Posted by: Jeff | September 30, 2009

Our Own Worst Enemy

Ezra Klein has a graph up showing the extraordinary level of personal experience Americans are having with the recession. Over half are close to someone who has been laid off, and almost two thirds are close to someone who has seen a cut in pay. Meanwhile, by overwhelming margins voters perceive the policies of the government to have mainly helped the banks and the Wall Street financial sector, and they aren’t happy.

The Great Recession took place in the so-called “shadow bank” sector. The bank runs consisted of banks making runs on other banks. The policies that protected assets protected the assets of banks. The biggest recapitalization efforts did not recapitalize consumers, but financial institutions.

This was all done, of course, for the benefit of individuals. Of voters. The economic logic behind preserving the financial sector was bulletproof. But the electorate is not composed of economists. And all they know is that the banks got a lot of money, and this is the worst recession in memory.

He’s right, of course, that most Americans are not economists. I get that, I do. But that doesn’t stop most Americans from agreeing that capitalism is somehow central to the nature of the American character, that socialism is bad and that government should stay small. But this kind of domination of the economy by a few large financial interests is part and parcel of capitalism. If you wish to avoid the emergence of economic institutions which pose a systemic risk to everyone and are thus “too big to fail,” then you need big government. You need broad and forceful regulation and you need hefty amounts of wealth redistribution. But we wanted our damn-the-torpedoes economic liberty and we wanted our free market dynamism. So we got it, and everything that goes with it.

While I understand the feeling out there that Americans are getting a raw deal while the fat cats who caused the mess get away with the loot, I must confess I have trouble mustering much sympathy. Because at the end of the day, we did this to ourselves.


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