We faced a financial collapse that was brought about by a toxic blend of public sector and private sector policies designed by some of the most educated in our country. It is not surprising that a different candidate such as President Obama would be welcomed as a desperate alternative, and then quickly rejected when he continues downs the same path of detachment from the voters.
The rise of the populist movements, however, does not present an acceptable alternative. Just because big problems were created by the educated does not mean they can be solved by the ignorant.
As angry as the voters are with Wall Street, they want solutions, not demons; and populists love demons. It is just much easier to blame a villain that to explain a complicated problem. It is the complexity that renders both the intellectual elites and the populists so ineffective.
The intellectuals in power will never know as much as the mass of voters. The Democrats often voice that the voters are incapable of managing their own financial affairs, and the Republicans act as if the voters need moral guidance from the anointed leaders.
The reason the markets work so well is that it responds much quicker to consumer choices and allocates capital so much more efficiently. Regulations, which are needed, should establish basic rules, keep the playing field level and fair, and provide open information. When the governing class begins to make choices for consumers that they should make for themselves, then the markets and capital sources become corrupt.
But the complexities of governing does not lend itself to simple ideological statements attributed to populist movements.
Success is often knowing what worked yesterday. Policies that worked decades ago may not work today. After WWII large American corporations were able to pay generous union benefits because there was little competition from overseas industries that were still recovering from the devastation of a war fought on their soil. Today growing new economies such as China and India are not only producing more but consuming more. Our companies and our workers face an entirely different realm of competitive pressures.
Alfred Knopf noted “An economist is a man who states the obvious in terms of the incomprehensible”. While many voters understand the fundamentals of economics, even if they have never taken a course in the subject, the principles are not always intuitive. It is easier to blame free trade for lost jobs than to understand benefits of trade that are often less obvious, but still real and important.
Policies that work in small doses do not always work in larger doses. When subprime lending was a local business with the broker knowing the lender and the borrower, defaults were rare. ( I invested in several and never lost a dime.) But when the mammoth appetites of Wall Street and Fannie Mae drove huge sums into the market, the brokers were unable to apply the same level of prudence.
Just because a small stimulus may have been seen to work at one time in one amount does not mean that it will be equally effective at a different time and in a different amount. The impact of stimulus spending cannot be viewed in isolation from the total and relative size of the total debt. Nor can its effects be isolated from a political atmosphere that greatly discourages business. Excessive government debt squeezes capital out of the private market, and bills such as the union card check legislation, cap and trade and the health care bill makes businesses feel more like a target of retribution than a job creating partner.
In 1987 Reagan refused to intervene in the market in the wake of the market crash and we recovered quickly with the market growing 9 fold in ten years. Yet government economists credit stimulus polices for recoveries that took much longer. Could it be that such policies actually delayed the recoveries that they claim to stimulate?
We need a balance of those with real world experience and understanding and those with a true intellectual understanding (not to be confused with academic credentialism) of the tried and true principles of a sound economy and sound government. Somewhere between the elitists and the populists the leader for our time will surface.
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