Saturday, July 19, 2008

Who's to Blame?

It's baffling to me why we feel the need to blame something tangible, ideally one or two people, groups, or agencies, for macroeconomic events.

When it's rising gas prices or the declining value of the dollar, we blame speculators who supposedly twist markets in ways they should not be going. In previous decades, we heard officials in developing countries engage in this kind of finger pointing; now we hear it in the U.S. and from members of Congress.

When it's crumbling housing finance, strain on banks, and a recession, as we are seeing today, the blame-game is again in full force. An otherwise thoughtful piece today in the Times on the current macroeconomic crisis argues at the end of the article that we should blame the Federal Reserve for low interest rates during the recession of 2001 that spurred lending.

I'm not sure it's helpful to view macroeconomic events as anybody's fault, because it's precisely the interconnectedness of an entire economy that leads to trouble. And placing blame on the shoulders of a particular subpopulation is not politically healthy for a republic.