moral hazard, immigration
Was the financial crisis (past ones & recent one) due to moral hazard, encouraged by our central government? Yes, in part, per this fascinating blog entry on a well-known econ site. Moral hazard due to previous bail-outs (which encourage excessive risk) as well as expansion of Fannie/Freddie led to the mortgage-backed meltdown, it seems.
Good summary (from link above):
The increased demand for housing resulting from Fanne and Freddie’s expansion pushed up the price of housing and helped make subprime attractive to banks. But the ultimate driver of destruction was leverage. Either lenders were irrationally exuberant or were lulled into that exuberance by the persistent rescues of the previous three decades.
On the subject of central government-backed screw-ups, I was intrigued to Tom Friedman’s quasi-recent editorial: Startups, Not Bailouts. The title by itself is pithy enough that you don’t actually have to read the whole editorial. But if you do read the whole thing, you’ll see he also espouses immigration as a growth policy. Check it out:
But you cannot say this often enough: Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers. How do we get more of those? There are only two ways: grow more by improving our schools or import more by recruiting talented immigrants. Surely, we need to do both, and we need to start by breaking the deadlock in Congress over immigration, so we can develop a much more strategic approach to attracting more of the world’s creative risk-takers. “Roughly 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants,” said Litan. Think Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla, the India-born co-founder of Sun Microsystems.
Immigration isn’t his main point, of course, but amidst the controversy over Arizona’s law, I thought I’d digress.
Implicitly, Friedman’s talking legal immigration, if for no other reason than for the fact that illegal immigrants typically “lay low,” and that means not starting the next Google.
From a purely economic standpoint, our entitlement/welfare programs necessitate bringing in immigrants (esp relatively young/healthy ones). If we’re not going to switch to, like, capitalism with our retirement/medical programs (referring to Social Security and Medicare/Medicaid), then we should be more receptive to a more liberal immigration policy, legal or otherwise.
Politically, it’s neither possible to truly reform the aforementioned Nanny State programs nor is it politically acceptable to legalize millions of people who didn’t wait their turn in the highly bureaucratic line. We’re stuck in between a rock and a hard place, not due to absence of feasible solutions, but in the fact that real long-term solutions aren’t politically feasible.