The End Of American Meritocracy?
Lengthy, interesting piece on City Journal by Luigi Zingales, "Who Killed Horatio Alger?" An excerpt:
Two powerful forces are threatening to drive America from a meritocratic equilibrium to a nonmeritocratic one. Recall that to survive in a democratic country, a meritocracy must enjoy a welcoming culture and offer large, widespread benefits to citizens. In the United States, both of these factors are being challenged: the first by a spreading belief that markets are a bad method of rewarding the meritorious; the second by a reduction of the benefits that most people derive from those markets.The housing bubble and the 2008 financial crisis played a major role in the moral delegitimization of markets. When new developments in Florida and Arizona, built under the pressure of astronomically high real-estate prices, sit empty, people start questioning the efficiency of market prices. When the difference between a comfortable retirement and an indigent one is determined not by hard work or by a frugal lifestyle but by lucky timing in buying or selling your house, people start questioning the fairness of the market system. The fact that the real-estate bubble was the second large bubble to pop in less than a decade further undermined trust in markets as a good indicator of where to invest resources.
But nothing upsets people like the perception that the rules don't apply equally to everybody. When my children were small, they sometimes tried to play Monopoly. These attempts inevitably degenerated into arguments. My daughter, who is two years younger than my son, would claim that my son was cheating. My son, with the official instructions in hand, would protest his innocence. And he was right: he never invented any rule. Nevertheless, my daughter was right, too: my son was engaging in selective recollection of the rules, counting on my daughter's ignorance and bringing up only the rules that were in his favor. Despite her youth, my daughter understood that something wasn't fair, so she employed the only response she had available: giving up.
Her frustration was similar to what many people felt after the 2008 bailouts of the financial system. The system was certainly at risk, and some government intervention was just as certainly necessary. Yet it was false to say, as Federal Reserve chairman Ben Bernanke and Treasury secretary Henry Paulson did repeatedly, that the choice was between the Troubled Asset Relief Program (TARP) as it was proposed and the financial abyss: there were feasible--and, in fact, superior--alternatives. It didn't escape most Americans that TARP was the largest welfare program for corporations and their investors ever created in human history. That some of the crumbs went to autoworkers' unions didn't improve things; in fact, it made them worse, showing that the redistribution was not an accident but a premeditated pillage of defenseless taxpayers by powerful lobbies. TARP wasn't just the triumph of Wall Street over Main Street; it was the triumph of K Street over the rest of America.
The way the bailout was conducted damaged Americans' faith in their financial system, in their government, and in the market economy. A BBB/Gallup poll conducted in April 2008, a few months before TARP was passed, indicated that 42 percent of Americans trusted financial institutions and that 53 percent trusted U.S. companies. In a similar survey performed in December 2008 by the Chicago Booth/Kellogg School Financial Trust Index, which I direct, these figures dropped to 34 percent and 12 percent, respectively. Moreover, 80 percent of respondents felt less confident about investing in financial markets because of the bailout. Their altered feelings weren't the consequence of any ideological bias against government involvement; on the contrary, a majority of respondents believed that the government should regulate financial markets. They objected, rather, to the specifics of what the government was doing. One reason they objected was their perception that lobbying interests had influenced the intervention: 50 percent of respondents, for instance, thought that Paulson had acted in the interest of Goldman Sachs, not the United States.
But a stronger reason, presumably, was that the bailout made the system suddenly look fundamentally unfair. Why should outsourced workers, whose only fault was to have entered the wrong sector, bear the burden of market discipline, while rich bankers were offered a government safety net?
Remember, remember, remember.
Crid [CridComment at gmail] at November 1, 2011 5:06 AM
I am still not really sure what the bailout is all about since it is such a big thing and has so many details which I don't really have the time and inclination to comprehensively understand. But in my opinion, a sensible bailout was the need of the hour along with bringing about a corresponding deflation in order to make america more competitive. While some aspects of the bailout were good, to me it seems like the bailout was also used as a tool to satisfy all the vested special interests and bring about a privileged class who are not subject to the discipline of the markets while others took the hit of the market system which is pretty much what the occupy wall street protesters should be against(never mind the fact that most of them don't know what they are protesting against). Yet another indication of how America is becoming like the rest of the world...it was good while the difference with the rest of the world lasted, but I guess it is difficult to be good in isolation.
