07 Nov The Economic Crisis comes to San Francisco
I had the privilege of speaking this weekend at the Center for Cultural Leadership’s annual conference in San Francisco, CA. The President of the organization, Andrew Sandlin, is one of my dearest friends. The entire weekend was a delightful time of re-connecting with old friends, making new friends, and re-visiting the issue of “ethics” – a task that a group like CCL is extremely qualified to do.
My task was tackling economic ethics, particularly as applied to the causes of the 2008 crisis (and more specifically, the solutions). I am working on an extensive treatment of this subject that I have high hopes for (a compilation of my book reviews and my own synopsis). But as far as a basic outline of my talk this weekend, here goes:
The Crisis was caused by:
(1) Inept government social policy
(2) A feeding frenzy in the masses called a “housing bubble”
(3) Insane government monetary policy (the Greenspan rates of 2002-2004)
(4) Wall Street leverage gone wild
(5) Panic-mania (the bursting of a bubble that caused the herd to run)
The Proposed solutions to the crisis by the powers that be have been:
(1) More government social policy
(2) Pleading with people to spend more money
(3) Even lower interest rates and even easier money
(4) Curbing Wall Street compensation packages (well, for now it is just Wall Street)
(5) Government spending, which is to say, public debt. Lots of it.
What is really needed to fix the economy:
(1) We must begin letting creative destruction happen, or else accept the permanent nannyism that accompanies bailoutism
(2) We must restore the price signal in the marketplace, unaltered by the perverse intervention of the government. Allowing price mechanisms to work will obviously create short term problems for some people; continually distorting them will create long term problems for all people
(3) An end to moral hazard. We need a culture that says, “regardless of what has happened in the past, only strong fiscal discipline and market savvy performance will be rewarded going forward.”
(4) The unmitigated disaster of the economic laughing-stock that is Keynesianism. A celebration of deficit spending, stimulus spending, consumer over-spending, and hyper-indebtedness should be called “the economics of hair of the dog”, for it amounts to curing a hangover with more booze, and it is a provable disaster, both morally and economically.
(5) An end to class warfare.
(6) A restoration of the rule of law. The President of the United States has no right to discard law and order on a political whim by making labor unions senior in the capital structure to the actual bondholders of a company. Forced mortgage cramdowns are an atrocity. Markets do not work without confidence in the rulebook.
Beyond the recipe I am laying out for improvement in the way we approach this economic malaise, I am convicted that only a virtuous capitalism will stand the test of time. Consumers spending within their means, not driven by 10th commandment covetousness of their neighbors – this is the order of the day. Understanding and taking seriously the consequences of our decisions – as lawmakers, business people, individuals, and stewards. The pursuit of wealth and prosperity is a good and noble thing. The replacement of our values with this pursuit is guaranteed destruction.
Hayek said that the building of a free society is an intellectual adventure, and a moral deed of courage. This is as true today as it has ever been.