The Price of Everything - Eduardo Porter [116]
The Obama administration seems to be trying to steer such a course. It is apparent in the Federal Communications Commission’s efforts to establish oversight over access to the Internet and in the increasingly activist stance of the trustbusters at the Federal Trade Commission and the Department of Justice. It is evident in the president’s ultimately successful battle to extend health insurance to all Americans. So, too, governments around the world have been working on new rules to further regulate and constrain the activities of banks—forcing them to amass bigger precautionary cushions of money, limiting the kinds of businesses they can engage in, and targeting them for special taxes to pay for the potential costs of any future financial disaster.
But it would be naive to believe that industrial nations will inevitably move back to a Big Government era, clipping bankers’ horns, clamping down on monopolies, and generally taking a decisive role in shaping the economic order. Bank shares jumped the day after the U.S. Congress passed a new law to regulate the financial industry. They surged again after global regulators agreed on new, higher capital cushions. Both jumps suggest the new rules will do little to curtail banks’ risk taking.
What’s more, President Obama’s efforts to reform health insurance and stimulate the economy with government spending provoked a furious populist backlash. Forty-eight percent of Americans tell Gallup their taxes are too high. As I write this passage, the loudest protesters on the streets are not railing against bankers. They are members of the Tea Party, who accuse President Obama of being a “socialist” out to undermine the nation’s values. In Europe, faith in government is not doing much better. Following the battering of the bonds of weaker countries like Greece and Spain in the spring of 2010, European Union governments virtually across the board declared it was time to start slashing their budget deficits. This, despite the fact that employment was still contracting, unemployment remained around 10 percent, and there was no plausible alternative source of demand to take the place of the spending that governments planned to withdraw from their economies. In other words, they risked a deeper economic downturn just for the sake of pulling the government out of the economy.
These are early days. Little more than two years have passed since the demise of Lehman Brothers. Finding a new equilibrium between government action and private markets was always going to take longer than that. And citizens’ mistrust of their governments seems about as high as their mistrust of bankers. But if we learn only one thing from the economic disaster of the last two years, it should be this: we should never again accept unchallenged the notion that the prices set by unfettered markets must inevitably be right. Sometimes they are. Sometimes they are not.
Consider the testimony before Congress of Alan Greenspan, the former chairman of the Federal Reserve, on October 23, 2008. Greenspan was known as “the Maestro” for his seemingly deft management of monetary policy, evidenced by a long tenure during which the United States experienced low inflation, long economic expansions, and short and shallow recessions. He was also one of the main architects of economic policy as the housing bubble inflated toward its climax. A follower of the libertarian, antigovernment thinker Ayn Rand, he was considered the high priest of unfettered markets, prone to righteous expressions of faith in their ability to properly price financial assets and allocate resources efficiently.
But when