These Are Not the Schmibertarians You Seek
Somewhere this week – and it turns out not to be Sadly, No! – I read someone asserting that the internet was full of Schmibertarians who used to preach the glories of unfettered capitalism but are perfectly happy to bail out large financial institutions. They didn’t provide links. (In that sense, they are like this post!)
I haven’t seen these people. The mildly pro- to willing-to-wait-and-see libertarian bloggers I’ve been reading are Tyler Cowen and Megan McArdle, both of whom are also pro-safety net. Meanwhile, your archetypal right-libertarian econ blogger, Arnold Kling, regrets tonight that
Once upon a time, [a contemplated bailout fund] was supposedly going to help home owners. I guess when push comes to shove, the real bailout money goes to financial institutions, not individuals.
If some libertarian bloggers I’ve read have had a vice, it’s been confidently claiming, on necessarily no real world evidence, that if we’d had "real free markets" and/or hard currency and/or the guts to let the Bigs go under, we wouldn’t be in this mess. You could deride the claim as cost-free with some justification: the bailouts are going to happen anyway so the theory that "real free markets" would save us isn’t going to be tested. But it’s completely opposite from being happy to bail out large financial institutions. (Note: Cowen is quite sensibly "worried about the rule of law in all these events.")
Comment by SomeCallMeTim —
September 18, 2008 @ 10:47 pm
Cowen is quite sensibly “worried about the rule of law in all these events.”
Oh, yeah, now he’s worried about the rule of law. I think the charge would “propertarian” rather “schmibertarian.”
Comment by Jim Henley —
September 18, 2008 @ 11:02 pm
I suppose there’s a case you could make. But it would rest pretty heavily on crazy-years opinions re Iraq and Bush that he seems to regret.
Comment by Doug T —
September 19, 2008 @ 12:00 pm
My knowledge is pretty much limited to a big bio of JP Morgan that I read a couple of years ago. But from that dangerous little bit of knowledge about the late 1800’s financial sector, it seems hard to credit any claim that a lack of regulation would prevent serious banking crises.
Comment by Gene Callahan —
September 19, 2008 @ 1:51 pm
“on necessarily no real world evidence”
Jim, in the social sciences we cannot, for the most part, run repeated experiments to see what emerges when the same scenario is treated in a variety of different ways. We have no aility to go back to the bursting of the dot-com bubble and see what would happen if Greenspan had chosen not to lower rates to about 1%. Instead, we must use our understanding of motivations to mentally wlk through different scenarios. That, of course, may be wrong, but there is no “real world evidence,” except what actually occurred to bring to bear on the matter.
What we have to do is ask ourselves questions like, “If company A makes risky bets and gets bailed out, is company B more or less likely to make risky bets?”
Comment by Gene Callahan —
September 19, 2008 @ 1:52 pm
By the way, the above post is intended as a kind of “Cn u rd ths sntnce?” sort of test.
Comment by Idi Amin's Last Meal —
September 19, 2008 @ 6:35 pm
[reads Atlas Shrugged]
Comment by William Newman —
September 19, 2008 @ 10:38 pm
“We wouldn’t be in this mess” is ambiguous.
If you read it as the extreme claim that in the absence of regulation, absolute stability would follow naturally, then of course it’s silly. I don’t know anything in economic history or theory that supports that idea.
But it could be read in a less extreme sense, too. In the absence of intervention (the regulation that Jim Henley mentioned, but also artificially low interest rates, tax incentives, and directives to HUD and Fannies) would we be in as big a mess as this?
Were the banking messes of Morgan’s time as big
(by some relatively neutral measure like proportion of GDP) as the bank failures of the 1930s, the S&L failures of the 1980s, or the bank and insurance failures now? (not a rhetorical question: I don’t happen to know, or an easy way to look it up.)
And what about the mess in housing? How many historical examples are there of markets spontaneously building an overhang of housing supply as large as this? My impression is that it’s historically unusual.
Jim was making an unsympathetic paraphrase of the claim, but I’d be interested if anyone has the numbers to show that even the unsympathetic paraphrase is historically ridiculous.
(Of course it is theoretically ridiculous if one is sure that without benign regulation we’d implode in beggaring of the working class, insider trading, speculative instability, spontaneous monopolies, destruction by predatory trade, rampant irrational discrimination, inability to develop packet switching WANs, and various other things that naturally go wrong with markets and were only tamed by progressives and the New Deal and such. But in that case, pretty much every single thing the marketroids ever say is ridiculous anyway.)
Comment by Bob Weber —
September 21, 2008 @ 5:54 pm
I second what Gene Callahan wrote.
Some people see events in isolation, others look for connections with other things. What caused the financial meltdown? Was it moral hazard from implied government bailouts of Fannie Mae-Freddie Mac and large firms? Inflation from years of record deficits? Fractional-reserve banking? Yes to all of the above. I’ll even add the Iraq War. Besides killing people, wars make countries poorer, consuming and diverting resources. Goverment disguises this through borrowing and inflation, which in this case worked its way into the housing bubble.