Monday, February 9, 2009

Tired and worn...

The following is the text of a conversation between myself (Matthew), and a fellow alumni of Granby Memorial High School in Granby, Connecticut. Eric has expressed a number of opinions on Facebook that provoked me to initiate a the following conversation. Our first exchange was about the necessity of taking climate change seriously. This particular conversation was initiated after noting that Eric is a proponent of a brand of libertarianism advocated by the author Ayn Rand, known as objectivism. For background on objectivism, I recommend the following Wiki link:

Our conversation is in regards to the relevance of objectivism to the current economic meltdown and Obama's stimulus plan.

Matthew wrote:
Eric, how can an unabashed proponent of a philosophy (Ayn Rand style libertarianism) that is in no small part is responsible for bankrupting the country continue to speak out against "big-government"? Don't you feel the least bit shamed? Strong regulatory agencies could have prevented much of this mess!

Eric wrote:
I would argue that we are in the mess we are in because we haven't been following a philosophy like Objectivism, but instead have been working under some kind of hybrid system. Government intrusion into the capital markets is in no small part responsible for the mess we are in today. Go back and look at Barney Frank and Chris Dodd's and much of the rest of congress's (both parties) push to get Fannie Mae and Freddie Mac to push loans to those that couldn't afford to repay them. The Community Reinvestment Act forced banks to make loans to inner-city residents. Wikipedia explains quite a bit about how that came about, and some of the consequences that resulted. All this is to say that when the government stepped in to tell the capital markets to make loans which were not necessarily in their economic interest, but were more out of a sense of altruism, we got a disconnect in the markets which has led us to where we are today.

Matthew Wrote:
Dang it; here I go breaking my own rule...
According to Wiki, the Community Reinvestment Act (CRA) is blamed by some as part of the problem that led to our current financial crisis. Wiki however also points out that empirical research has not validated any relationship between the CRA and the 2008 financial crisis. Wiki references a Federal Reserve survey that showed that 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. CRA or “government intrusion into capitol markets” can not really be blamed for more than a small portion of the mess we are in now. In fact; I would argue that it was not the loans themselves that was the crux of the problem so much as it was the investment banks who sliced and diced the loans until it was impossible to understand their quality. Why else would a seemingly American real-estate issue turn into a global financial crisis?

Speaking from my own experience; I bought my first house in 2005. I was one of the smart ones, and resisted the not inconsiderable pressure from my mortgage broker and realtor to spend more than I really could afford. They both tried to sell me on a variable interest-rate loan in order to afford a very tempting more expensive house that could easily have gotten me into financial trouble. I'm a white guy who pulls in a decent salary. My purchase was not associated with any government program. I had the resources and education to understand the consequences of overextending myself. I was lucky (hey; I grew up and was educated in Granby Ct. after all!). Not everyone has these same advantages. Human beings do not always make rational decisions for two reasons; they are greedy and they are lacking perfect knowledge. I agree that there needs to be market forces to encourage consequences for poor decisions, but there are also forces beyond the control or understanding of many folks as well. A moral society should take these two facts into account and devise a system with checks in place to protect both people and markets.

A similar argument can be made for many other life arenas. I can speak very intelligently about environmental degradation, as this is my own area of expertise. Capitol, minus regulatory pressure, will utilize resources to the maximum extent possible in order to turn profits, with no regard for societal or environmental consequences. We have seen a history of this prior to the environmental regulations enacted in the 1970’s. In fact, much of the work that keeps (well…kept) people like me employed is in dealing with the legacy pollution from this era. You would not believe the practices that were commonplace back then! You would also not believe the lines I have heard from Owners who question the science that to them threatens their profits. The same dang things that Climate change skeptics have been regurgitating for the past 20 years. Delay, deny, obfuscate. It’s getting old and frankly it’s getting more than a little criminal.

Tell me Eric; does your "tired and failed" philosophy (not my words; Obamas!) also explain the Enron debacle, or Bernie Madoff and similar scams? These are just two examples (amongst many) of markets malfunctioning due to lack of checks in the system. The oft-heard fallback position of “well we never really gave libertarianism/objectivism a real college try; if only we had removed all the regulations to markets then we would have seen a perfect utopian society” is a fantasy and is a cop-out. Markets need regulation. Society needs government. We all love to complain about taxes and regulation, but without them society would not be a place we would want to raise our children in.

How can conservatives complain about expansion of Government when they presided over the largest expansion of government in our recent history? Conservatives seem to have no problem with the big government so long as it is related to the military industrial complex. As Obama said in his speech tonight (I paraphrase from memory); the tired and worn philosophies of recent times have been tested in the last eight years and they have failed. It is time to out away our petty politics and rebuild this country with policies that work for the American people.

I find it hugely depressing that the republicans in Congress are so stridently opposing the very items in the stimulus package that progressives in this country believe make the most sense. Spending money on energy efficiency; rebuilding our infrastructure so that it is ready for a transition to a post-oil economy; stimulating production of the next generation of efficient vehicles from Detroit. I believe not only that these items are appropriate stimulus measures, but that they are also in fact hugely needed psychological boosts for our nation - “green lights” if you will for the next generation of entrepreneur engineers and scientists. I sincerely hope that Republicans come to their senses. I fear the consequences if they do not. The world is getting pretty darn tired of our stonewalling. If we do not lead, someone else will.

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