More shilling for my favourite VP candidate:
Spitzer's new article for TNR on the government's role in fostering free markets is just so...vice presidential. I can't post the whole thing since TNR makes me pay for it. But I've printed some of my favourite bits.
Spitzer is a free trader (and I'm of the (minority?) opinion that any national Dem should be) but he's also a liberal who is concerned about the adverse effects of markets and thinks the federal government ought to take pressure off the states in doing so. From a political point of view, the article is so idealistic-mixed-wonky that the man just screams to be put as number 2 on the national ticket. Listening, John Kerry?
From a personal point of view, his section on preditory mortage lending hits home for me. I wrote my honours thesis on preditory marketing of credit cards to lower-income households and students as a loan substitute on the premise that lower-income, higher-risk borrowers face a higher demand for credit and will therefore pay higher interest rates. Witness the explosion of credit card debt in the last 80s and early 90s.
CAPITALISM WITH A DEMOCRATIC FACE.
Bull Run
by Eliot Spitzer & Andrew G. Celli, Jr.
We are told we live in the New Economy, an economy of computers and fiber-optic cables, capital without borders, and competition on a global scale. This is mature market capitalism, and its promise for human advancement--when combined with democracy and individual freedom--is rightly touted at every turn. But, if our economy is a creature of the twenty-first century, our thinking about government's role in the economy is mired in the nineteenth.
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This conflict has often been reduced to caricature--heartless laissez-faire capitalists versus meddling government bureaucrats. But this characterization presents a false choice. If there is one lesson that can be gleaned from the New Economy, it is that the government's proper role is neither that of passive spectator nor lion tamer. The proper role of government is as market facilitator. Government should act to ensure that markets run cleanly as well as smoothly. It should prevent market failures and right them when they occur. And it should ensure that markets uphold the broad values of our culture rather than debase them. In this vision, government action is necessary for free markets to work as they are intended--in an open, competitive, and fair manner. In this vision, government helps to create, maintain, and expand competition, so the system as a whole can do what it does best: generate and broadly distribute wealth.
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Government has been effective and well-received when it has acted to preserve (or restore) confidence in the fairness of the market itself. At a basic level, for a market to be truly free and efficient and have the full confidence of its participants, two things are required: integrity and transparency.
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Government is the institution best-suited to protect against corruption and abuse and to ensure that the economic playing field is level. But, in the 1990s, Wall Street experienced what can only be described as the "perfect storm" of government failure. It began with the consolidation of the financial-services sector--permitted by the repeal of the Glass-Steagall Act, a Depression-era statute requiring that commercial and investment banking be separated. The result was the formation of vast full-service enterprises that brought together many potentially conflicting lines of business, including commercial banking, investment banking, stock analysis, and retail brokerage. At the same time, we democratized the marketplace by (wisely) encouraging the American public at large to invest in the capital markets. The interface between mega-institutions and small investors was fraught with risk--risk met by a regulatory void.
[omitted: discussion of the 1990s stock bubble and some measured introduced to combat its ill effects]
Government can also help facilitate the smooth functioning of markets when they are unable to appropriately distribute costs. The burdens of pollution provide a classic example. Where the market finds itself unable to allocate pollution costs efficiently and fairly, and where the federal government refuses to act, the intervention of others, including state governments like New York's, has become necessary.
Take air pollution in the Northeast caused by coal-burning power plants in the Midwest. Corporate players, acting in their rational self-interest, have failed to bear or equitably spread the costs associated with their activity. Instead, they have shifted those costs to others, for whom there is no market recourse. In this case, the costs were acid rain and airborne pollutants, and their devastating effects on the environment and human health--not in the Midwest, where the plants generate and sell their energy, but hundreds of miles downwind, in the Northeast. Plant owners had purposely built smokestacks tall enough that pollutants would fall not on their consumers or those nearby but, quite literally, into someone else's backyard. The costs have been dear. Thousands of New York children suffer from asthma that is at least partially attributable to pollution sent East from power plants in states like Kentucky, Ohio, and West Virginia. And even the Bush administration's Environmental Protection Agency admits that, in New York's Adirondack Mountains, hundreds of lakes have acidity levels that could kill off certain aquatic species.
