The alternative is that we devote all of our efforts and attention to dealing with serial bubbles and their aftermath until the system collapses. That seems to be the path we are on and where it is leading us.
Are periodic, worldwide collapses in the financial services industry -- every several decades -- really that big of a calamity? And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?
I mean, for you, personally, has this crisis been truly devastating, or was it more of an inconvenience or an interruption of your 1st world consumption pattern, or, like it has been for the vast majority of people who will never lose their jobs or homes, is it just an inconvenient, third-person spectacle event, like witnessing a train crash.
It could be just as true that it is better for policy to merely mitigate deprivation when it occurs rather than try to eliminate the risk of such rare events from ever occurring.
Are periodic, worldwide collapses in the financial services industry -- every several decades -- really that big of a calamity?
Yes. How many people have to be homeless or bankrupt before you think this is an issue?
santiago:
And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?
What social cost?
If you tax banks and speculators fairly the social cost isn't just zero, it becomes a social benefit.
For one thing, you're not counting the possibility of benefits that many people -- not just bankers and their ilk -- might have gained through the existing system and might still be gaining as their debts are forgiven while the crisis unwinds. How many more people were able to get homes that otherwise would not have been able to through easy lending and credit availability during the last few decades, for example?
Although bad things are happening to lots of people, good things have also happened to many others (or even the same people) over the last century in the system as it has been. You have to account for both sides of the social balance sheet in order to be honest about it. Again, you may be right, but if you are the data should support it too -- not just an assumption. What does the data really say about the costs AND the benefits?
Keynesian policy advice in the 1930's was to mitigate the bad outcomes rather than try to predict and avoid them. When the Great Depression occurred, there actually were many incidences of severe deprivation in the industrialized world -- famine and starvation occurred. This time, although by many economic statistics it was just as bad, if not worse, than the Great Depression, there are no documented incidences of starvation that have occurred as a result. That says a lot about how policy has already been implemented to adequately address such crises, and one implication might be that the system needs only tweaks now, not revolutionary changes.
The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright, which is what earlier generations were able to achieve.
Remember also that this banking fail has destroyed vast amounts of housing stock, especially in the US.
It is very possible that only reason that "The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright ..." may be because the same policy frameworks that allowed people to get into such high levels of home ownership or housing quality/space per person (for renters) is due to the less regulated lending environment in the first place, so you can't honestly approach the issue without accounting for the possible benefits first, somehow.
There are two ways to do it that come to mind: One is to find data which shows that the benefits were actually quite low and the costs of the crisis high, especially to the most vulnerable people. Another way is to show that the proposed policy changes would probably not have reduced the benefits people have enjoyed had they been in place already. I haven't seen anyone address something like either of these questions yet, buy let me know if you have.
