Thursday, February 19, 2009

Planet Mars

Greg Mankiw is afraid of Virginia Wolf:

Why are people scared about the idea of nationalization? One reason is that it is a sign of the depth of our problems. A second, more substantive reason is that it seems to point in a bad direction. I certainly do not want the government deciding who deserves credit and who does not, what kind of investments are worthy of financing and what kind are not. That is a big step toward crony capitalism, where the politically connected get the goodies, and economic stagnation awaits the rest of us.

So what exactly does he think has been going on up till now?  I'm sure that crony capitalism can get even worse, but we have already gone a fair ways down this road.  True, so far the cronies have all been in the finance industry, so that the government wasn't directly deciding who got loans and who didn't, and the cronies were basically indifferent to who they lent to, so long as loans were made and a cut taken.  I hardly see how this is much better than nationalisation though.  If we nationalized the banking system, we might get a lot of dumb loans, but will they be any dumber than loans for houses, the single most unproductive asset you can build besides a bomb?

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