Big Government's Big Effects

Many big government programs are really destructive, but usually, such results are not on any explicit balance sheet or income statement. Thus, busing kids in cities to alleviate segregation, or build giant public housing that is more generous to single mothers than those with husbands, or create a Ponzi scheme in social insurance, have engendered profoundly bad results for the very people that were supposed to be helped. Nonetheless, current recipients of the aid all like their aid, just as any wayward kid appreciates his current enablers.

With all the gushing about Obama, and how he might spend this $1 trillion dollars in TARP and fiscal stimulus, such numbers are so large they stagger the mind. They numb anyone from applying any real discipline, because almost every state, industry, could get by another year with a mere $10B, which in the scheme of $1 trillion is nothing. And via the multiplier, every state or industry implies you are saving X million jobs.

To see the problems, note that for the past 15 years, every bank merger would have to by approved by regulators, who were keen on making sure these banks were making adequate recompense for red-lining and other policies. Thus, consider this press release from when Washington Mutual acquired Dime bank in 2001:

In connection with its merger with Dime, Washington Mutual recently established a ten-year, $375 billion community commitment which targets funding to low- and moderate-income borrowers, and minority borrowers, as well as direct investments and other forms of support in communities where the company operates, including the greater metropolitan New York area. One of the largest community commitments of its kind, the ten-year pledge will be implemented with the assistance and support of a variety of non-profit community partners.

Now, WaMu hade about $250B in assets at this time. Pledging $375B for low-income borrowers staggers the imagination. If the entire banking sector was making these pledges, how, possibly, could one actually meet this objective without creating a huge system of favors, with vested interests at every level (government, business, nonprofit, regulatory, academic)? More importantly, how could it not end in a huge number of bad loans? That it took so long to implode is the most amazing thing. When it finally blew up, those responsible for the mess would say, like "it was perverse that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged to put people into homes that they end up losing." That was Richard Syron, who was head of the Boston Fed when it 'proved' that existing residential lending was discriminatory and too conservative back in 1992, and was rewarded as head of Fannie Mae, where he pocketed $38MM for running it into the ground.

I suspect that with this kind of money flowing out of Washington, we are creating a vast, dysfunctional patronage system that will create a nightmare of make-work jobs that will be around until I'm dead. You just can't increase spending by this much, top down, in an efficient manner.