Redrajesh at November 1, 2011 8:27 AM
Our financial crisis is not an obscure, unpredictable event that overwhelmed good practices. Housing policy, government control, and unconstrained lending to buy votes was obviously dangerous. It required active disregard for the rules, in the House Financial Services Committee under Congressman Barney Frank (D-MA), among others. The government put up a sign "We buy bad loans made to poor people", and banks and financial institutions supplied those loans as requested.
When you drive 120 mph, have an accident, and kill someone, is it really an accident?
Diagnosis is everything. Don't just blame Wall Street, the lawyers, or the bankers. The government has a big sign up "Favors for sale. Votes bought here". They are doing this with your money, your opportunities, your future, and the future of your children.
Don't just think "It happened under the Democrats or Republicans". That makes as much sense as being blamed for what your co-worker did. Investigate the facts. Start here:
We Guarantee It - The Government Caused the Economic Crisis
The government's ability to issue guarantees is an unlimited, off-budget, extremely dangerous power. Government granted guarantees to Fannie Mae and Freddie Mac, among other housing institutions, under the table. They used them to borrow and lend massive capital resources, to build houses that could not be paid for. This has caused our financial crisis.
The Solyndra scandal is a $535 million loss for taxpayers, beginning with a "costless" guarantee of that amount, when Solyndra couldn't attract additional investment because they were already losing money in a risky plan.
Government borrowing and guarantees have got to stop. Either we will stop voluntarily, or financial collapse will stop us anyway.
Andrew_M_Garland at November 1, 2011 8:31 AM
http://www.amazon.com/Idiocracy-Luke-Wilson/dp/B000K7VHOG/ref=sr_1_2?s=movies-tv&ie=UTF8&qid=1320162303&sr=1-2
This is our furture....
David H at November 1, 2011 8:47 AM
"When the difference between a comfortable retirement and an indigent one is determined not by hard work or by a frugal lifestyle but by lucky timing in buying or selling your house, people start questioning the fairness of the market system."
The people who bought these houses at the peak of the bubble are not blameless.
The housing bubble in Canada hasn't popped yet, but I believe the house prices here are way too high and will come down when mortgage rates rise. When we needed to move a year ago, we looked at some houses, but decided to rent and see if the house prices come down. We are upper middle class in income and were pre-approved for a $500,000 mortgage.
We would love to have a place with a yard that we could customize as we both like to do renovations, but I can't justify to myself paying the prices being asked. I'm not going to buy a house and then whine when the interest rate doubles and the value is cut in half as if it is someone else's fault that I made a bad decision.
Steamer at November 1, 2011 9:01 AM
When you drive 120 mph, have an accident, and kill someone, is it really an accident?
Shouldnt that read "When the governemnt forces you to drive 120MPH in a peice of shit car with no working brakes . . . ?
lujlp at November 1, 2011 9:11 AM
All but about $20 billion of the original $700 billion of TARP has been repayed. the purpose was to stabilize the financial/credit markets. that was largely achieved.
The so-called bail-out of $800 billion that congress passed and President Obama signed in order to keep unemployment under 8% has evaporated...Solyndra is just one stupid $500 million dollar example of where that went.
Keith L at November 1, 2011 9:35 AM
Here's my problem with this assumption:
In 2008, I went on unemployment for 2 YEARS, and I know I wasn't the only one for they kept adding more and more extensions. Eventually, I didn't actually run out of unemployment, but the government made it much more difficult for me to receive. (and a part-time job presented itself).
So I received my own bailout, just like everyone else that needed it.
