More Old And Tired Liberalism, Please

I’m in agreement with Brink Lindsey that, contrary to Jacob Weisberg’s claims, the financial crash does not discredit economic libertarianism. (That said, Weisberg’s argument is hardly crazy, though this might be. And if anybody can come up with a way to finally and forever run economic libertarianism into the ground, I’d probably be for it.)

Lindsey does make one point I’ve heard before, and with which I take issue.

Here’s what I think, at least at this point. I think the whole system failed. Without a doubt, private actors succumbed to bubble psychology and perverse incentives, and their risk-taking grew increasingly reckless. Yet Weisberg’s simplistic morality tale that good prudent liberals were foiled by go-go free-marketeers doesn’t come close to mapping reality accurately. When exactly did Democrats try to arrest and reverse the steady relaxation of lending standards? When did they try to rein in the GSEs? Meanwhile, European banks are being battered by this crisis as well. Does anybody really think that European financial regulators are closet libertarians?

The point about Europe holds (though maybe we should start wondering if an entirely interconnected global financial market is such a good idea after all), but Democrats do not equal liberals just as conservatives or libertarians do not equal Republicans. Surely Lindsey must admit that, in so far as the Democrats acquiesced to the relaxation of regulation, they were in fact not acting as liberals. They were acting as Democrats who had been brow-beaten into supporting a neo-liberal economic consensus the more solidly liberal Democrats of decades past would have had nothing to do with. As Weisberg says, we were all operating on a “disbelief in financial regulation as a legitimate mechanism.”

Now, this probably wouldn’t change the damage done – with the Democrats’ approval – by Fannie and Freddie in encouraging the housing bubble.  But I think it does indicate that had the Democrats spent the last three decades acting more like, you know, liberals, the financial crisis would be substantially smaller than it is.

~ by Jeff on October 20, 2008.