A 1980’s Bloom County comic strip features a newspaper editor, typewriter and liquor bottle near at hand, composing an editorial. “It’s Reagan’s Fault. Everything’s Reagan’s Fault.” A lot of people still agree and Ronald Reagan’s supposed posthumous legacy now includes our current financial crisis. Let business run amok without adequate government oversight and greed has inevitably led to disaster. It just took a while.
I disagree and am more than a little suspicious that government oversight was the cause and not the solution. That Fannie Mae and Freddie Mac were a disaster waiting to happen has long been clear to many, including me and I am no financial wizard. But Congressman Barney Frank, currently much in the news with calls for increased federal oversight of business, had this to say in 2003, “I want to roll the dice a little bit more in this situation towards subsidized housing.” The administration asked Congress to reign in quasi-governmental mortgage lenders in 2005, but that died when Senate Democrats filibustered.
So it appears that current problems were foreseeable and at least partially government responsibility. Of course banks were stupid too. But the stupidity of bankers is very old news and the new ingredient that pushed things over the edge this time appears to be political greed rather than greedy business. You may have noticed that the shit really hit the Wall Street fan within days of the government takeover of collapsing Fannie and Freddie. They have always been government sponsored and were very probably the catalyst for the current crisis.
But if the press blames Reagan, at least in Bloom County, then guess what? I think we might plausibly blame the press this time. “It’s All Murdoch’s Fault!”, would be the headline, preferably on the front page of the Wall Street Journal.
As you may know, Rupert Murdoch is the media mogul who purchased the Wall Street Journal late last year. His empire also controls Fox News and other mostly conservative media. Indeed his holdings are typically bastions of conservative editorial thought and we should be grateful for that, given the strong tendency for ideological liberals to become journalists.
Murdoch is running a business and we cannot fault him for wanting to earn a buck. But I fear that efforts to stem the decline of the Wall Street Journal led to a sensationalism that may have spooked the markets. I know it spooked me, a long-time reader who had come to trust the Journal’s opinion. And of course the current crisis, like any financial bust or boom, is mostly about psychology and trust. With the Journal’s newly sensational slant, I suspect that many on Wall Street and beyond are significantly more prone to panic. I for one am no longer sure I know where to go for reasonably unbiased news and what I would call intelligently biased opinion, a niche the old Journal occupied at least for me.
It is difficult to prove, since the changes have been subtle. But there has definitely been a trend towards bolder and scarier headlines, which I think preceded the actual crisis. Today’s headline is a good example. “Stocks, Bonds Tumble to New Crisis Lows”, covers the whole top of the front page. What will they have left to say tomorrow, with a further 6% drop exceeding yesterday’s? Barring 9/11, large attention-grabbing headlines were not a part of the pre-Murdoch Journal. The difference is not quite over the top and the news is still factually correct, just with a lurid cast.
I particularly enjoyed the day maybe a month ago when at least three separate Journal writers assured us in separate pieces that the current situation was not a “depression” and not at all like the 1930’s. Such commentary on non-editorial pages is OK in moderation, though possibly a little questionable. But reading the same unsupported opinion that many times in the same issue was anything but reassuring. I think it was just the opposite. I might even claim it was the journalistic equivalent to shouting “fire!” in a crowded theater. So I am concerned that the new alarmist slant at Murdoch’s Wall Street Journal has become a self-fulfilling prophesy.
By the way, Murdoch more or less endorsed Obama in the recent presidential election and so cannot be quite as conservative as I had imagined. Could he and News Corp. be insincere conservatives for business purposes only? Probably not and I am reluctant to convict him on the Obama issue, since I was not all that crazy about McCain either. It seems the Republicans managed to nominate the least attractive candidate possible. Is someone who seems to insincerely back the correct policies much better than his opponent who sincerely and enthusiastically believes in the wrong ones? We were probably in trouble either way.
Now that we have delegated the blame and can all rest easy (except Rupert of course), what can we do to fix the economy? I think we can rest even easier and do nothing, because the crisis should fix itself fairly quickly. Or at least it would without government intervention. Most crashes do little lasting harm if the market is allowed to adjust. Remember 1987? How about the last protracted downturn in my lifetime? The “stagflation” of the 1970’s was very probably a direct result of the disastrously interventionist oil, wage and price controls of Richard Nixon, who like McCain was a long-term Republican Senator with big-government leanings (and some other failings too). So with the certainty of continued federal intervention, markets probably won’t get the chance to right themselves and we are probably in for a long slog. Indeed the “D” word might apply.
What about 1929? Fortunately FDR (that earlier Obama-like savior from the left) stepped in or the country would have been in real trouble, right? Well, actually the country was in real trouble mostly because FDR stepped in. Sure, the prior Republican administration and national banking system failed miserably by not providing enough circulating dollars to avoid a really bad deflationary recession. Government is not good at doing much, but one of the few things it can and must do is regulate our money supply.
But FDR did not correct the money problem, he just institutionalized it by devaluing US currency. He then proceeded to “fix” the economy with greatly increased taxes, government spending and business regulation. Though popular opinion is not on my side (even my Mom, who was a child at the time, always idolized FDR), I think Franklin Roosevelt took a bad situation and made it into a decade-long depression. His programs served mostly to greatly dampen the natural bounce back after an economic shock and made the recession permanent. I am very much afraid that Barack Obama, with all the best intentions, may accomplish exactly the same feat.
What finally fixed the Great Depression was not FDR, but instead Nazi Germany and the most devastating war of all time. I would like to think we won’t have to go through a world war again to “cure” the economy, but history teaches otherwise. War is one of the few other things that government does well.