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April 21, 2009

Be afraid of arrogance combined with ambition and power

Obama is building this new leadership class. His administration has become a domestic I.M.F., consisting of teams of experts who can swoop in and provide long-term solutions when systems — finance, housing, health care, education, autos — have broken down.

When the members of this new establishment are confronted with a broken system — whether it involves hospitals, energy, air pollution or cars — their approach is the same. They aim to restructure incentives in order to channel the animal drives of the marketplace in responsible directions.

I don't see any evidence of this. I hope they don't see themselves this way, as experts who can fix anything with the kiss of government. I just see a new bunch of power loving and ambitious liberals with an appetite for bigger government, deficit spending, and more regulation. They have a crisis that isn't of their making, a long list of national problems, and they are arrogant enough to think they can design their way to a solution.

The IMF's policy is governed mostly by the best thinking in economics . The IMF's policies may be flawed, hubristic, and anti-democratic, but at least it (and its sister the World Bank) usually tries to do the best of what we know works. They also have a small enough budget that the scope of its mistakes is limited and with the knowledge that any country may opt to not take their money and advice if they think they can do better elsewhere.

Instead, Obama's people are using enormous sums, are not ignorable, and their advice seems anything but predicated on state of the art thinking in economics. They would be more realistically predicated on state of the art thinking about politics. The systems that David Brooks identifies as requiring long term solutions, finance, housing, health care, education, autos are complex, expensive resistant to change, and critical to our welfare.

I predict that do not restructure the "incentive channel" in any of these industries. I expect more regulation and higher government spending in these areas. It will be focused on subsidies to prevent industrial failure and regulations that constrain behavior without changing incentives. I may be a cynic of government, but my expectation of additional federal government intervention in these areas is to make them worse.

Posted by OneEyedMan at April 21, 2009 6:17 AM

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