Whose fault is this, anyway?
If we listen to some folks, like those who recently gathered in
Washington, D.C., to celebrate Glenn Becks evangelical coming out
party, its the government that has caused this entire economic mess.
They created it and we need to cut them down to size in order to fix
what they have wrought. Less government, lower taxes, then everything
will be all right, again. (Never mind that at the federal level more
than 95% of us are already paying lower taxes.)
Its an easy political position. The nameless, faceless government
at all levels, makes a very large and inviting target. But we have to
take a stroll down Memory Loss Lane to come to the conclusion the
government created the financial mess were in today.
If we go all the way back to the tech bubble that burst in the late
90s, the harbinger of unpleasantness to come, we can see the
difficulty in blaming everything on the government.
It wasnt the feds or local governments who convinced stock traders
to keep pushing up the value of tech companies during a wild buying
spree. It wasnt the government that forced market analysts, who were
making fortunes in the process, to convince us some of those companies
would just keep increasing in value through the stratosphere. It
wasnt the government that decided companies producing a few million
bucks in net revenues should be worth a billion or more on paper. It
was wild-eyed greed and a marketplace more concerned about tomorrows
balance-sheet then long-term sustainability.
Nor was it the government that forced banks and other lenders to
keep handing out money to potential home buyers who had not the
remotest chance of making their mortgage payments.
The government didnt tell us our homes would keep increasing in value
in perpetuity, create the market for home-buying speculators and
flippers, invent the dreaded adjustable rate mortgage (ARM) or
convince people to fudge their incomes and borrow money for a home
they couldnt afford in the first place and had no chance at all of
making monstrous balloon payments. That was the lenders and buyers
who concocted that disaster. The only surprise was our feigned shock
when it turned out the grossly overpriced little house we bought did
not turn into the equivalent of a lottery win.
And it certainly wasnt the government that asked AIG or Merrill
Lynch to create bizarre new financial instruments based on sub-prime
mortgages, avoid registering them as either insurance or securities
and then peddle them in an orgy of profit-taking.
Nor did the government encourage them to try and cover up their
shenanigans as the housing bubble showed signs of bursting. It was
Wall Street greed that managed that catastrophe.
It wasnt the government that forced the American auto manufacturers
and their unions to keep increasing wages and benefits to levels any
intelligent 6th grader could have determined would not pencil-out down
Nor did the government tell GM or Chrysler to keep making those giant,
gas-guzzling SUVs to maximize per-unit profits while ignoring the
foreign manufacturers looming in their rear-view mirrors with their
reasonably-priced, small, safe, fuel-efficient cars. Management and
union leadership accomplished that stupidity all by themselves.
If there is government fault in this it is that they didnt do nearly
enough to stop or at least slow down the apocalyptic collapse of these
markets. Congress abdicated their responsibility to fairly regulate
the markets, and government bureaucrats, never vigilant, did little to
warn us of the looming collapses.
Had the government never intervened, as many free marketers now
suggest, the current economic mess would be cataclysmic. AIG would
have collapsed and the more than 200 smaller companies holding AIG
paper would have been sucked down with them. As bad as the market
crash was, it would have been unimaginably worse. Both George W. Bush
and his staff and Barack Obama and his staff understood that as
unappetizing as it was, saving Wall Street was necessary.
Though the government was, as usual, a day late, had General Motors
and Chrysler been allowed to fail, millions more would be out of work.
Small towns across the Midwest that depend on auto-related businesses
would be on the verge of shuttering Main Street. A generation of
children would be wondering what happened to their dreams of college.
The government can be legitimately blamed for much. The feds are
moribund in red tape and bloat, a monolithic disaster-in-waiting
unable to anticipate the obvious or rapidly respond to much of
anything. Every department needs a good house-cleaning and
streamlining. But they did not cause the current economic challenges,
they simply watched as they happened.
Michigan, with its onerous business taxes and labyrinthine regulatory
system, might even be worse. But as bad as it is, the state government
did not wreck the auto industry; they did that all by themselves.
The problem is not just too much government. Its too little good
government that knows when to intervene and protect the public and
when to stay out of the way and let capitalism flourish.