Economy Crisis Caused by Good Intentions
It's a perfect storm. Soaring food prices and world hunger. Soaring oil prices and inflation. An imploding housing market. Banks going under. A weak dollar. A growing trade deficit. Foreigners buying up our businesses. GM in trouble. Lay-offs everywhere. The dizzying collection of problems is still growing. No wonder the economy is hurting!
And all this somehow came from good intentions? Is there something bad about good intentions? Not at all. Good intentions are infinitely better than bad intentions.. But when good intentions are applied unwisely, they lead to bad things. The trick is to not cause more harm than good when we mean well. It's the old "unintended consequences" pitfall. It seems that solutions to glaring problems are never, ever, simple.
Take one part of this perfect storm at a time. What about soaring food prices and world hunger?
Good intentions, on the part of environmentalists, was the cause. The World Bank now says 75% of the big jump in food prices came from using agricultural land to produce biofuels. Whose ides was that? Governments. Why did they decide to shift from food production to biofuel production? According to Stratfor, it was the pressure carefully built over the years by a well-funded environmentalist campaign, which climaxed a couple of years ago. Governments saw they had to do something, and chose biofuels as their best way out of the pressure. Good intentions, disastrous result.
What about soaring oil prices, with resulting inflation in other products and services? Again, good intentions played a decisive role. Demand for oil has been growing, true, and that was from markets, not good intentions. But supply also was artifically limited - that is, not by markets, but by government decisions. And where did those decisions come from? From decades-long, intensive pressure from environmentalists. Good intentions, no doubt about it. But terrible results, especially for the poor.
But what about the housing crisis? Again, good intentions, very good intentions. It has been an American ideal that everyone should own their own home. So over several administrations, there has been a push to get more people into home ownership. Just one problem: there are many people who cannot afford their own house, no matter how much help you give them. You can get them into owning a house, but they are high risk for not being able to keep it.
One of the major tools for getting people into home ownership has been very low interest rates. And that did help people with marginal credit buy homes. But low interest rates also do other things. One is that they attract everyone - not just the low-income - into buying real estate. This leads to a housing boom, and builds up the economy. It also leads to borrowing on your home equity and spending the money on consumer goods, or maybe entertainment and vacations. That fuels the economy even more. But it makes a "bubble." And bubbles are going to burst. And when they do, it will push the whole economy down.
Who made the very low interest rates? Who encouraged the housing boom by expanding institutions like Freddy Mac and Fannie Mae? The government. Why? Compassion and good intentions. They meant well, no doubt about it. Some of them also "did well by doing good," true, as we are beginning to find out. But even that would not have been possible without the good intentions of most of the government.
Meanwhile our housing bust is behind the collapse of banks and financial institutions. It is behind much unemployment and the cause of many lay-offs. If we have a recession, it will probably succeed in being the biggest cause.
Our housing bust is even behind much of the speculation that helped drive up oil prices. Why? Investors no longer wanted to invest in the housing market, so they turned to commodities like oil instead. But remember - it all started with very good intentions.
Our very low interest rates also have played a prime role in the weakening of the American dollar. One result has been foreigners buying up prime American properties and companies. When the dollar is weak, they want equity, not just any old investment.
As to the woes of General Motors, a huge problem for them is pension plans that they probably cannot finance. How did they get such lethal pension plans? Through the unions. When unions are really strong, they can kill a company by over-rich benefits. But when a company dies, those jobs are gone, and often pension plans too. Where are the unions then? And how do such things happen? Through good intentions, for sure. But with a bad result.
What can we do? Start with respecting the few big oil companies we have left in America, so that all oil giants are not foreign state-owned companies. Get out of the way, and let our guys drill and build new refineries. Stop with the biofuel subsidies. Let the market decide interest rates, and who will own their own homes.
But first of all, stop the madness! Good intentions are wonderful, but also very, very dangerous. They sap the brain and overwork the adrenals. Stop trying huge efforts and expenditures for big problems. Let the efforts evolve more slowly, not be suddenly created on a massive scale, to be done overnight. Use feedback loops to see how it is all working out. Do smaller pilot projects to see if new ideas will work. Junk bad programs, build on the ones that are working, listen to experts - all of them, now just the ones that agree with you.
Most of all, stop trying to fix everything through the government. That can be really hard in an election year, when politicians tend to promise big fixes for big problems, or alleged problems. Governments don't do small-scale stuff - only big programs, expensive enough to have a prayer of working before the next election.
Instead, use the market. Instead, use our most capable non-profits. The government is not good at feedback, at checking for results, at pilot projects. Or for turning on a dime or changing course on time or admitting when they are wrong. Or at anything small-scale. The open market can do all that, better and faster. Voluntary associations like our healthy non-profits can do that. That is where our compassionate efforts, and our best intentions, can work out to better results. Then mistakes will come, but they won't be so big, so distorting or do nearly so much harm, so fast, as when done bureaucratically and large-scale by governments.
(Note: this writer has seen much in the way of good intentions with harmful results, in the process of helping some 5000 poor or homeless people up and out of their situations with high success rates, in 3 charities in 2 states, over a period of 18 years. More harm than good is all too common. We can do better!)
