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Friday, December 26, 2008

Eric Posner: It's the institutions, stupid

Over at Volokh, Eric Posner has a nice post up where he lays the blame for the economic crisis on "bipartisan regulatory decisions going back decades and the Fed’s easy money policies..." and then goes on to analyze Bush's "ownership society" policies. (Those ownership society policies being privatization of social security, introduction of private health care accounts, and subsidization of home ownership.)

Roughly, the theory underpinning the "ownership society" policy planks is at least two-fold. For one, people who "own" something -- rather than rent it or lease it, or get to possess it (without title), or get to use it (again, without title) -- are more likely to take better care of it (when P owns x, P is invested in x; P cares more for x since he gets all the benefits and is stuck with all the burdens that might accrue as a result of something happening to or with x). As a direct result of the aforementioned we get, and for two, the outcome that individual owners make better decisions with respect to x.

Of course, point two is relative. Better decisions compared with some alternative decision-making device, like a government committee or some civil servants, regardless of whether or not they're "experts" in some particular field. So far, so good. That really is an important insight. Genuine, full-throated ownership does have these two outcomes of caring more and making, in general, wiser decisions.

But, as Posner points out, two out of the three policies didn't really amount to genuine "ownership" anyways, while the third was just dumb. Privatizing social security wouldn't mean citizens get to choose whether or not to make investments for their retirement, they'll have to do it, by law, but they'll get to pick investment vehicles (probably ones approved of by the state). Similarly with the private health care accounts. You have to make contributions, but at least you do have greater control over who you go to see, and you are at least motivated to compare prices.

As for the subsidy to get low income people out of their rental apartments and into a big old home? "Home ownership policy of the Bush and Clinton administrations was, in essence, an attempt to pay low-income people to make a risky investment that they would otherwise rationally avoid. I cannot understand why anyone would think that such a policy would be sensible. In some cases, these people will do well and enjoy the upside of their investment, but in other cases they will do poorly, with the result that they will be worse off than ever."

Posted by P.M. Jaworski on December 26, 2008 in Economic freedom | Permalink


Is it fair to lay the blame with Bush as far as the policies go? Didn't congress and the senate create the problems to begin with?

Posted by: Richard Evans | 2008-12-26 7:32:44 PM

All in all, what we are seeing (again) is the furtherance of state control. "Privatized" doesn't mean privately owned or run, it means the government has subbed out the work and basically absolved itself of any responsibility for this newly created Privatized Bureaucracy. The population is still subject to all the same complinces with less redress as the government will simply shrug its shoulders and say "we're not responsible". And how is it that people can own anything "without title"? Another farce is all that it is.
And once again I'd like to point out that this is a communist method of government.

the 5th plank of the communist manifesto:

5. Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

Americans call it the Federal Reserve which is a privately-owned credit/debt system allowed by the Federal Reserve act of 1913. All local banks are members of the Fed system, and are regulated by the Federal Deposit Insurance Corporation (FDIC) another privately-owned corporation. The Federal Reserve Banks issue Fiat Paper Money and practice economically destructive fractional reserve banking.

The entire system needs a major overhaul.

Posted by: JC | 2008-12-27 11:49:46 AM

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