Monday, September 14, 2009

Politicising economy made Depression--Now?

Now, similar things have brought us the current deep recession, and, if past patterns (i.e. interferring with the free market for political ends) hold, whatever recovery we see will pale compared to the normal robust recovery that usually follows downturns:

"Economic View--Where Politics Don’t Belong" by By TYLER COWEN (via NY Times)

"FOR years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.

"Well before the financial crisis erupted, policy makers treated homeowners as a protected political class and gave mortgage-backed securities privileged regulatory treatment. Furthermore, they allowed and encouraged high leverage and the expectation of bailouts for creditors, which had been practiced numerous times, including the precedent of Long-Term Capital Management in 1998. Without these mistakes, the economy would not have been so invested in leverage and real estate and the financial crisis would have been much milder.

"But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. Not only have we failed to learn from our mistakes, but also we’re repeating them on an ever-larger scale...

"We should stop using political favors as a means of managing an economic sector. Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction and not heeding the basic lessons of the financial crisis.

Get it? Read the whole article: http://www.nytimes.com/2009/09/13/business/economy/13econ.html?_r=1

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