Arnold Kling  

Fannie and Freddie and Friends

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Mark Thoma points to a series of presentations from the Roosevelt Institute, a left-oriented think tank. What struck me was Raj Date arguing for the elimination of Freddie Mac and Fannie Mae. He is quite firm on the point. He sounds like Russ Roberts when he discusses moral hazard.

In contrast, when I spoke as part of an informal panel to a group of Republican Congresspersons, they were quite squishy on that subject. And Timothy Geithner is much worse than squishy--he will not countenance putting Freddie and Fannie on the books of the Federal government, which would be a step toward forcing politicians to make a decision about them.

In the world of economists looking at public policy, it is much easier to find enemies of Freddie and Fannie than it is to find friends. In the world of Washington, it is the other way around.

What is ironic to me is that the Roosevelt Institute people can cite clear evidence of government failure while proposing more government. For example, Richard Cornell points out that bank soundness regulators have every incentive to be lax until it is too late, yet his proposed solution is to consolidate bank regulation. Cornell begins his talk by listing comic book characters who never seem to learn (Charlie Brown, Wylie Wile E. Coyote). In my opinion, he could be talking about policy wonks who think that regulation can be reformed so that special interests can be curbed and regulators will act wisely.

In selective cases, and without consciously realizing it, these folks apply public choice theory. But they assume it away when making their proposals.


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The author at It Don't Mean Much, These Seats are Cheap. in a related article titled Making Markets…Be Markets? writes:
    I very much respect Mike Konczal, and regularly read his blog for very insightful analysis about how we can make the mechanics of finance work more effectively. Sure, he can overstep what I view to be necessary to make markets function optimally ... [Tracked on March 9, 2010 4:50 PM]
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Daniel Kuehn writes:

"What is ironic to me is that the Roosevelt Institute people can cite clear evidence of government failure while proposing more government."

It's only ironic if you forget the fact that they're juggling competing concerns about market failure and government failure.

It's not like there's a dial that you turn up for "more government" and turn down for "less government" and the mere existence of government failure means that the "more government" method is wrong. The question is - what KIND of government are we proposing? Economists recognize market failures - that doesn't lead them to reject the free market. It just leads them to think critically about using the right tools for the right job, and not looking at either "government" or "the market" as some homogenous, monolithic beast.

Nick writes:

Small correction his name is Wile E. Coyote.

DW writes:

Sounds like Near vs Far thinking to me.

A La Robin

http://www.overcomingbias.com/2009/01/disagreement-is-nearfar-bias.html

Lord writes:

But how do we get rid of the investment banks?

buermann writes:

Well that's rather unfair.

On what planet does "consolidation" mean "more"? Merging many things into one, be they business or government entities, means "less". Cornell's point, as was Warren's, was that there's too much government to be effective. Toes, tripping, shoelaces tied together, so on.

Or are you just opposed to more effective governance, even if it entails less government?

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