In the fall of 2008 as the U.S. government was helping out one company or another, an appropriate term for each government action seemed to be “bailout.” The scale and number of bailouts, however, seems to have grown to the point that I wonder if there isn’t a better way to look at what our government is doing. “Time travel” or “simulation” seems more apt.
Mancur Olson divided the economy of the late 1970s into fixprice and flexprice sectors (more). The U.S. government is dividing the economy into CruelPresent and Circa2006 sectors. If you live in the CruelPresent sector, you lost money on your house, you lost your job or your pay was cut, your retirement funds have been devastated. Thanks to multi-trillion dollar simulation, however, a large sector of the economy lives in Circa2006. People in this sector did not lose money on their house (mortgage rewritten) or mortgage-backed securities (propped up by Feds or guaranteed by AIG (itself propped up by the Feds)). People in the Circa2006 sector still have their job at the same salary, might receive a fat bonus for work done in 2008 (even if employer went insolvent and required government takeover), and have retirement funds that are in great shape, perhaps guaranteed by a municipality.
Who lives in the simulated 2006 world? AIG employees and customers, government employees, health care industry, car makers and parts suppliers, certain homeowners, most of Wall Street. Who lives in the CruelPresent? Retailers, such as Circuit City, contractors and developers, prudent savers and borrowers, renters, factory workers outside of the auto industry, design engineers, graduating college students.
What will it cost to keep half of the U.S. in a simulated world where the housing crash never occurred? It could be much more expensive than we think because the goal has shifted. We started out trying to prop up a few companies for a few months. Now we are committing to maintain a permanent parallel simulated financial universe in which half of America can dwell.
Hi Phil,
What would it take for Congress to listen to you? Yours is one of only a handful of blogs I read regularly, and your perspectives and political positions are pretty unique, and certainly interesting; for one, I probably agree with all of the ideas you outlined on your November 2008 plan for recovery. Your ideas are good but can’t seem to gain political clout outside of a circle of highly-educated libertarians (which I assume comprises most readers of your blog.)
It would be interesting if you wrote a post with thoughts on this issue. When bloggers like Paul Krugman, Greg Mankiw and Simon Johnson (the three other bloggers I read) get a lot of press coverage these days, I’d like to see more mainstream coverage of your ideas as well…
Murali: I’m not sure it would be a good idea for Congress to listen to me! They probably wouldn’t get reelected if they did. It seems reasonable to assume that everyone in Congress is smarter than I am and if they do things that harm the U.S. overall and in the long run it is because the incentive structure leaves them better off for having done so. I’m not sure who reads my blog, beyond friends and family. The Libertarian-leaning readers might be more active in commenting, so it isn’t safe to assume that the comments represent a random cross-section of reader opinion.
Regarding Mancur Olson:
I’d been struck over the last few years that it was a good business proposition to steal small amounts from everyone as it quickly added up yet you were unlikely to face concerted opposition. It also appeared that changing the law was a good way to do this, see for example copyright extension.
I’d assumed for ages that someone else must have noticed this and researched it yet whatever I typed into Google gave me nothing. Finally, with the last few months I stumbled across Mancur Olson and was impressed with his books. (I particularly liked the idea that special interests didn’t simply form because you were a big evil industry but happened for reasons incidental to that, Logic of Collective Action, Appendix C I think )
However in the last few months I’ve seen his name in various places, including now here in your blog. Is this just the cognitive bias of “perceptual vigilance”, or as Google Trends suggests, has he suddenly become relevant? (When I visit this link I see no results followed by a single, recent spike)
http://www.google.com/trends?q=%22mancur+olson%22
Phil, why not write a few Op-ed columns? You might balance some of the
uber-right stuff that comes out of a fellow computer scientist: David Gelernter.
If there wasn’t an FHA, Cal HFA, Fannie, Freddie, Mac or Mae, houses would only be $50,000. The TALF, TARF, & quarterly stimulus plans are just the last 6 months. The real parallel universes are 2006 vs. 1900.
Rick: Why not write Op-Eds? I’ve never liked writing for magazines or newspapers because one is forced to fit the argument into a predefined space. One of the great things about the Web or the Weblog is that an idea can be expressed in the appropriate number of words. If it is a one-sentence idea, it is published that way. If it requires 5 or 30 pages, it can be that long. Go to the bookstore and see how many 20-page ideas have been padded out o 200 pages so that they can fit into the standard commercial distribution chain. Go to the Op-Ed page and see how many 4-page arguments have been simplified to the point that they aren’t convincing.