Notes:On Fannie Mae and Freddie Mac - http://www.msnbc.msn.com/id/25712431
On how housing crisis developed and proposed legislation, http://www.msnbc.msn.com/id/25707593
And all this somehow came from good intentions? Is there something bad about good intentions? Not at all. Good intentions are infinitely better than bad intentions.. But when good intentions are applied unwisely, they lead to bad things. The trick is to not cause more harm than good when we mean well. It's the old "unintended consequences" pitfall. It seems that solutions to glaring problems are never, ever, simple.
Take one part of this perfect storm at a time. What about soaring food prices and world hunger?
Good intentions, on the part of environmentalists, was the cause. The World Bank now says 75% of the big jump in food prices came from using agricultural land to produce biofuels. Whose ides was that? Governments. Why did they decide to shift from food production to biofuel production? According to Stratfor, it was the pressure carefully built over the years by a well-funded environmentalist campaign, which climaxed a couple of years ago. Governments saw they had to do something, and chose biofuels as their best way out of the pressure. Good intentions, disastrous result.
What about soaring oil prices, with resulting inflation in other products and services? Again, good intentions played a decisive role. Demand for oil has been growing, true, and that was from markets, not good intentions. But supply also was artifically limited - that is, not by markets, but by government decisions. And where did those decisions come from? From decades-long, intensive pressure from environmentalists. Good intentions, no doubt about it. But terrible results, especially for the poor.
But what about the housing crisis? Again, good intentions, very good intentions. It has been an American ideal that everyone should own their own home. So over several administrations, there has been a push to get more people into home ownership. Just one problem: there are many people who cannot afford their own house, no matter how much help you give them. You can get them into owning a house, but they are high risk for not being able to keep it.
One of the major tools for getting people into home ownership has been very low interest rates. And that did help people with marginal credit buy homes. But low interest rates also do other things. One is that they attract everyone - not just the low-income - into buying real estate. This leads to a housing boom, and builds up the economy. It also leads to borrowing on your home equity and spending the money on consumer goods, or maybe entertainment and vacations. That fuels the economy even more. But it makes a "bubble." And bubbles are going to burst. And when they do, it will push the whole economy down.
Who made the very low interest rates? Who encouraged the housing boom by expanding institutions like Freddy Mac and Fannie Mae? The government. Why? Compassion and good intentions. They meant well, no doubt about it. Some of them also "did well by doing good," true, as we are beginning to find out. But even that would not have been possible without the good intentions of most of the government.
Meanwhile our housing bust is behind the collapse of banks and financial institutions. It is behind much unemployment and the cause of many lay-offs. If we have a recession, it will probably succeed in being the biggest cause.
Our housing bust is even behind much of the speculation that helped drive up oil prices. Why? Investors no longer wanted to invest in the housing market, so they turned to commodities like oil instead. But remember - it all started with very good intentions.
Our very low interest rates also have played a prime role in the weakening of the American dollar. One result has been foreigners buying up prime American properties and companies. When the dollar is weak, they want equity, not just any old investment.
As to the woes of General Motors, a huge problem for them is pension plans that they probably cannot finance. How did they get such lethal pension plans? Through the unions. When unions are really strong, they can kill a company by over-rich benefits. But when a company dies, those jobs are gone, and often pension plans too. Where are the unions then? And how do such things happen? Through good intentions, for sure. But with a bad result.
What can we do? Start with respecting the few big oil companies we have left in America, so that all oil giants are not foreign state-owned companies. Get out of the way, and let our guys drill and build new refineries. Stop with the biofuel subsidies. Let the market decide interest rates, and who will own their own homes.
But first of all, stop the madness! Good intentions are wonderful, but also very, very dangerous. They sap the brain and overwork the adrenals. Stop trying huge efforts and expenditures for big problems. Let the efforts evolve more slowly, not be suddenly created on a massive scale, to be done overnight. Use feedback loops to see how it is all working out. Do smaller pilot projects to see if new ideas will work. Junk bad programs, build on the ones that are working, listen to experts - all of them, now just the ones that agree with you.
Most of all, stop trying to fix everything through the government. That can be really hard in an election year, when politicians tend to promise big fixes for big problems, or alleged problems. Governments don't do small-scale stuff - only big programs, expensive enough to have a prayer of working before the next election.
Instead, use the market. Instead, use our most capable non-profits. The government is not good at feedback, at checking for results, at pilot projects. Or for turning on a dime or changing course on time or admitting when they are wrong. Or at anything small-scale. The open market can do all that, better and faster. Voluntary associations like our healthy non-profits can do that. That is where our compassionate efforts, and our best intentions, can work out to better results. Then mistakes will come, but they won't be so big, so distorting or do nearly so much harm, so fast, as when done bureaucratically and large-scale by governments.
(Note: this writer has seen much in the way of good intentions with harmful results, in the process of helping some 5000 poor or homeless people up and out of their situations with high success rates, in 3 charities in 2 states, over a period of 18 years. More harm than good is all too common. We can do better!)
Notes:On Fannie Mae and Freddie Mac - http://www.msnbc.msn.com/id/25712431
On how housing crisis developed and proposed legislation, http://www.msnbc.msn.com/id/25707593
posted by Old Neocon at 5:56 PM
0 Comments:
Post a Comment
<< Home