Wishful Thinking

Matt Yglesias LOVES him some TARP.  Here’s why:

There’s an idea out there about a free market that operates “naturally” and produces a certain distribution of wealth and income. Any further interventions into that marketplace to ensure that prosperity is broadly shared constitutes some kind of illegitimate “redistribution” of wealth and income from its natural state. This is not, however, an accurate description of how any economy featuring a modern banking system works. A world in which we simply didn’t have banking and finance would be, overall, a much poorer world. But a world with banking and finance requires various forms of management—monetary policy, regulation of the financial system, and intervention amidst panics and crises.

Obviously the current distribution of income is not “natural” in the slightest.  That should be clear to anyone with a functioning brain.  How he goes from that to effectively saying that since finance as we currently encounter it is unlikely without the system that led to it, banking ITSELF couldn’t exist without it, beats me.

TARP and the associated activities of the Federal Reserve [...] highlight that public policy decisions are integral to the creation and sustainability of modern capitalist economies. Under the circumstances, wise and moral policymakers will necessarily attempt to ensure that the prosperity they create is broadly shared by law-abiding members of the community. That’s the populist backlash we should have had. The hand of policy was, of course, always there all along making the puppets dance. But TARP was an immensely valuable teachable moment in which the curtains malfunctioned and suddenly the puppeteers were there for all to see. (emphasis mine)

So wiser, more moral puppeteers would’ve spread billions of dollars to keep going a fundamentally unstable system.  But they’d spread it more broadly if Matt had his way.   Never mind the question of “how?”, or even “why the hell would they listen to YOU?”…

The real “teachable” part to this is how the backlash manifested itself.  When an incident happens that makes the structural bankruptcy on this system crystal clear, expecting people to storm the capitol under the banner “do this but slightly better!” is pure naivete.