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COMMENTARY
April 1, 2009
April fools
There are two very big, very foolish ideas on the table at the G20 Summit. One of them is "Anglo-Saxon," or at least Anglo-American. The other is European, or more precisely, French.The first foolish idea is that, given the black holes opened by the financial crisis, we should throw money into them. This is called, I believe, "the new Keynesianism." To be fair to the late Lord Keynes, who made at least one successful prediction ("in the long run we are all dead"), every Keynesianism has been a new Keynesianism, including the first. This is because politicians have invariably selected the easy part of his common-sensory proposals ("the government should spend when the economy falters"), while ignoring the hard part ("the government should save at all other times"). There is never a new "new Keynesianism." It is always the old "new Keynesianism," in which governments tread water while the good times last, and then drown us in debt. This works, if not for us then for the politicians, since in the long run every government is out of office, and another is left holding the bag. In Canada, for instance, all major parties campaigned in last October's election to keep the federal budget balanced. By December, the opposition parties nearly brought the government down for its refusal to run deficits. And as of today, April Fools, as the budget for a new fiscal year clicks in, see the "debt clock" of the Canadian Taxpayers Federation. Until midnight last night, our national debt was growing at $35 per second. That was the last of the "good times." This morning, it is growing at $1,069 per second. The good news is, that compared to Washington's and London's, Ottawa's fiscal bungee jump seems almost responsible. Gordon Brown is hosting this Summit, the largest gathering of world leaders in London since the first General Assembly of the United Nations, in 1946. Note a useful illustration of the inverse square law of political accomplishment. The scale of achievement will be the inverse square of the number of world leaders present. President Obama arguably improved on this number by arriving from the airport on multiple helicopters. (The additional ones were decoys, to help the president pass safely over the municipal war zone.) It is Brown who has most enthusiastically championed the first foolish idea: that, in addition to the trillions governments have already vomited into their respective national black holes, there should be a further, co-ordinated, international fiscal heave. Fortunately, we don't have to worry about this. World leaders from the other side of the English Channel have grasped that there is no money left. The second foolish idea is that, given the abject failure of national regulation to prevent financial institutions from giving bad loans, and leveraging themselves to perdition, we need vastly increased, international regulation. This is more foolish than may first appear. Our problem now, as I have argued before, is that the nature of regulation has been changing, in a consistently wrong direction. Where once the purpose of regulation was to assure the public that banks were solvent, it is now to assure the authorities that banks are doing good deeds. Hence the financial crisis in the U.S., which was actually brought on by operators such as Fannie Mae and Freddie Mac, empowered by government to extend mortgage financing to people at high risk of default; and the twisting of the regulatory regime to encourage the creation of new and ever more reckless debt instruments to that general end. (The bail-out trillions only help them resume this self-destructive habit.) In historical retrospect, what happened will become clearer, as the fog generated by short-term political interests gradually lifts. In the short term of the political cycle, however, the politicians who had contributed most to the disaster were able to persuade the American public that bad things happened because of unregulated "greed," and that the solution was to give them open season for yet more regulatory abuse. But President Sarkozy of France, the principal champion of global regulation, proposes an arrangement in which, inevitably, the mistakes of national regulators may be writ the larger, for the removal of national political accountability. He blames the "Anglo-Saxons" for everything, as part of a political stunt he is performing for French domestic consumption. Fortunately the Germans, who will join with him to cancel Anglo-Saxon spending plans, will join with the Anglos to cancel Sarkozy's regulatory plans, and the entire G20 will null out. Laudate Dominum! David Warren
© Ottawa Citizen
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