We now come to the point in Manzi's article where he lays out solutions to the problems he identified earlier. He points to four very broad solutions to these issues.
Most obviously, government ownership of industrial assets is almost a guarantee that the painful decisions required for international competitiveness will not be made.
Agreed. But that also means that if companies start to fail they can't go hat in hand to DC and beg for money. They need to file for bankruptcy and take their lumps. Speaking of which...
When it comes to the auto industry, for instance, we need to take the loss and move on.
Also agree. Detroit has proved beyond a shadow of a doubt that they have no idea how to run a manufacturing business. And remember, our country is not about manufacturing any more.
Manzi goes on to detail how the government should pull its tentacles out of all industries and get back to the pre-stimulus status quo. I'm not certain I agree with him on this one. Banks, for example, are already causing a problem by not lending to anyone. If not the government, what is the mechanism to push them to do what has to be done in order to jump start this economy?
The financial crisis has demonstrated obvious systemic problems of poor regulation and under-regulation of some aspects of the financial sector that must be addressed — though for at least a decade prior to the crisis, over-regulation, lawsuits, and aggressive government prosecution seriously damaged the competitiveness of other parts of America's financial system.
So the government does too much or too little. Yep, pretty much says it all.
Regulation to avoid systemic risk must therefore proceed from a clear understanding of its causes. In the recent crisis, the reason the government has been forced to prop up financial institutions isn't that they are too big to fail, but rather that they are too interconnected to fail. For example, a series of complex and unregulated financial obligations meant that the failure of Lehman Brothers — a mid-size investment bank — threatened to crash the entire U.S. banking system.
The best paragraph in the entire piece, really. President Obama is basically going to do this when he takes on the banks. I can't wait. It's one of the reasons why I voted for him. Glass Stegall needs to be law again.
As we work to adapt our regulatory structure to fit the 21st century, we should therefore adopt a modernized version of a New Deal-era innovation: focus on creating walls that contain busts, rather than on applying brakes that hold back the entire system. Our reforms should establish "tiers" of financial activities of increasing risk, volatility, and complexity that are open to any investor — and somewhere within this framework, almost any non-coercive transaction should be legally permitted.
Yep.
The tiers should then be compartmentalized, however, so that a bust in a higher-risk tier doesn't propagate to lower-risk tiers. And while the government should provide guarantees such as deposit insurance in the low-risk tiers, it should unsparingly permit failure in the higher-risk tiers.
Definitely. If such compartmentalization was present, a bigger bank could fail and an insurance agency wouldn't fall as well.
Such reform would provide the benefits of better capital allocation, continued market innovation, and stability. It would address some of the problems of cohesion by allowing more Americans to participate in our market system without being as exposed — or unwittingly exposed — to the brutal effects of market collapses. It would also help get the government out of the banking business and preserve America's position as the global leader in financial services without turning our financial sector into a time bomb.
But do the wealthy elite of this country want "more Americans to participate in our market system?" I don't think so. Herein lies the real challenge behind the second part of Manzi's solution. Why on earth would anyone want to share their power? It goes against human nature and the need to control and dominate your sphere of influence.
So, I don't see this happening any time soon in our little plutonomy.
Tomorrow I will wrap up my State of the Union series just in time for....the State of the Union on Wednesday.
5 comments:
Re-instituting Glass-Steagal is not the answer, otherwise Manzi would've said so. He in fact expresses a relatively simple idea in theory, that is exceptionally difficult to implement in practice - and not because the rich want to fuck you over. So far, Obama has not actually proposed much (in detail) for Congress to implement. Instead he talks in generalities (similar to his campaign) and has left Congress to figure it out on their own. I wouldn't say that has worked out so well; on the other hand, if he doesn't have a clearer set of objectives, what else can he do. In which case, you are pretty much doomed to disappointment.
Also agree. Detroit has proved beyond a shadow of a doubt that they have no idea how to run a manufacturing business. And remember, our country is not about manufacturing any more.
This is a dangerous delusion. Thirty or forty years ago we essentially gave up on manufacturing as corporations started shipping jobs off to Asia and Mexico. "Don't worry," the corporate guys said. "We'll keep the high-paying, high-skilled tech jobs here."
The result has been devastating to certain areas of the country: Pennsylvania, Michigan, Ohio, Indiana, etc., have been hard hit by these decisions.
Then in the early 2000s we saw a huge outflux of those same high-paying, high-tech jobs to India and China. "Don't worry," the corporate guys said. "We'll keep the high-paying, high-skill financial and legal services jobs here."
These are the same jobs held by people who are responsible for the economic meltdown we just suffered through. Not such great jobs, are they?
But the truth is, any high-tech job can now be done anywhere in the world, because of the Internet. Even formerly high-paying medical (reading X-ray imagery) and legal services (research) are being performed in India.
"We're a service-oriented economy now," the gurus tell us. Yeah, we going to spend all our time cutting each other's hair and doing our nails.
It is a mistake to let our manufacturing base collapse. The current system is incredibly wasteful and unsustainable: China imports raw materials from the United States and across the world, using millions of barrels of oil to ship them there, burns millions of tons of coal to manufacture items there, then uses millions of barrels of oil to ship the items back to the rest of the world.
You can talk about an information economy all you want, but when you come right down to it, people will always avoid paying for information or entertainment. When you listen to pirated music, you do so on an iPod you paid for. This is the ultimate truth about human behavior: people are willing to pay for tangible goods, and expect to get intangibles for free.
The only reason that we have an "integrated world economy" is because oil is cheap. When this is no longer the case, probably in only 10-20 years judging by the drastic increase in oil consumption we'll be seeing in China and India, the model will collapse. Local production of goods will be the norm, and the countries that are prepared for this will suffer the least dislocation.
(continued)
Finally, we cannot be a first-rate military power without our own strong industrial base. If we don't have the know-how as a nation to build cars, how are we going to build Hummers, tanks, planes, and all the other things we need for our military? If we don't have the wherewithal to build electronics, where are we going to get our avionics, military GPS systems and spy satellites?
Our industrial policy must anticipate future calamities. I'm not saying we should withdraw from the world, but we need enough local production so that we can quickly become self-sufficient as needed. Conservatives keep telling us what a bad place the world is, and how many enemies are lurking out there. It's just crazy that all the consumer-grade computers our military is using are made in China, which has already required certain kinds of monitoring devices be placed in computers made there.
It is dangerously naive to let our industrial capacity collapse as far as it has. We should be heavily investing in new energy technologies right now, to generate jobs for this bad economy, to make sure that we have the patents for these new technologies so that we're the ones who make the money.
We have tax policies that encourage American corporations to ship jobs to other countries. We need to start thinking long-term, stop bickering among ourselves and start getting things done, or we're going to wind up on the trash heap of history. By blockading Obama at every step and preventing anything from being accomplished, the Republicans are falling into the hands of Chinese industrialists who are already burying us in consumer goods.
By blockading Obama? Tell me how Obamas policies will help what you just described blk. Remember, his proposed policies, not his speeches.
Now blk that is more like it. I agree that it is a mistake to think that there is no future for manufacturing in this country. That would be like saying there's no future in agriculture.
What there isn't is a great future for unskilled or semi-skilled labor - the folks that did so well during M's "Golden Age". But manufacturing may follow the trajectory of agriculture (where 100 years ago, the pundits of the day worried that everyone going off to manufacturing meant there wouldn't be enough farmers to feed the nation). There will be manufacturing jobs/businesses, and that will be (and should be) a significant sector - but not the boon of 50 years ago.
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