Behind the Lines: Finger of blame
Welcome to Behind the Lines, a weekly conversation with Salt Lake Tribune cartoonist Pat Bagley and BYU economist Val Lambson.
Lambson: Sometimes even when you can spot the sucker at the table, you're it. But if you can't leave the table you can't avoid being fleeced. We must limit government's ability to keep us at the table.
Bagley: There was a time when I dreamed of living in the woods far, far away from the heavy hand of government and electricity bills. My plan was to hunt and gather and wear homespun made from very shaggy goats.
Lambson: I remember talking with you about that in our youth. I had similar aspirations. I remember the '60s well, as I suspect you do, which of course means that we really didn't participate. I don't think our moms would have let us go to Woodstock anyway.
Bagley: Instead of hewing a viking long house out of the wilderness with our bare hands we ended up with kids and mortgages. I got my mortgage by going to a bank instead of to Vinny the Nose. The bank conformed to government regulation; Vinny, not so much. By the way, our current troubles were brought on by the financial sector, which admired the free-market, low-regulatory business acumen of Vinny the Nose.
Lambson: You are ignoring the role played by bad regulation, as usual. Fannie Mae and Freddy Mac were part of the problem.
Bagley: There are several good books about the causes of the 2008 financial crises, including "Liar's Poker" (see cartoon, above) and "All the Devils are Here." Another I've browsed is "Reckless Endangerment" (you'll like the scalding Barney Frank gets in this one). All indicate that while certainly part of the problem, Fanny and Freddie came late to the party. For a quick response to your complaint about bad regulation, I direct you to an op-ed column in The Washington Post by my nephew, Nick Bagley. Note the date: Jan. 25, 2008 almost a full year before the bank meltdown. http://www.washingtonpost.com/wp-dyn/content/article/2008/01/24/AR2008012402888.html I'm kind of proud of my nephew and his expertise on something called "regulatory capture," a practice in which regulatory agencies become subsidiaries of the industries they're supposed to police.
Lambson: You need to talk more with your nephew. Regulatory capture is a major problem with government regulation, and was at work (among other things) in the financial crisis. The idea dates back at least to George Stigler, Nobel prize winner from the glory days of the University of Chicago. The regulated have more incentive than the rest of us to lobby for their preferred regulations. Giving the government more power for the regulated to commandeer isn't the answer. And what the regulated don't capture, the government can still misuse: see the scalding of Barney Frank referenced above. It's enough to make one a libertarian.
For the academically minded, Atif Mian (UC Berkeley Economics Department) and Amir Sufi (Chicago Business School) have done interesting work on the role of subprime credit expansion in the crisis.
Bagley: If one wants to get deeper into the academic weeds concerning regulatory capture (and really, who among the "animal spirit" set doesn't?) here is my nephew dumbing it down a bit for a Senate subcommittee: http://www.judiciary.senate.gov/pdf/08-03-10%20Bagley%20Testimony.pdf
Last week's BTL Top Comment concerning Mitt Romney's failure to connect is from cic:
The real problem with Willard, is he's Willard ... He's flipped on every issue. He was for, now against (insert issue) then against and now for (insert issue).