Most Economists, when asked, will have an idea of how we should proceed to get through this financial crisis and finish up on top (though these views will vary greatly from economist to economist). Most Politicians, on the other hand, will have reasons why each one cannot work. They will, however, pick and choose the most palatable parts from various ideas, tacking on other points as needed to allay public concerns (as in, to be able to give upbeat soundbytes).
However, it is true that finance gurus and academic economists will develop their theories with no concern for the bureaucratic and/or legal changes that would need to be made in order to have them implemented. Maybe the bankruptcy code should be tweaked for some people, but this would require votes in the House and Senate and might infringe on State rights. Do we then amend the constitution to tweak some bankruptcy laws?
This article from the Economist addresses these problems, although it doesn’t offer a solution (there is no easy one). Of interest is a look back at Japan:
Yet a closer examination shows that many of the same political obstacles crop up from one crisis to the next. Japan’s Ministry of Finance first sought private-sector solutions to its banking crisis so as not to arouse voter anger by using taxpayers’ money. When those solutions failed, the government proposed in 1995 spending a mere ¥685 billion ($7 billion) to take over the problem loans of seven jusen, or mortgage-finance companies. The backlash was intense. Opposition parties called for the finance minister’s resignation and staged a sit-in at parliament. In one poll, 87% of voters disapproved. The measure eventually passed, but the experience was so searing that it discouraged the government from tackling the banks’ much bigger bad loans until 1997.
Learning from this, we see that it is much harder for politicians to be proactive. Voters will not want to commit public resources to avert crisis they never see. Once the crisis has started it’s much easier to do what needs to be done. So maybe it does help, after all, to create panic among the population every now and then. Of course, this would hardly be considered transparency. It also brings about the accusation of crying wolf, with all of its consequences.
It seems that Economics and Politics will always have to share a fragile coexistence.
