Fanny, Freddie, and the Case for Social Democracy
A broad ideological point while I continue to try to figure out what’s actually going on with the government’s re-acquisition of the GSEs — they say there are no atheists in foxholes, and by the same token there are no free marketeers in a financial crisis. Which reminds us that while we (mostly) use market mechanisms to set the prices of (most) stuff and do so for the very good reason that this encourages people to produce goods and services people want in appropriate quantities, that market activity doesn’t add up to anything like the “free market economy” of popular myth. Market transactions take place within a legal and institutional framework that involves many public choices at many points, choices that can (and are) made in different ways at different times and with different beneficiaries. We mostly don’t notice this stuff either because it operates silently in the background (copyright and patent law, say) or else because the changes tend to be small at any given point (Fed interest rate shifts) but when crisis strikes it leaps into the foreground.
And there’s nothing wrong with that, in principle. Faced with something like the Bear Stearns meltdown, it would be absurd for public officials to step aside and just “let things play out” irrespective of the damage done to the economy merely in order to bring practice into closer alignment with free market rhetoric. But by the same token, an obligation exists to make sure not just that the economy “works” instead of collapsing, or works just for the richest and best connected, but rather works for everyone who’s willing to work hard and contribute constructively to society insofar as he or she is able. At various points in the past, the economy has worked like that. In recent years it has not. We need to make it work like that again. Whether or not the current tendency of the rewards of economic growth to accrue almost exclusively to a small minority is the result of some kind of malfeasance is not, at the end of the day, really relevant. Insofar as it’s the result of shifting structural factors, the correct response is to use public policy to create counter-structures that will rebalance the situation. In addition to direct labor market interventions like the Employee Free Choice Act, if greater overall levels of economic production no longer benefit most people for “natural” reasons then we need to capture a larger proportion of that production and channel it into public services — schools, health care, parks, safe streets, reliable buses, new rail connections, clean air — that benefit everyone.
29 Responses to “Fanny, Freddie, and the Case for Social Democracy”
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September 8th, 2008 at 1:42 pm
Please reconsider casually perpetuating the lie that there are no atheists in foxholes. I know it’s a common expression, and that it was used to set up your next line, which I actually liked. But it’s actually pretty offensive to me as an atheist who admittedly never made it into a foxhole. I did, however, get the chance to come close enough to dying on September 11th to realize that I was still an atheist at the scariest moment of my own life, and very comfortable with that.
September 8th, 2008 at 1:45 pm
Palin’s first gaffe? Huffington Post catches the would-be vice president having absolutely no clue what Fannie Mae and Freddie Mac are.
September 8th, 2008 at 1:47 pm
matt,
you may want to look into palin’s lack of understanding regarding fannie and freddie.
http://www.mcclatchydc.com/227/story/51940.html
seems she is as well versed on ecoomics as mccain.
September 8th, 2008 at 1:49 pm
“‘There are no atheists in foxholes’ isn’t an argument against atheism, it’s an argument against foxholes.” –James Morrow
September 8th, 2008 at 1:55 pm
We are all Social Democratists now?
September 8th, 2008 at 2:26 pm
Matt, you are four square on point to say:
“Market transactions take place within a legal and institutional framework that involves many public choices at many points, choices that can (and are) made in different ways at different times and with different beneficiaries.”
You are also correct to support the Employee Free Choice Act.
But when you call the Employee Free Choice Act a labor market
“intervention,” you make it sound like this simple adjustment to the institutional framework governing labor markets is contrary to the natural order. It’s not.
Sorry for the quibble.
September 8th, 2008 at 2:41 pm
Matt,
You know I love you, but this “no atheists in foxholes” business has to stop. We exchanged e-mail about it several years ago when you used it in a posting at TAPPED, and I had hoped you had seen the error of your ways. It’s a profoundly offensive statement/myth, and as an atheist yourself you ought to know better. Atheists are currently the least trusted group in America, and we can’t afford to have fellow liberal atheists invoking offensive anti-atheist language for the sake of a cheap rhetorical flourish.
Obviously the substance of your argument is correct, but please find another way to make the point next time?
September 8th, 2008 at 2:58 pm
The problem is lack of regulation, and we can’t have regulation because we believe in the “free market.” So we can’t have higher margin requirements or leverage curbs for hedge funds and investment banks, or for speculators, or greater transparency for hedge funds, or a reinstatement of the uptick rule, or more effective enforcement of insider trading and abuses of corporate fiduciary responsibilities. But the minute the market shifts and all these hedgies and speculators are caught with naked shorts and margin calls adn collapsing funds stuffed with impenetrable derivatives and structured finance vehicles, the taxpayers have to bail them out.
Privatize the profit, socialize the risk. That’s their mantra. The next Administration has got to reinstate regulation of and enforcement of the regulations against the financial markets and corporate America generally.
September 8th, 2008 at 3:12 pm
This also bears on my pet peeve, conservatives who argue that progressive tax brackets are unfair because they insist on pretending they subsidize the poor. The FM’s were NOT taken over to protect mortgage payers who make up the bulk of the population, they were taken over to protect mortgage owners and buyers who make up the bulk of the wealthy and foreign investors. Every time a million is spent on a health clinic McCain and company scream “pork barrel!” but another few billion to protect wealth, well that’s okay.
September 8th, 2008 at 3:40 pm
Fannie and Freddie were worst of both world entities that were told both to make profits (capitalism!) while being given quotas to “make housing affordable” for lower income and minority homebuyers (social democracy! affirmative action!). Of course, the end result was to make housing unaffordable while losing hundreds of billions and being bailed out by the taxpayers.
