I can't believe he would be so foolish as to cite safety nets as proof that this won't be so bad. The biggest crashes so far have been in mortgage-backed securities (created by government entities, owned by government entities, insured by government entities, subsidized by taxes) and banks (heavily-regulated -- it's not like there's a Fed equivalent for oil companies, that would give Exxon millions of barrels of oil at a huge discount to market prices if they asked nicely). Meanwhile, loosely-regulated hedge funds are outperforming almost every other asset class.
Safety nets do not prevent crises; they delay and concentrate them. People take safety nets into account -- if we knew, for example, that the government wouldn't let stocks drop more than 20% without bailing us all out, we'd all leverage our portfolios four to one (not strictly legal, but you can do it fairly easily with derivatives). This would make the 20%-drop insurance plan far too expensive, and make stocks so overpriced that such a drop would be inevitable. GSEs, deposit insurance, social security, and unemployment insurance all have similar moral hazard issues.
The effective insurance plans are not the ones that reduce risk (assuming behavior is the same). They are the ones that reduce actual risk relative to apparent risk -- which means they could be the rules that increase risk. Unfortunately, "Effective, but superficially harmful" is a perfect description of a policy that will never be enacted by a democratically elected government, so we're stuck with what we have.
This is an excellent article and a good reminder that when it comes to the economy, we are all only feeling up part of the elephant.
Just remember that the people who produce financial porn, and who get paid to describe the deals and the play by play are not in the business of telling you the truth; they are in the business of selling ads for financial services.
Dostoevsky said, "All happy families are alike; all unhappy families are unhappy in their own way."
The same can be applied to the economy. We aren't likely to repeat the mistakes that led to the Great Depression. Instead we find new and interesting ways to screw up. I doubt that this will be anywhere near as bad as the Great Depression. However, the claim that this time is different shouldn't be as reassuring as it sounds. We simply can't evaluate this depression(or recession if you prefer) in terms of the last. Its apples and oranges.
"A final difference: After the 1929 crash, the nation had to wait more than three years for a president who simply wasn't up to the job to leave the scene. This time, we've got to wait only two more months." Golden.
A cheap shot. FDR ran on a platform of cutting spending, balancing the budget, and repealing prohibition. Guess which one of these he actually did!
Guess which President was the first to decide that a program of massive aid, make-work, and bailouts would be the best way to end a recession (hint: his initials were not FDR). Guess which recession was the first to which the US responded with such policies! Guess which recession was longer and more severe than any before it!
I don't think anybody runs on a platform of trying for a while, then giving up, and doing the exact opposite of what was promised, only in a more extreme fashion than any of your predecessors. If FDR could not keep his promises, he still did a bad job -- being an incompetent who fooled people into giving him authority doesn't make him morally superior to a mere liar.
Well, there's also the possibility that he tried one thing for a while, which didn't work very well so he switched to something different. As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly.
Horseshit. People only say that kind of thing to rationalize supporting everything someone does, even when that someone is a liar. Maybe FDR was lying, maybe he wasn't. Maybe he secretly changed his mind without telling anybody. Then, of course, you have to admit that the wrong guy won in 1932, since what FDR ended up doing was more of what Hoover did: public works, bank bailouts, and more government intervention in the economy.
As to whether he did a good job or not, the fact that he was reelected three times seems to indicate that he didn't do too badly.
1972. 2004. Do you have actual political beliefs, or do you just assume that the average voter defines the morally correct view? Since the FDR who ran for office in 1932 has basically nothing to do with the FDR who rant the country thereafter, you have a lot of 'splainin to do. Somehow, the voters were right to 1) vote for the guy who promised to reverse Hoover's policies, and 2) vote for the guy who then changed his mind and continued them. Meanwhile, FDR was right to 1) do exactly what Hoover didn't, and then 2) do exactly what Hoover did.
I don't think there's even a name for beliefs this ludicrous.
I don't particularly care about the "morally correct" view, I do assume however that voters have some sense of their own well being, and if they feel things are getting worse they will more likely vote for change. That's why democracy works.
I think most people are taught to idolize FDR, and that requires boiling actual history down to a less complicated story. Since FDR either lied about his principles, or had no principles to start with, it's hard to view him as a hero. But if FDR is not a hero, and the Great Depression is an example of what happens when the government meddles too aggressively with the economy, that's a big problem for many belief systems.
I do assume however that voters have some sense of their own well being, and if they feel things are getting worse they will more likely vote for change.
Why would you trust voters to elect the right person? Do you really think that the people in office are the best for the job, rather than the best at manipulating others into giving them the job?
That's why democracy works.
Democracy sucks. Name one company that would would be better managed as a democracy than as a shareholder-oligarchy. Can you seriously imagine a company that had a monopoly on taxing all of the wealth produced in the United States, and still managed to operate at a $500 billion annual loss? Be serious.
Safety nets do not prevent crises; they delay and concentrate them. People take safety nets into account -- if we knew, for example, that the government wouldn't let stocks drop more than 20% without bailing us all out, we'd all leverage our portfolios four to one (not strictly legal, but you can do it fairly easily with derivatives). This would make the 20%-drop insurance plan far too expensive, and make stocks so overpriced that such a drop would be inevitable. GSEs, deposit insurance, social security, and unemployment insurance all have similar moral hazard issues.
The effective insurance plans are not the ones that reduce risk (assuming behavior is the same). They are the ones that reduce actual risk relative to apparent risk -- which means they could be the rules that increase risk. Unfortunately, "Effective, but superficially harmful" is a perfect description of a policy that will never be enacted by a democratically elected government, so we're stuck with what we have.