Quote(s) of the Day: Unregulated Unkeynesianisms
Okay, neither of these two gets marks for pithiness, but which of them do you think nails the case better? First, from Luigi Zingales in a debate at The Economist with the egregious Brad De Long [hat tip Paul Walker, who continues the ‘hangover’ theme]:
Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behaviour. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.
Lawrence H. White, economics professor at the University of Missouri, St. Louis, denies that financial institutions ever were "unregulated." Hitherto, such institutions were "regulated by profit and loss":
"The failure of Lehman Brothers and the near-failure of Merrill Lynch raised the interest rate at which profit-seeking lenders were willing to lend to highly leveraged investment banks. The market thereby forced Goldman Sachs and Morgan Stanley to change their business models drastically and to convert to commercial banks. If that isn't effective regulation, what is? Protecting firms from failure (Bear Stearns, AIG, Fannie Mae, Freddie Mac, Goldman Sachs, Citibank) and mitigating their losses with bailouts renders this most appropriate form of regulation much less effective."