I wrote a piece last week on the strange nomination of Jack Lew to Treasury secretary by Obama, given their very different viewpoints on economic matters. Attention is now being paid to the $950,000 bonus Lew was given while at Citigroup, just months after it was bailed out by the government in the wake of the 2008 financial crisis.
Many things can be said about this, but it is clear that by nominating Lew, Obama has proven that much of his emotionally charged and ideologically mobilizing speeches to be nothing but populist gibberish. For all his speeches regarding low and middle class America being at Wall Street’s mercy, and talk of how deregulation has led to the financial meltdown, he has nominated a staunch deregulator, who also happens to be a consort of Wall Street.
Personally, I do not blame Lew for taking the bonus back in 2009. Clearly Citigroup could afford it at the time. He was an employee — when do you ever hear of employees saying no to a bonus? Lew was also an adamant proponent in the Clinton era’s deregulation spree. Yet here he is — Obama’s nomination for Treasury secretary.
So what? The more I hear about Lew, the more I like him, and the more I actually think Obama is evolving. It seems less likely that Lew will compromise his stances, and more likely that Obama has enrolled in an economics 101 course.
To claim that something so complicated such as a recession or specifically the current “Great Recession” was caused by insufficient regulation means little to nothing. In fact, it is easier to present the argument that over-involvement of the government in the economy led to the crash. Subprime mortgaging catalysts such as Fannie Mae and Freddie Mac were government-sponsored enterprises that distorted the self-efficient free market.
The famous economist Joseph Schumpeter once elaborated on the idea “creative destruction.” According to him, it was this very essence that explained the free-market’s success. In short, industries and businesses overtime either evolved or adapted to new technology and levels of efficiency, or got replaced by new, young and more cost productive entities. Essentially, it is the economic version of “natural selection.”
When the government decides to bailout a company, it is essentially deciding to rescue a company unable to compete successfully in the market. Of course, this is not always the case and if a company realizes that it is a second chance to right their wrongs, it could go back to the drawing board and plan out an entirely different business strategy, at the tax-payers expense, of course.
The problem is, who gets the bailouts and who does not? Often, the answer is the result of powerful lobby groups, behind the scene actions and conflicts of interest. This is nothing unusual, as every economist knows that governments are nowhere near as efficient at allocating resources as the free market is. Bailouts, or stimulus in Keynesian economics, is more often than not, a political tool to appease the wealthiest of the wealthy, and the average Joe who remains employed at his (inefficient and financially irresponsible) auto plant.
So why hate on Lew? At least he seems to understand economic matters. There is more reason to believe that deregulation, and getting government out of the market, will help matters. Obama is really the more intriguing one out of the two — does he think he has made big mistakes economically in the past, or does he have no more use for political tools and populist notions, since he will not be running in an election?