September 8th, 2008 at 3:44 pm
I think one of the most successful rhetorical gambits on the part of the right is the introduction of the term “free market” into so many debates on economics that distorts those debates in a very fundamental way. Basically, there is no such thing as a “free market”, at least not in the sense that it is commonly used in the debates. As Matt correctly points out, markets are legal creations that come out of the political process. To implement “free markets” as conservatives and libertarians would want really just amounts to defining a legal framework that conservatives and libertarians prefer. There’s nothing “free” about it. Just a different set of principles governing the economic landscape.
Once the debate is defined by the right to let the “free market” decide then any disagreement means you must be a raving communist that wants to nationalize all aspects of the economy (ok that’s a bit hyperbolic, but not too far off the mark either).
September 8th, 2008 at 3:50 pm
The first paragraph I agree with wholeheartedly: when we say we’re for the “free-market,” we really mean we’re for maximum freedom for economic actors within an ongoing government-maintained stability regime. Self-proclaimed free-marketers of the Kudlow type are like trust-fund babies in this regard, thinking their good fortune to exist in an economically stable environment is jsut a baseline fact about the world, rather than something many gov’t agencies collaborae to maintain.
But your claim that if structural changes in the economy are leading to a shift in the benefits of a growing economy away from the broadest group of working Americans, then the gov’t should by their above-related responsibilities seek to redirect those benefits through public spending, however much I agree with it from where I sit, needs to be shown in terms of how that outcome is essential to the maintenance of stable marketplace. I think this is done regularly in economics classrooms and textbooks hundreds of times a semester across the country, but you neglect to square the circle in this post.
September 8th, 2008 at 3:55 pm
Matt,
The reason why most free market proponents disagree with you on this high-level point is that they do not trust our ability to create “counter-structures” that achieve the intended result without causing unintended consequences that are worse than the status quo. It is all well and good to point out that there is nothing natural or inevitable about the legal, fiscal, monetary and cultural framework in which our “free markets” function. I agree. It’s a good point, and it explodes some of the silliest anti-interventionist rhetoric that’s out there. But from there, you have to engage the understandable sentiment against tinkering with an impossibly complex economy that no one person really understands. If you can point to counter-structures, as you call them, that are flexible, incremental, based in empirical results and subject to empirical analysis, then you have a chance of winning over principled conservatives.
September 8th, 2008 at 3:59 pm
Man, it’s posts like these that make me wish that candidates read blogs more. It would be great to hear Obama make some of these points in the next couple of days. It’s a great way for liberals to point out that conservative rhetoric is just that when times get tough.
September 8th, 2008 at 4:07 pm
I think Matt (Baldwin) needs to do another Cliche Rotation Project, as don’t see the Atheists in Foxholes one here:
http://www.defectiveyeti.com/archives/001881.html
Maybe “there are no vegans in a dog-eat-dog world.” Or, “there are no States-rights absolutists on the SCOTUS for a Florida recount.” Maybe others can do better…
September 8th, 2008 at 6:35 pm
I personally knew atheists who had spend some time in fox holes. Actually, if you think who were the combatants in WWII, quite a few of them were atheists.
Moreover, I heard someone claiming that she abandoned religion as a result of appalling slaughter in WWII. Some people find it comforting that there is SOMEONE for whom it makes sense, but some find it easier to believe that shit like that happens for no “reason”.
About the government and the markets: one of the first acts of states was to create standard measures (as in ancient Mesopotamia). Innovations of “free market” that undermine market standards and comparability of products can seriously backfire, and this is part of the story of the mortgage crisis. The “innovations” replaced standards with illusions, and trillions were misallocated in the process.
September 8th, 2008 at 7:22 pm
Faced with something like the Bear Stearns meltdown, it would be absurd for public officials to step aside and just “let things play out” irrespective of the damage done to the economy merely in order to bring practice into closer alignment with free market rhetoric.
Alternately, what they actually do do is to intervene irrespective of the damage done to the long-term health of the economy in order to make certain that the voters think that something is being done so that they can pacify them till the next election.
September 8th, 2008 at 8:06 pm
Very very well said.
September 8th, 2008 at 8:22 pm
Re: “Please reconsider casually perpetuating the lie that there are no atheists in foxholes. I know it’s a common expression, and that it was used to set up your next line, which I actually liked. But it’s actually pretty offensive to me ”
and: “You know I love you, but this “no atheists in foxholes” business has to stop.”
Is it really necessary to have a PC conniption over some minor figure of speech? I have six cats but I wouldn’t take umbrage if Matt said, “The cat’s out of the bag” or even “more than one way to skin a cat”. And God forbid anyone ever use the word “niggardly” again!
Re: Fannie and Freddie were worst of both world entities that were told both to make profits (capitalism!) while being given quotas to “make housing affordable” for lower income and minority homebuyers (social democracy! affirmative action!).
Bullshit. Up until very recently Fannie and Freddie were not permitted to buy subprime mortgages, and even today they are only allowed to buy very limited subprimes. Their portfolio is actually a good deal more sound than that of many private mortgage companies (which have been going belly-up like fish in a dry pond bed– hopefully not offending fish lovers there!).And a lot of the properties going into default are not houses owned by the poor, but properties in swanky suburbs and exurbs bought by decidedly non-poor housing speculators.
September 8th, 2008 at 11:07 pm
Great post. Very well said.
September 9th, 2008 at 6:53 am
you’re kidding? bear stearns couldn’t have been allowed to fail? because of the damage to the economy?
there are many of us who think it ought to have been allowed to fail and that rescue merely hides pervasive corruption and postpones fundamental economic reform.
annie
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