Coming To Grips With a Political Economy

In college, one of the classes that I didn't like was a class called "Political Economy." The class was an attempt to indoctrinate students with the ideas that the market economy could be controlled, and teach us political science students the phony tools for 'controlling' the market and taming it to the whims of politicians. Class after class I got into an argument with my professor, claiming that the class was a sham, that you can't 'tame' or 'control' the market, only distort it for gain by favored classes. I argued over and over that a political economy was an un-American economy, and was a nice way of saying 'a socialist economy.'

The last day of class, my professor's true colors did come out- our final exam question was "Describe the one form of government that can solve all the worlds economic, environmental, and social class problems." Since I wanted to pass the class (my professor disagreed with me all year so gave me a failing grade on every paper), I wrote a brilliant glowing essay on the joys of communism- good old fashioned Lenin communism- and got an "A" (4.0). I hated that class, and everything it represented.

Today from Charles Krauthammer, who writes for the Washington Post, comes this article called "Come to grips with politicized economy." Here is what he wrote:

In the old days -- from the Venetian Republic to, oh, the Bear Stearns rescue -- if you wanted to get rich, you did it the Warren Buffett way: You learned to read balance sheets. Today you learn to read political tea leaves. You don't anticipate Intel's third-quarter earnings; instead, you guess what side of the bed Treasury Secretary Henry Paulson will wake up on tomorrow.

Today's extreme stock market volatility is not just a symptom of fear -- fear cannot account for days of wild market swings upward -- but a reaction to meta-economic events: political decisions that have vast economic effects.

As economist Irwin Stelzer argues, we have gone from a market economy to a political economy.

In the rest of his article, he talks about how the words of politicians now change the market, more so than supply or demand, profits or losses, or a healthy bottom line. Here is his conclusion:

We may one day go back to a market economy. Meanwhile, we need to face the two most important implications of our newly politicized economy: the vastly increased importance of lobbying and the massive market inefficiencies that political directives will introduce.

Lobbying used to be about advantages at the margin -- a regulatory break here, a subsidy there. Now lobbying is about life and death. Your lending institution or industry gets a bailout -- or it dies.

You used to go to New York for capital. Now Wall Street, broke, is coming to Washington. With unimaginably large sums of money being given out by Washington,
the Obama administration, through no fault of its own, will be subject to the most intense, most frenzied lobbying in American history. That will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians.

First, bank presidents are gravely warned by one senator after another about "hoarding" their bailout money. But hoarding is another word for recapitalizing to shore up your balance sheet to ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn't pushing money out the window with too little capital precisely the lending laxity that produced this crisis in the first place? Never mind. The banks will knuckle under to the commissars of Capitol Hill. They control the purse. Prudence will yield to politics.

Even more egregious will be the directives to a nationalized Detroit. Sen. Charles Schumer, the noted automotive engineer, declared "unacceptable" last week "a business model based on gas." Instead, "We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car."

The Chevy Volt, for example? It has huge remaining technological hurdles, gets 40 miles on a charge and will sell for about $40,000, necessitating a $7,500 outright government subsidy. Who but the rich and politically correct will choose that over a $12,000 gas-powered Hyundai? The new Detroit churning out Schumer-mobiles will make the steel mills of the Soviet Union look the model of efficiency.

The ruling Democrats have a choice: Rescue this economy to return it to market control. Or use this crisis to seize the commanding heights of the economy for the greater social good. Note: The latter has already been tried. The results are filed under "History, ash heap of."

My prediction- the ruling Democrats, who control us slaves of the state, will distort the market in the name of the 'social good' and create a country that is inefficient, where houses are more expensive and yet worse less, where companies do poorly and their stocks suffer, where banks go under with political pressure, where services suffer, and goods are more expensive and lower quality. In the name of the greater social good, Democrats will take away our liberty and make our nation a poorer place in which to live- in every meaningful way.