To be honest, I like to read the news as a citizen and not as a political scientist. Old news (read: history) becomes evidence for research. New news -- well, I just like to let things mellow a bit before I think they are ready for in-depth, theory-based analysis. Yes, as a citizen, I like to know what's going on, but I generally think there's too much noise in the daily news to make much sense of it.
But the current financial crisis cries out for real time analysis because Congress is being pushed to make real time decisions about incredibly large sums of money.
This crisis has been allowed to happen because people forgot or never learned a fundamental fact about the way markets work -- or not. Markets need the rule of law and they need regulation in order to function properly. The self-regulating market is a myth. Consider the simple example of how markets would simply cease to function if property rights were not enforced by government. I can't sell you anything unless I have a state-guaranteed property right that says it's mine to sell. Caveat emptor only works when there are fraud statutes on the books that make it illegal to fool me. Moreover, the state needs to force certain disclosures because markets can only function when people have the information they need to make rational decisions.
Yes, over-regulation can slow down an economy, but the lack of appropriate regulation, as we all too obviously see right now, brings a market down.
A key factor in determining how well-functioning a government is to look at "state capacity," which is generally understood as the ability of the government to maintain the rule of law, to collect taxes, and to do the things that government needs to do.
Too many years of deregulation mania and privatization dogma have eroded the state capacity of the United States. We're left with a bureaucracy that is inefficient, lacking in necessary funds, and failing to attract young, energetic workers -- and retain older ones. According to an April 2008 GAO report, "Governmentwide, about one-third of federal career employees on board at the end of fiscal year 2007 are eligible to retire between now and 2012" (http://www.gao.gov/new.items/d08630t.pdf, cited September 25, 2008). According to this report, 26% of employees of the Department of Commerce and 27% of employees of the Department of the Treasury are age 55 or older.
Now that our leaders seem to realize that we really do need to regulate, we have to ask whether the agencies in which you would expect to find the regulators are up to the task.
I knew nothing about mortgage-backed securities or credit debt swaps until the recent crisis hit the news, but I did know that markets were unstable, that privatization and deregulation meant that core government functions were being passed off to firms in the private sector that -- by their very nature -- were interested in maximizing profits rather than optimizing service to the customer/citizen, and that it's too easy to borrow. (Just use your credit card and pay only the minimum: Presto! You're a borrower. And you're a borrower at usorious rates)
For several years my students have heard me rant about how I think the fundamentals of the political economy have been rotting. The sky is falling!
And now it fell.
But it galls me to think that the big investment firms are going to be bailed out while people suffer. We ought to require that lenders renegotiate borrowers' debt so that payments can be made. (We have in the past gotten lenders to renegotiate sovereign debt; why not now make lenders rengotiate mortgage debt?)
We ought to increase capital gains tax as a penalty on misbehaving companies. Let them pay the American taxpayer back!
And we ought to demand that executive compensation be reined in. Shareholders and taxpapers are the losers which executive compensation is outrageously high. And I don't believe that the millions of dollars in annual pay buys better executives! I lived through the Ben Ladner years at AU where the cronies of the CEO (the University president) overpaid him because he was their friend, not because he was at all good at his job.