Cat at November 1, 2011 2:38 PM
There is also the problem of interest rates having been kept artificially low. The government can't afford higher interest rates because it has too much debt. It has too much debt, because:
1) I need to eat, but I want everyone else to pay for it.
2) I need housing, but I want everyone else to pay for it.
3) I have kids, but I want everyone else to pay for them.
4) My kids need an education, but I want everyone else to pay for it.
5) I have no savings, but when I lose my job I want everyone else to pay for it.
6) I have no savings, but when I turn 65 I want to quit working and for everyone else to pay for it.
7) I have elderly parents who also have no savings, but they have medical expenses and I want everyone else to pay for it.
Sure, there is such a thing as falling on hard times. There is also such a thing as making a lifetime's worth of foolish choices and never thinking to face the consequences.
Pirate Jo at November 1, 2011 4:50 PM
I'm in IT, so I don't know all the in's and out's of any particular industry. I know how laws & regulations (l&r) pertain to the industry I'm working in at the time. I also do a general study of the l&r on my industry so I can at least ask coherent questions, if I don't know the answer.
I worked for a bank from 1999 through most of 2010. I researched whenever a new l&r came down and how it would effect my job. Somewhere late in the year 2006 we had an e-mail come down about how this new l&r would effect us. I was so shocked by it, that I walked out back and sat down for about half an hour before I could get back to work. Essentially every l&r from the Great Depression was repealed or otherwise overridden that day. I can no longer remember what the change was.
I'm surprised it took until 2008 for the crash. I saw it coming, but I'm a single voice in the wilderness, and am not the financial person.
I now hear the rest of the voices and am just waiting for Atlas to get back into a comfortable position again.
Jim P. at November 1, 2011 7:21 PM
> We Guarantee It - The Government Caused
> the Economic Crisis
No human wretch on the surface of this moist little globe of ours is more appalled by government's exploding authority than I am, with its misconduct in finance being perhaps the deepest offense... And certainly the broadest. Government is a pandering, nipples-out, skirt-hoisting slut. She does wicked stuff for money, and for the love of people who care for her –and her patrons and her dependents– not at all. Got it?
(Ahem.) However.
People invested in crazy shit. Americans did... Grown-ups. They pumped their hearts with fantasies that were never articulated through disciplined schools of thought, never composed in coherent sentences, and never even depicted in magazine snapshots. These zombies were uncowed by—
• ANYTHING that happened before about 1990 (in the Universe; ever; see The Crash of '87)
• The descent of Russia, formerly our 'evil twin' world power, into rapacious corruption by "oligarchs" immediately after our victory
• Our own tech bubble, deflating (so it seemed) just hours before the housing bubble took off; during an expensive war, and then another; in a time of terror
It's analogous to the foolishness of the OWS people described by Welch in the piece Amy links on Tuesday night: The people who made all these shitty investments in real estate and financial services had no reason to believe things would work out, anymore than did the college students who went $200,000 in debt for an undergraduate degree in the Feminist Shoelace Knotting of Edo-Period Japan. They were not being badly instructed. NO ONE PROMISED THEM ANYTHING.
Quite the reverse. They wanted to believe in a world without risk, restraint or sacrifice. It hurts to say this, but only because people are so naive about it: There's a very good reason we haven't seen a bunch of fat old white guys from Wall Street doing a perp walk. Maybe their conduct was and is odious, but it was all there in fine print, where sensible people take shelter and monsters sharpen their fangs: We never had to buy their bullshit.
And many of us didn't, or at least contained our greed so that we're not hurting too badly... Yet. The paradox so often noted is that those of us who behaved best will be hurt the most.
As we continue to sink, please remember: We must never hold government accountable for everything wrong in our lives, no matter how grim the hour. Especially when so much of what's wrong beats in our own hearts.
(Can any sane adult truly commiserate with Madoff's investors? Didn't they fucking well deserve it for thinking it was so simple?)
Crid [CridComment at gmail] at November 1, 2011 11:30 PM
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