Saturday, October 31, 2009

Independents Rising

Every year is an election year. Although most political junkies are either still recovering from the drama of the 2008 presidential election or are already gearing up for the sure to be eventful 2010 midterm elections, there are also a few notable elections taking place here in 2009 in the United States. Political commentators, ever eager for new data to turn over and spin to their hearts' delight, feel these elections might just show whether the country is leaning more towards President Obama or more against him, depending on whether Democrats or Republicans are successful. To me, however, the most interesting thing about the 2009 electoral season doesn't have to do with either the Democrats or the Republicans, but rather the fact that one independent candidate and one third party candidate have remained competitive in their races despite facing decidedly more established opposition.

The independent candidate, Chris Daggett, is competing with Democrat Jon Corzine and Republican Chris Christie for the office of governor in New Jersey. Polls have been all over the place for this election, with Daggett's support in particular proving variable -- at least one poll saw the independent pushing near 20% support, but others have him at less than 10% and pretty much out of striking distance. Which ever scenario is correct, Daggett is quite an interesting candidate. He's just what an independent candidate ought to be, in my view -- a candidate whose views don't fit neatly into a box. He's reminiscent to me of Ross Perot in some ways (though Jon Corzine is definitely the rich guy in the race in New Jersey...he spends millions on his political campaigns out of his own personal wealth), not so much in what he says but in his varied mix of stances on issues and his willingness to adopt new approaches to issues. He certainly has the most interesting approach to taxation. New Jersey's property taxes are among the highest in the nation on average and all three candidates acknowledge to some extent that that has some pernicious effects. Governor Corzine emphasizes the importance of providing relief to vulnerable groups who can't afford such high taxes. Christie absolutely does want to see property taxes fall (he is even more of a supporter of rebates than Corzine) and just about every other type of tax as well, and he's been extremely critical of Corzine's past tax-related actions and how they differed from his rhetoric. What Daggett wants to do, though, is something quite different. Like Christie, he does want property tax rates lower, but he actually is more a tax rearranger than a tax cutter at heart. Instead of having local governments rely so much on the property tax, he wants to increase the reach of the sales tax so that services provided by professionals like lawyers and accountants are also taxed in New Jersey. Now, a tax is a tax (and Christie has blasted Daggett as essentially being a tax and spender, too), but this change would seem to correct an inequity in the sales tax system and at the same time reduce the tax burden on property owners. Sales taxes, generally speaking, let taxpayers exert a greater degree of control on how much they pay than property taxes (at least for property owners), and in this case it's mainly professional services being taxed rather than strict necessities. Daggett's plan, however, does have the burden of being complicated and certainly will require local and state governments to see things eye to eye.

Independents are often viewed as spoiler candidates, and Chris Daggett has definitely been criticized as being one. I find it odd, however, that the general consensus seems to be that Daggett draws more votes away from Christie than Corzine. Daggett has some bold new ideas and isn't afraid to step on a few government toes, particularly in the education sector, but I'd say he leans a little more to the left than to the right politically speaking. He is pro gay marriage, pro-choice, a staunch environmentalist and advocate for green jobs, and pro gun control. While Christie isn't necessarily the polar opposite of Daggett on all those issues, I don't get why Christie supporters would be more apt to go to Daggett than Corzine supporters for ideological reasons...unless Corzine supporters are really, really passionate about their local property taxes. Although I talked about Daggett's different approach to taxation, he's definitely not some small government conservative. He does feel property taxes are too high around the state, but he welcomes the idea of raising other taxes: sales taxes, gas taxes, tolls. Christie is the only real across the board anti-tax candidate. What seems to have hurt Christie is his lack of specifics when it comes to describing how exactly he will reign in spending. New Jersey is already facing a serious budget shortfall; even Corzine's government has adopted austerity policies to deal with the mounting deficit. Every government would theoretically like to eliminate "waste", but it's not so easy to do for one man's waste is another's gravy train. Christie doesn't seem able to do the Ron Paul thing and whittle off the names of dozens of programs he wants to cut -- frankly, he seems more talk than action to me. Though a great debate attack dog, he has more bark than bite. He's also been hurt by the publicizing of an incident in which he escaped a ticket seemingly because of his position as U.S. Attorney...this matters particularly because there's been an awful lot of corruption uncovered among New Jersey politicians lately. On the other hand, I would describe Corzine's campaign as basically lackluster. It might not have a potentially fatal flaw like Christie's, but when you put it all together you get a very uninspiring whole. As an incumbent, Corzine must defend his record, but a campaign based on more of the same is pretty dull. What's more is that Corzine seems to have a tendency to dismiss problems as if they're irrelevant even though many people are very concerned about them. So Corzine expresses pride over New Jersey test scores while Christie and Daggett talk about a dangerously flawed and unequal system. Daggett's description of the way the graduation exam system works in NJ shocked me. Corzine also has a tendency to blame the current poor economic situation in Jersey largely on the overall financial crisis -- I'm sure that's largely true, but sometimes a recession can be something politicians use to hide behind so they don't have to address serious economic problems such as an unfriendly business climate that drives jobs away which is just what Christie thinks New Jersey has.

