June 4, 2009
Financial Crisis: More Placing Blame
If you've been following the musings of the news pundits recently, especially the liberally amplified versions on the internet, you may have heard that the person/group of the moment to blame for the recent economic fiasco is Ronald Reagan. Of course, to listen to some, Reagan was the shining star that shaped America into the economic powerhouse of the last couple decades. It would seem natural that someone would've attacked his ideas before now, just to undermine the Reagan-worship camp, but that's a digression. The issue is that some scholars/authors such as Paul Krugman have pointed to Reagan and his deregulation as the ultimate source of the current economic situation. To Mr. Krugman's credit, that particular article was far from the first time he's made this particular argument, but I think it's only recently that many others have jumped on board.
Of course, as is acknowledged in the linked-to article, one hundred percent of the blame cannot be placed on any one person/factor, but I think it's interesting that the current mainstream "culprits," as it were, have been moving further and further back in history. At first, it was George W. Bush, Henry Paulson, and Ben Bernanke. Then it was Alan Greenspan. Next came Clinton and the Congress while he was in office, and now we've moved back to Reagan. It wouldn't surprise me if in a month or so, they're blaming Franklin Roosevelt's New Deal and the creation of the SEC (if they didn't exist, they couldn't have botched their oversight). At the current rate, in about September we'll be blaming Alexander Hamilton and Thomas Jefferson for helping to create the United States in the first place. Because, of course, if the U.S. didn't exist, then we wouldn't have been able to have a housing bubble and too much debt with which to send the world economy over a cliff.
At this point, there's been enough written that I think most everyone can agree that there was a lack of oversight in key areas, notably over the relationship between ratings agencies and the issuers of the securities that they were rating. While it's true that Reagan and the Congresses at the time did set in motion much of the economic deregulation that has allowed that to occur, it's important not to dismiss all deregulation as negative. It's also important to remember that deregulation continued under the next three Presidents, particularly deregulation on Wall Street in the 1990's. After all, if Reagan's deregulation efforts were so bad, why did nobody reverse them before everything had fallen apart? My point is that there’s really no end of people that could legitimately share the blame (including Mr. Reagan, lest you think I’m completely defending him). I know that as humans and especially as Americans, we want someone to blame, but the truth is that there is no single entity at which to point the finger. We just need to come to grips with that and focus our attention on the future, and not as much on the past. Because if we are too busy trying to place blame, then we won’t see the bigger mistakes being made now that will lead to another bad situation down the road. That is not a knock on the current administration, but a fact of economic life. Every time we “fix” an economic situation, we sow the seeds of another problem down the road. I’m not saying we shouldn’t try, but we have to acknowledge that any economic fix is transitory at best, and that one simple solution does not mean we will all live happily ever after. I am saying that we must proceed carefully, with eyes forward, in a way that will prevent history from repeating itself and that will leave us more prepared the next time a disaster comes along.