The impending bailout is proof against market fundamentalism that the government has an active role in the economy. What happens these next few weeks will undoubtedly change the American society for decades. But how will those changes affect a push for investments in clean energy, and more broadly, American politics in general?
Conservatives and market fundamentalists have long criticized Breakthrough's investment-centered agenda by claiming that it is not the government's role to be an active player in the market. In an online debate on The New Republic this past January, Jonathan Adler from the National Review said that "government has an exceedingly poor record of picking winners and losers beforehand," a trope constantly repeated by conservatives as an argument that the government should not be investing in clean energy technologies. Newt Gingrich, participating in the same debate, entitled his argument "Let The Markets Work," arguing that the best way to transition to a clean energy economy was not through government investment but cash prizes for innovation to stimulate private investment in clean energy. This belief that the government has no role to play in the market has long been a major barrier to federal investments in a new clean energy system for America.
The 700 billion dollar bailout that Treasury Secretary (and former Goldman Sachs CEO) Henry Paulson is advocating for, and which will most likely ultimately be passed fundamentally refutes market fundamentalism. If there is no place for the government in the market when it is investing in new technology to spur innovation and create jobs and wealth, then there should be no place for the government in the market when it is buying hundreds of billions of dollars of bad assets from financial firms in order to maintain their liquidity.The very fact that the United States Government needs to act in order to prevent a meltdown of the global financial system is a refutation of this entire dogma.
Cutting through the ideological aftershocks and political ramifications, the fact remains that taxpayers are about to make a huge capital outlay when the Treasury to acquires tons of mortgage-related assets of questionable worth. It is entirely possible that before January 1st, 2009, the federal government will have spent one trillion dollars of tax payers' money in order to preserve the liquidity of America's economy. David Brooks thinks that this bailout is the signifier of a new age of governance guided by a new doctrine. He writes:
"The government will be much more active in economic management (pleasing a certain sort of establishment Democrat). Government activism will provide support to corporations, banks and business and will be used to shore up the stable conditions they need to thrive (pleasing a certain sort of establishment Republican). Tax revenues from business activities will pay for progressive but business-friendly causes -- investments in green technology, health care reform, infrastructure spending, education reform and scientific research.
This sounds great--it's a pragmatic doctrine of moderation that will acknowledge the inextricable links between American society, economy and government, and it will definitely be the type of political climate that will be open to federal investment in a new clean energy system. But who knows if it will actually happen.
Here is the 700 billion dollar question: will market fundamentalists learn from these events and inject a dose of pragmatism into their ideology or will they cling to their dogma? It's hard to say. Jim Manzi, a conservative libertarian who Breakthrough has enjoyed debating with in the past, seems to want it both ways in his post about the financial crisis:
"I can make the arguments as loudly as anyone, and I believe them, that the causes of this problem that can be laid at the feet of government are ill-advised market interventions and poor regulation, rather than insufficient controls on the market. The best long-term solutions, in my view, all involve less government intervention."
This is all dogma, but he continues with a more pragmatic angle:
"It will be important to make these arguments...But first we need to stabilize the patient and stop the blood loss."
But these statements are at odds, and he can't have both.
So will we see Jim Manzi, Jonathan Adler, Newt Gingrich and others say that government intervention is necessary now but go back to their old ideologies next week or next month? Or will we see market fundamentalism evolve from its current form into a more pragmatic and robust pro-market ideology that accepts the necessity of light regulation but still champions the power of markets?
The root of the crisis is sub prime problems caused by Freddie Mac and Fannie Mae, in other words by government intervention into the market.
Because Freddie Mac and Fannie Mae were government creations, not market creations, people like George Bush, John McCain, and the Wall Street Journal, among others, have been calling for MORE regulation of Freddie and Fannie for years.
In 2006 John McCain, while co-sponsoring a bill to increase Fannie/Freddie regulation, said 'If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.'
The idea that the melt down was caused by deregulation of private companies is an energizing myth that makes great political theater but is simply incorrect. If Fannie and Freddie had not been created by the government, the sub-prime melt down wouldn't exist. No free market 'dogma' has been refuted, though all the main stream media will say so for years.
I'll make one of my main points again: clean energy Research and Development by the government does not distort the market and should, I believe, have support from across the political spectrum. Worst case, some money is wasted; best case we get a breakthrough with gigantic consequences for decades.
Government funded deployment of new technologies, on the other hand, does distort the market. Government deployment will just be a series of repeats of the ethanol and hydrogen car debacles of the last 20 years.
Posted by: Robert L. www.neolibertarian.com at September 25, 2008 12:17 AM