Protests have erupted around the country. They have spread from New York to San Francisco, involving an array of individuals and groups, from the common person on the street to labor unions. Additionally, interviews of protestors show that people are amassing for vastly different reasons. Some people are protesting what they see as crony capitalism, fascism, the warfare-welfare state and the police state. Others are pushing for collective liberation, wanting to educate people to be altruistic by putting collective needs first and selfish needs separate, and trying to create a true democracy by ridding the country of corporate greed. Regardless of the different causes they support or oppose, it is clear that they are angry at the current state of American affairs.
Though the anger is justified, for some it is misplaced. People all across the political spectrum see a world that is ridden with unemployment, underemployment, lack of affordable healthcare, and inequality. Primarily left-leaning citizens attribute this to corporate greed and corruption, expressing the common notion that corporations are all evil and that government is an all benevolent force for “the people.” Michael Moore has gone so far as to claim that the rich bankers are “kleptomaniacs,” directly stealing from the pockets of the common person and destroying millions of lives. These people are reacting to what they see as injustice in this country. And they’re right; there is an injustice—but corporate greed is not to blame; politicians are.
When accounting for the current state of affairs, it doesn’t make sense to ignore the effects of public policy. Policy and how it’s enacted are among the few built-in, causative forces in our society. Law provides certain incentives or disincentives leading to a particular result. Those who claim that corporate greed is the sole cause of the recent recession are not considering the structural origins of the boom and bust: the irresponsible actions motivated by public policy.
The housing market crash that served as the iceberg of the Great Recession is described by entire books and would be impossible to explain in one paragraph, so allow me to give an abridged version. Many presidential administrations, including those of Roosevelt, Reagan, Clinton and W. Bush, have pushed for increased home ownership. Many policy initiatives have tried to further this goal, including: the Community Reinvestment Act signed by Clinton; the creation of government sponsored enterprise (GSE) Fannie Mae under Roosevelt; tax incentives for Fannie Mae to purchase more mortgage backed securities including those made to low-income individuals; and most recently Bush’s American Dream Down Payment Fund. Each of these policy initiatives were responding to what was seen as a particular need the market was not providing: home loans for middle- and low-income families.
All of this might sound great. There was even a bi-partisan movement to make home loans affordable to lower income and minority families…but there is a dark side. All of these policies, combined with the low interest rates set by the Federal Reserve, led bankers to be less responsible and take riskier actions with their assets. Given the promise of a bail out for Fannie Mae and Freddie Mac in the case of insolvency; the assistance of down payments; and the guarantee that the loans were good, borrowers saw an opportunity for easy loans, and lenders to make big returns. While these conditions encouraged lending to people who couldn’t have afforded their loans otherwise, the result was the creation of toxic assets that carried the deadly illusion of low risk.
The problem in this case and many others was government providing artificial incentives for lenders to give out loans that they would not dare lend out otherwise. Lenders are naturally attuned to the risk involved when lending their own money to lower income families. In order to get the bankers to lend, government had to coax them with incentives…and respond they did. But who can blame someone for responding to incentives and trying to better their economic standing? Michael Moore has called for the arrest of the “kleptomaniac wall street bankers.” But does it make sense for government to arrest people for acting rationally and legally on incentives created by government? It is unreasonable to arrest people for individual action that collectively leads to a tragedy of the commons.
Now we see a mass calling for more government regulation on the financial markets. But, as Albert Einstein said, “We can’t solve problems by using the same kind of thinking we used when we created them.” Since law and good-willing yet ignorant politicians instigated the problem, it doesn’t make sense to use more of the same to fix it. It is not time to empower government; it’s time to get the wrong incentives out of the picture.
Bankers, corporations and CEOs have always been greedy and will always be greedy; but within the constraints of property rights, greed is a good thing. It is a motivation to gain and improve. In a system of observed individual property rights, nothing can be lawfully taken by force. If you want something someone else has, you have to agree to an exchange. Logically, the greedy nature of each party will demand a benefit for both from the exchange. Throw in many buyers and sellers within a particular market of goods, and naturally people will start competing to gain the most profit. This competition keeps prices low and quality high, but when the productive powers of greed are rechanneled by government, the results can be disastrous. If greed were the cause of the Great Recession, why isn’t the economy always in decline? The greed didn’t change, the legal framework did.
The growth of government gives corporations bigger bombs to hijack. The FDA and the USDA, infested with corporate interests, control what products go on and off the market, killing the forces of consumer choice, which raises prices and limits healthier food options. The federal government’s high labor standards reduce competition from small and mid-size businesses, favoring big businesses with bigger budgets. It was politicians, not CEOs, who started unjust wars overseas. As Reagan said, “People don’t start wars, governments do.” The bailouts to the banks and car companies created the fallacy of “too big to fail” and reduced their responsibility and risk, which gave them license to screw their customers and employees, and survive regardless. Government subsidized incentives encouraged risky lending behavior at the tax payers’ expense. Politicians are to blame for steering an increasingly powerful government toward the will of corporate lobbyists. If the politicians would have said, “No, we’re not giving you a special privilege,” or if they would have said, “No, we’re not going to increase the power and size of government for you to exploit it,” we would not be where we are today.
Government is to blame, so why is Wall Street getting all the heat? You can bet that the corrupt politicians are sitting back in their office chairs smiling and sipping their favorite drink—paid for with bribes—rejoicing that few are blaming them. On the other hand, the ignorant politicians are simply clueless of what they have done, wondering how to “fix” the problem. They were wooed by the language of humanitarianism without considering the actual economic consequences.
So if you are upset about the current state of America, don’t throw stones at Wall Street. Don’t blame capitalism. Don’t blame business. Don’t blame the rich. Quit stoning the wrong people. Aim at Washington. Share this information with others. Join the protests, but only so that you can educate those who do not realize that they are actually protesting the effects of government. Give their voice a real purpose.