Funny Business

These thoughts occurred to me as I interacted with some people arguing that the solution to current economic woes is government intervention (1) to regulate fraud out of existence, (2) to create more jobs (e.g. "build more infrastructure"), and (3) to fix income disparity (e.g. with a "minimum guaranteed income").

(1) People are always going to be initiating fraud and/or making bad business decisions.  Unfortunately, that doesn't stop when they get elected, take an oath, and enter public service.  The fundamental problem with more government oversight as the solution to fraud or bad business decisions is that government workers are just people too (whether fraudsters or simply well-meaning fools).  Quis custodiet ipsos custodes?  Because of the revolving door that Sorkin writes about (connecting the world of big business to the world of big government), the same bureaucrats (the Henry Paulsens, Tim Geithners, and Ben Bernankes) are always running the show, whether they happen to draw a paycheck from private profiteering or public service at any given moment in time.

The recent American housing crisis provides a useful illustration of this.  Proponents of more government regulation as a solution to our financial difficulties tell us that the crisis was caused by evil banks using dishonest tricks to make excessive profits.  There is definitely some truth to this explanation, but it misses an important detail: Freddie Mac and Fannie Mae were creations of the federal government, which demanded from them a policy like the one that they adopted (to our ruin) -- a policy that would allow and even encourage people to buy houses (give it up for the American dream!) regardless of their (in)ability to pay.  Now, would-be government saviors want us to forget their role in causing the mess (which they are blaming on private industry, conveniently overlooking that the private industry was just doing what they told it to).  This classic dodge is the same trick the LDS church uses to avoid being responsible for any of the uncomfortable things its prophets do or say.  Apologists for the Fed argue in effect that the recent financial crisis reveals our federal overseers speaking as fallible men (when they adopt policies that history reveals to be idiotic), but that we must all nevertheless continue to follow them unswervingly as though they were infallible prophets.  This naked appeal to authority without responsibility leaves me profoundly unconvinced.

The problem of government irresponsibility is a tough one.  Unfortunately, the existence of the Federal Reserve (as presently constituted) means that much of the government's (immense) economic power is entrusted to the jurisdiction of people who owe me (personally) even less than the periodically elected clowns-in-chief who answer to me as one person among 300 million (which in practical terms means that they couldn't care less what I have to say until I have at least a million friends: good luck getting a million people to agree on something that isn't hopelessly incoherent and/or stupid).  If Barack Obama doesn't really mind what I think about my money (any more than George Bush did), Ben Bernanke couldn't care less: he is not responsible to me at all, in any way, shape, or form.  I resent it when his decisions (to inflate the currency, to bail out businesses that I see as bad for society) control my purse more effectively than I do.  I don't make much money.  I am not very important to society.  But that doesn't mean that I don't have desires, that I don't believe in causes, that I don't want my two cents going to good things (things that I approve) rather than bad things (things I disapprove).  I resent it when the meager surplus that I have worked hard for and would like to invest in small businesses in Africa (or whatever) gets siphoned off by Ben Bernanke to keep Bear Stearns or GM alive.  And there is very little I can do about it except rant on the Internet.  (At least we have that!)  When people come to me arguing that people like me should be in favor of more government regulation, that it would actually solve all the problems I experience, I'm not sure how to take it: "Just give the hangman a little more rope!  A few more inches and it'll all be over."  Yeah, right.

(2) Now for those folks who think we could solve all problems by hiring people indefinitely to just "build infrastructure."  The need for infrastructure is finite, as is the material basis for infrastructure in geographical space and physical raw materials.  We don't have room or materials for endless roads (to nowhere), endless schools (to house imaginary students), endless buildings (to be occupied by corporations that don't exist, serving needs for which there is no market).  The fallacy that we can just grow our way out of fundamental weaknesses in our economic system is an enduring one.  It shows up throughout history (as Marx's theory of value to give one notable example: unfortunately, the fact that I spend hours laboring over something does not mean that it automatically has value that someone else must recognize).  In the past, back when there were still acres of untapped wilderness waiting to be exploited, it made more sense: if you can't make it in the city, move to the country (the rainforest, the mountains, the jungle, the bush, whatever, and become a settler "building infrastructure").  But today, in a global economy where every nook and cranny of the world is being explored and exploited (more or less), it is patently absurd (especially when we add the expectation that settlers in the bush live with the ephemeral comforts and luxuries of civilization as though these were some sort of human right).

In this day and age, "building infrastructure" often means destroying valuable resources to make a quick buck.  One illustrative example would be Brazil cutting down rainforests to make fancy furniture and biofuels: the model of eternal economic growth pushes Brazil to exploit the forest (and destroy it) rather than leave it alone (and let it be a source of values and utility that cannot be turned into GDP to fund the entitled lifestyle expected by civilization).  Civilization labors under an historical naivete which assumes that all economic problems can be solved with increased production and consumption: it does not know the meaning of austerity; its vision of wealth is fundamentally skewed toward growth and waste as necessary, even good, things.  They are not.

(3) The problem with guaranteeing everyone a fixed income is that value in society (like value everywhere) is relative.  Prices fluctuate.  More money in more hands means that everything costs more.  Dictators have been fighting this reality for a long time (a famous antique example would be Diocletian's Edict on Prices, which failed as every attempt before and after it that I am aware of has failed).  Inflation is not a viable solution to ebbing liquidity, and increasing production is only a viable solution as long as we retain materials and space to exploit: when we tap out those resources, the Tooth Fairy does not come by to bless us with prosperity (even if we have PhDs in economics, which mean about as much to me as PhDs in astrology or voodoo, to be honest: Long-Term Capital Management was founded by bona fide, certified experts in the field).

Given the reality of our situation, it just seems wrong to me that Ben Bernanke retains the right to co-opt me as some kind of human resource.  I don't mind recognizing real risks in the world and collaborating with others to meet those risks (as best we can: some of them are inevitably going to rock us, with unpleasant results; c'est la vie).  But to me, collaboration means that I get a meaningful say in what my contribution is.  I pick where my two cents go.  I place my bets and let nature do her worst.  I hate it when "doing my bit for society" means giving up all (or most) of my agency to the Ben Bernankes of the world, renouncing my role as a decision-maker so that some bureaucrat in authority can use my money to bail out his friends (Bear Stearns, GM) while my friends get rail-roaded.  I admit that my own knowledge of economics is limited and imperfect.  I admit that I make bad decisions, but I cannot say that the bureaucrats appear any more capable.  Try as I have to catch them saving the world (as they always claim to be doing), all I ever see when I pull back the curtain is them using me as human capital to save their own fat ***es.  Punks.