting "marginal customers" up the ladder. They used that technique as a way of showing a semblance of balance for the hefty tax cuts they had given the wealthy. But neither party, democrats or republicans, told banks to behave recklessly and make liar and predatory loans in order to fulfill that mission. Furthermore, the banks took it upon themselves to over leverage and under capitalize themselves, but were not forced by politicians to do so.
No, the main reason for the financial fiasco was corruptive and foolish bank practises, not politicians, though they also share in the blame for acting in harmony with the banks.
Airth
I have no particular bias against any political party, for or against. I vote in Scotland and decline to comment on politics in other countries where I do not vote.
Bank policies mat have been "foolish" but whether they were "corrupt" is beyond my knowledge.
Governments (certainly in the UK) were also complicit in spending on welfare beyond the taxation levels to pay for it. If that occurs then they have to borrow the difference. If that continues they cause serious problems - it being easier to avoid such deficits than it is to curtail welfare payments. Tax cuts for higher income earners also adds to pressure,
Banks go bust - unless bailed out - and the contagion spreads into crisis.
I am only suggesting balance, not blaming one side.
Gavin
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