The origins of the financial crisis and the Great Recession are widely attributed to "market failure." This refers primarily to the bad loans and excessive risks taken on by banks in the quest to expand their profits. The "Chicago School of Economics" came under sustained attacks from the media and the academy for its analysis of the efficacy of competitive markets. Capitalism itself as a way to organize an economy was widely criticized and said to be in need of radical alteration.Becker's a Nobel Prize winner, one with more smarts, obviously, than idiot economist Paul Krugman.
Although many banks did perform poorly, government behavior also contributed to and prolonged the crisis. The Federal Reserve kept interest rates artificially low in the years leading up to the crisis. Fannie Mae and Freddie Mac, two quasi-government institutions, used strong backing from influential members of Congress to encourage irresponsible mortgages that required little down payment, as well as low interest rates for households with poor credit and low and erratic incomes. Regulators who could have reined in banks instead became cheerleaders for the banks.
This recession might well have been a deep one even with good government policies, but "government failure" added greatly to its length and severity, including its continuation to the present. In the U.S., these government actions include an almost $1 trillion in federal spending that was supposed to stimulate the economy. Leading government economists, backed up by essentially no evidence, argued that this spending would stimulate the economy by enough to reduce unemployment rates to under 8%.
Such predictions have been so far off the mark as to be embarrassing. Although definitive studies are not yet available about the stimulus package's overall effects on the American economy, most everyone agrees that it was badly designed and executed. What the stimulus did produce is a sizable expansion of the federal deficit and debt.
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The fact is that the governments forced banks to make loans that they would not have normally made by threatening prosecution. Capitalism worked fine Government did not.
ReplyDeleteIt is much like the Gun Walker scandal where government, read ATF, forced gun stores to make sales they would not have made otherwise. Behind almost every disaster or failure one will find an agency of government either creating it or making it worse.
I note the Secretary of Union Thuggery was very proud of that GM car she has to use because it was helping workers here in the USA, but of course, given the incompetence of Obama's minions, It was made in Canada by Canadian workers. It did has some US made products in it.
ReplyDeleteAfter the way the union acted in Wisconsin in trying to restrict who could be in the Labor Day parade, one can only guess that those who are not in the union don't labor. It might be better named, given the union's actions, "Union Thug Day."