The Adult Perspective
TigerHawk offers a more balanced, thoughtful perspective on the AIG bonuses, in contrast to the fake "populist" anger from the president and the real populist anger from everyone else. At the end he offers this bit of chastisement for our weak willed political class:
Why was there so much capital that needed to be invested? Because politicians and central bankers the world over responded to every relatively minor contraction in the last twenty-five years (the Crash of '87, the real estate/S&L bust of the early nineties, the Asian crisis of the late nineties, the post 9/11 recession, and so forth) with more easy money. At every turn our solution to economic discomfort has been to create even more credit rather than to deflate the smaller bubbles that built up. The result is that credit has been growing faster than the world's economy -- an inherently unsustainable condition -- for most of a quarter of a century. We are paying the price today for having made the political decision to avoid or mitigate recessions past with more credit. (For more on this, read George Cooper's crisp and accessible The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy, which I recommend without reservation.)
Exactly right. No one remembers this now, but the mild recession in the early 1990's was shamelessly demagogued into the "worst economy since (wait for it) the Great Depression." True, there was a crash in real estate prices (hmmm) and a run on S&L's (hmmmm) that resulted in gov't intervention (hmmmmmmm). But most of the country skated through just fine. Same with the recession that followed the tech crash and 9/11. In fact, until Dems started bitching about all the reckless greed and "illusiory wealth" of the Bush years, they were bitching and moaning about the "jobless recovery!"
It's human nature to want everything to be perfect forever. It's human nature to fear losing your job after watching a portentious news story on CNN about the "struggling middle class." Politicians will inevitably cater to this. The last time I can remember someone making a "hard" economic choice (as opposed to the "soft" one of easy credit) was Ronald Reagan and Paul Volker when they raised interest rates to beat inflation back in the early-eighties. That was the right thing to do, but there was a huge amount of caterwauling at the time. Bruce Springsteen, for one, is still bitching about it. To make those sorts of decisions and stick with them requires the fortitude of Reagan, something the likes of Bush 41, Bill Clinton, and Bush 43* seem to have been lacking.
*this is not a commentary on the entire W presidency, which featured huge amounts of fortitude in war, just not in economics.
