The power has been out in much of Southwestern Ohio this week and that may have been a blessing for many people as they didn’t have to watch the collapse and subsequent bailout of Wall Street.
Lehman Brothers goes under and the government has to step in to rescue insurance giant AIG. Merrill Lynch was then sold at a bargain price to Bank of America to prevent bankruptcy.
But if that isn’t enough, the government steps in with a plan to help out all of the banks involved in poor lending practices at a cost of $700 billion.
And of course, this all adds to the bailouts of Fannie Mae, Freddie Mac, and Bear Stearns that have already occurred.
For those of you not keeping score at home, here’s the costs:
- $700 billion market bailout
- $85 billion bailout of AIG
- $200 billion Freddie Mac and Fannie Mae bailout
- $29 billion bailout of Bear Stearns
That’s over a trillion dollars handed out to Wall Street firms to reward them for their own poor decisions. And the ultimate price tag is virtually impossible to know.
Whatever happened to “letting the market work”?
It would be easy to blame this administration, but the real issue is much deeper than that. It is that we as a nation are being sold flawed economic policy.
Neo-conservatives have sold the nation on a “letting the market work” policy when times are good and a “too big to fail” policy when times are bad.
In a sense, the corporations that are contributing to Washington are receiving the benefit in both good and bad economic times.
I have heard this policy called “privatize the profits, socialize the risk.” This means that when times are good, government lets businesses take all of the profits, but when times are bad government steps in for the overall good of the economy.
This is the rationale the government used to bail out AIG, but not Lehman brothers. AIG would have a broader impact on the economy according to this “too big to fail” philosophy.
The trouble is that the government is rewarding companies in the marketplace for practices that got them into this mess in the first place without addressing the underlying philosophy that has led to this problem.
The larger problem is the conservative ideology of “privatizing the profits and socializing the risk.”
This neo-conservative philosophy of no regulation leads to “boom and bust” cycles followed by massive government bailouts and consolidation.
It is not a particular administration that is the problem. It is this underlying philosophy. This underlying philosophy has driven policy from Reagan through Bush I through Clinton up to the present.
We need a new progressive philosophy that establishes the conditions where markets do work if we ever want to break this “boom and bust” cycle which is the end result of bad economic policy (think Enron).
Progressives should be establishing the principles of a sound economic philosophy. It would involve:
- Sensible regulation
- Encouraging competition (rather than monopolies)
- Rewarding companies that innovate and help our country
- Setting a progressive vision of economic innovation for the nation (rather than creating a culture where businesses rely on the government)
If progressives are ever to make serious inroads, we need to build the case for a stable economic policy based on transparency, sensible regulation, and incentives for companies to innovate and create new jobs.
Progressives have a unique opportunity to establish the conditions necessary for markets to work and function properly for the benefit of all. We will not be able to change policy until the public buys into a more progressive economic philosophy.