In a perfectly functioning market, the costs imposed by this conduct would be borne either by the producer in the form of reduced profits or by the consumer in the form of higher prices. Such costs would not be dumped on the doorstep of those who don't benefit from cheap Midwestern energy. But that is precisely what is happening: Northeasterners have been left holding the bag, and the market alone offers them no way to respond. They are stuck-- unless and until government intervenes.
Alas, the Bush administration has refused to do that. Even as it spouts the rhetoric of free-market efficiency, the White House has allowed the polluters to avoid bearing the economic and health-related costs they have imposed....[...]...Left with no other choice, the states and citizens suffering from Midwest-generated pollution have gone to court and successfully stopped the administration's attempted policy change. The point of this effort is neither to limit the availability of cheap energy to Midwest consumers, nor to shift the costs to them simply for the sake of doing so. Rather, it is to ensure, as an efficient market must, that the costs are borne by the parties responsible. Only by placing the costs where they belong can the market system as a whole assess whether the product is being efficiently created and appropriately priced vis-à-vis potential competitors. That is when the market, freed from its own failures, really works.
Lastly, our commitment to market capitalism cannot obscure one glaring and immutable fact: that, in a number of important ways, an unregulated market does not safeguard certain core American values. That's why our government--with broad bipartisan support--has instituted child-labor laws, minimum wage laws, anti-discrimination laws, and certain safety net protections designed to ensure that people do not fall below a basic level of sustenance...
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Unfortunately, our belief in the importance of equal opportunity and nondiscrimination is too often forgotten when it comes to the debate over whether and how to police the market for home mortgages. In poor and working-class communities across the nation, predatory mortgage lending has become a new scourge. Predatory lending is the practice of imposing inflated interest rates, fees, charges, and other onerous terms on home mortgage loans--not because the imperatives of the market require them, but because the lender has found a way to get away with them. These loans (which are often sold as refinance or home-improvement mechanisms) are foisted on borrowers who have no realistic ability to repay them and who face the loss of their hard-won home equity when the all-but-inevitable default and foreclosure occurs...
On the surface, predatory lenders are doing nothing more than seizing a "market opportunity" for refinancing or home-improvement loans in lower-income communities. To be sure, such communities desperately need credit. And it stands to reason that the prices and terms will be less favorable to borrowers whose financial circumstances are troubled or limited. In this sense, predatory loans are the natural outcome of a competitive market. In a policy debate bereft of values, this market rationale becomes a value unto itself--and values like equal opportunity disappear.
But, in our system, the market is there to serve our values, not the other way around. As study after study has shown, the overwhelming majority of people who fall prey to predatory loans would be better off with no loan at all. Moreover, borrowers in this category often bear the same or similar financial characteristics--income levels, credit-worthiness, ability and willingness to repay--as their counterparts in the prime market. As a matter of economics, they actually qualify for good loans at good rates. What distinguishes them from borrowers who get credit at the right price, on the right terms, is their actual and perceived lack of options, their limited financial savvy, and, too often, the color of their skin--and sometimes their age or gender.
For a society devoted to fairness and nondiscrimination--as well as the quintessentially American goal of homeownership--the prices, terms, and overall economic impact that we see in predatory home mortgage loans cannot be justified. They are just plain wrong. And, quite apart from the values issue, it is difficult to imagine a less rational, less efficient economic practice than lending of this sort. At the micro-level, it results in a gross misallocation of costs--imposing higher costs than the market requires on those least able to bear them. At the macro-level, it denies lower-cost capital to whole classes of persons who would otherwise qualify for it and to neighborhoods whose economic vitality depends on it.
In these circumstances, government must step in to curb predatory lending and encourage the flow of fairly priced capital to sectors where it is needed and will be well-used...
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In trying to articulate a more constructive vision--one that is both fiscally and economically sound and that makes sense to the average American voter--Democrats should promote government as a supporter of free markets, not simply a check on them. Government action must be justified by its ability to define, catalyze, and facilitate the market's core mechanisms; to prevent it from faltering under the weight of its own imperfections; and to uphold the underlying values to which the system is, or ought to be, dedicated...
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By taking up the mantle of efficient, forward-looking, and market-oriented government action, Democrats can move from being a party that simply opposes Bush's tainted version of laissez-faire to one that advocates for the progress that comes with real market freedom. It is a powerful argument, a true argument, and it is ours for the making.