The New Political Economy

In the old days if you wanted to get rich, you did it the Warren Buffett way: You learned to read balance sheets. Today you learn to read political tea leaves. You don’t anticipate Intel’s third-quarter earnings; instead, you guess what side of the bed Henry Paulson will wake up on tomorrow.

Today’s extreme stock market volatility is not just a symptom of fear — fear cannot account for days of wild market swings upward — but a reaction to political decisions that have vast economic effects. We have gone from a market economy to a political economy.

We may one day go back to a market economy. Meanwhile, we need to face the two most important implications of our newly politicized economy: the vastly increased importance of lobbying and the massive market inefficiencies that political directives will introduce. Lobbying used to be about advantages at the margin — a regulatory break here, a subsidy there. Now lobbying is about life and death. Your lending institution or industry gets a bailout — or it dies.

You used to go to New York for capital. Now Wall Street, broke, is coming to Washington. With unimaginably large sums of money being given out by Washington, the Obama administration, through no fault of its own, will be subject to the most intense, most frenzied lobbying in American history. That will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians.

~Charles Krauthammer

Posted in Categories: Contributor, Economy, External Research, USA.

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