Thursday, March 11, 2010

Geithner Warns

Europe is accusing the US of protectionism over the EADS affair, while the US, in the person of Tim Geithner, is accusing Europe of protectionism in the matter of hedge fund and private equity regulation. Both sides are right, of course, but the question is how much damage this latest spat over the conventional hypocrisies that inevitably accompany "liberal" market ideology will do to other areas of mutual interest.

Probably not much. Although Dr. Johnson said that "hypocrisy is the tribute that vice pays to virtue," to accord the epithet "virtuous" to the "free market" is to do it too much honor. Free markets generally require a certain amount of cheating around the edges in order to remain viable. It's always an issue to decide how much cheating is tolerable and to know when the dissimulation becomes a threat to the system itself. The indirect subsidization of the aircraft industry is never going to go away, but the blatant rule-rigging and political meddling that have led to the latest flap over EADS exemplify the sort of thing that shouldn't be permitted--not that the military procurement process in any country is likely to pass muster as a paragon of virtue. But this kind of cheating seems relatively easy to understand.

Financial regulation is another matter. The dispute is as much cognitive as it is ideological. We don't really know what kinds of regulations of capital are likely to prove effective, and we have learned from the crisis that regulation not only distorts markets, as neoliberals have always claimed; it also provides incentives for "malefactors of great wealth" to bring all their evil genius to bear on the search for safe harbors and artful dodges. Geithner's objections may not be intended solely to protect the interests of American money-men. After all, he's seen the lengths to which they'll go to get to where the money is. So he may simply be telling the Europeans not to waste their powder.

4 comments:

Scaramanga said...

"L'hypocrisie est un hommage que le vice rend à la vertu".
Apparently this is one of La Rochefoucauld's Maximes, first edited in 1665.
Quoi qu'il en soit, quel merveilleux apophtegme...

Unknown said...

Ah, thanks, did Johnson crib it from La Rochefoucauld, or did I misremember the source?

Scaramanga said...

Well, I'm not the right person to answer, since (to my great shame) I hadn't heard of Dr Johnson before reading your post...

Unknown said...

It seems that I misremembered. In fact, I think someone may have pointed out this same error on the blog before. Shame on me. Especially since in erring I slighted a great French moralist in favor of an English one.