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Change Just Doesn’t Happen - Part 2

For the past 30 years, our economic system, and our political system for that matter, have been dominated by a philosophy that believes that the market system is perfect and is the answer or mechanism that can make the necessary changes to our country.  Some people call it “laissez-faire” capitalism, “free market” capitalism or market fundamentalism.  It doesn’t matter what you can it.  It is terribly flawed.

Market fundamentalism believes that markets are perfect and if left alone to operate that they can solve our economic problems and even societal problems.  Market fundamentalism has been the basis for huge tax cuts and massive de-regulation (particularly of our financial system).  How many times have we heard over the last 25 years that individuals and businesses can spend resources more efficiently and are more productive than the government?  This myth has been busted by this current economic crisis that began as a mortgage crisis and quickly spread to a global financial crisis.

De-regulation was one of the many causes of this economic crisis.  Alan Greenspan, an avid market fundamentalist, has admitted to flaws in market fundamentalism:

NYT

But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform…

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

Market fundamentalism failed because it ignored that fact that humans participate in these markets.  Humans, as much as some of us don’t like to admit, are imperfect.  We participate in markets with our own perceptions, beliefs, biases and ethics.  Markets occupy an important position in our economy, mainly, the determination of price and the allocation of resources but they are not the end all be all to our problems and they are far from efficient.

This does not mean that the government has all the answer or is any better.  However, what is needed is an understanding that allowing any ideology to dictate or dominate policy in our country is dangerous.  We have to understand that policies particularly economic ones must be balanced and must have a positive impact on the greatest number of people as possible.

We need a new a way of thinking of how we formulate economic policies.  We have to understand that many different interests are represented in this country.  Our policies don’t have to be a matter of someone wins and someone loses.  Policies can be constructed in a way that serve the interests of all parties involved as best as possible.

This new way of thinking does not mean that we have to sacrifice our values or not be passionate advocates for our beliefs.  It is a matter of understanding and listening to the other side of arguments.  The goal is to get things done.

Is this too idealistic?  I don’t think so.  It is a matter of finding common ground.  Progressives and conservatives, who are rational, can come together to develop sound policies.  There should be arguments, debates, discussions but most of all, at the end of the day, agreement.

I have been advocating for the past month that financial institutions should held accountable for their lack of transparency with what they are doing with taxpayer money.  This is not contrary to what I am saying here today.  This Wall Street bailout, its beneficiaries and those who created it adhere to the old failed philosophy of market fundamentalism.

We must require and demand transparency because what is happening now is a lack of trust and confidence in fellow market participants.  Banks don’t trust other banks and banks don’t trust borrowers.  There is very little confidence in economic prospects therefore no lending activity.  One way to address this lack of trust and confidence is by fully disclosing what toxic assets are on the books or owned but not on the books.  We need to know the full extent of this crisis in order to proceed with a solution.  Could it mean more lack of confidence if disclosure leads to insolvency by a big financial conglomerate?  Maybe in the short term, but not knowing or guessing is not doing us any good and may be prolonging this crisis.

The new way of thinking requires transparency and full disclosure.  This is change we can believe in but it is not just going to happen.  We must demand it from our elected representatives and those who benefit from taxpayer money.  We must hold them accountable if they choose not to be transparent.

Even more to come.  Please join the conversation here.  It is free to join and together we can learn more about our economy.