The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable.
The intellectually depravity of such claims were obvious well before. Two problems make that truth less important. First, few actually believe in intellectual rigor any longer. Second, huge payments to politicians from those wishing to receive special favors from the government work (not very surprisingly). So given the lack of intellect and the alternative of just rewarding those that pay you huge sums of money it is no surprise politicians turned against capitalism and instead gave favors to a few that paid them well.
Maybe the latest huge bailout will change how things are done. I doubt it. New rules will be put in place. Plenty of people will pay politicians plenty of money to assure their methods of subverting the intent of those rules are allowed to continue. To change things you would need to vastly improve the intellectual rigor of decision making. That is unlikely, but if it happens it will be plenty obvious from how debate is carried out.
It is not that difficult to understand. Poor policy is effectively tax on the system. There is a tax on China’s economic well being to pay for the level of corruption they have. There is a tax on the USA economy to pay for the favors granted those that pay politicians a great deal of money. There is a tax on India for the missed opportunity to educate millions of children well. Each country gets to chose what burdens it chooses to carry. And those burdens simply reduce the overall economic wealth available to be distributed to the participants in the economy.
The most likely source for good moves in the right direction are a few well intentioned, knowledgeable and powerful people that truly value the rewards of capitalism to society. They may then establish measures that make it more difficult to subvert the economy for person gain. Yes today those actions are less likely to be direct transfers of wealth from one person to another (say in the form of extortion) which is why some intellect is required to examine the issues. Unfortunately the intellect of the powerful players in these decisions is often quite lacking.
When the current crisis is seen as some isolated problem created by investment banks that is evidence that the “solution” is lacking. It is treating the current symptom of failed leadership and thinking that fixes something. First, even the “band-aid solution” that will be adopted will likely be amazingly easy for the investment banks to get around in no time. Second, the behavior of the investment banks is not the root cause of this problem. The limited understanding of capitalism will continue to result in poorly managed systems. And so long as the public chooses to elect people that are more concerned with pleasing donors than leading a country these instances will repeat over and over. Exactly which private interests are rewarded while the whole is harmed will change but otherwise the process will just repeat over and over.
There is one difference for the USA today than from 1950-2000. Other countries are making themselves more and more capable of supporting and gaining the advantages of capitalism. And therefore I think the consequences of poor decisions have the potential to cause more serious problems.
Related: Estate Tax Repeal (Killing Capitalism) – Why Pay Taxes or be Honest – Mania in Financial Markets – Private Equity Finds Paying Politicians Cheaper Than Paying Taxes – Fed Continues Wall Street Welfare – More Government Waste – China and the Sugar Industry Tax Consumers