Can Daggett win? Only in a surprise based on polling data. At the end of the day, it IS hard to beat that two party system...even when you've presented the best campaign, as I think Daggett has. If Christie wins, I think the whole election will have the feel of a referendum on property taxes and on government spending. People will be voting in the hope the man can work miracles in office even as he has struggled to articulate concrete plans on the campaign trail. If Corzine wins, I think that shows that by and large New Jersey voters are content with their state's situation given the state of the nation. Something that Chris Christie said in the October 1st debate has stuck with me: he said that for every one government employee there are twenty one people in New Jersey. I don't know how mathematically accurate that statement is, but I think it sums up why it's so hard for big tax areas to change their levying ways. There are an awful lot of people invested in the status quo in New Jersey. Jon Corzine is their best bet to preserve that status quo. That alone could be enough to power him to victory. In any case, it'll be interesting to see what happens and particularly how Daggett's independent campaign fares.

Another election being shaken up by an outsider candidate is the special election to name the next member of the House of Representatives from New York's 23d congressional district. Here the outsider, Doug Hoffman, has a party of sorts -- it's the Conservative Party of New York. It might not seem like a true third party in that it commonly endorses other candidates running as Republicans or Democrats provided they are deemed conservative enough, but from time to time candidates do run under its banner. That seems to have happened in NY-23 primarily because the Republican candidate for the House seat, Dede Scozzafava, was perceived as not being conservative enough primarily due to her stances on social issues and her ties to unions. Scozzafava got some early buzz online as a possible libertarian-leaning candidate because of her pledged support for low taxes and her socially liberal stance on gay marriage, but probably she's better described as a liberal Republican. I think she struggled to find an overarching theme to her campaign, and to a certain extent I think she didn't WANT to run the race she was forced to run. By that I mean I don't think she wanted to be the liberal Republican candidate; her campaign site doesn't seem to include anything about abortion, gay marriage, unions, etc. Instead she talks about pro-business policies, about support for tax cuts, about opposition to the Death Tax and reform of the Alternative Minimum Tax, about supporting agriculture, and about protecting seniors. She and the Democratic candidate Bill Owens would likely have argued more about things like who would bring more jobs in to the district and just generally help the constituents out. Owens is naturally also pro-agriculture, and he has an interesting strategy of encouraging investment from Canada. Perhaps they would've scuffled a bit over health care reform -- Dede controversially suggested the "hurry" to change health care was unreasonable while Owens is a supporter of many of the proposed Democrat reforms (he's probably best considered as a moderate Democrat). Ultimately, though, the race wouldn't have been so much about ideology as it would have been about winning the trust of the voters and it would have been much more locally focused despite being a federal election. Doug Hoffman changed all that.

Hoffman seems to be both more ideological and national in his outlook than his two opponents. He opposes bailouts and loathed Obama's stimulus plan. He fervently opposes raising taxes and has signed a "No New Taxes" pledge. He is anti-earmarks. He's opposed to gay marriage. He is strongly pro-life. He's also squarely focused on continuing to fight the war on terror wherever those terrorists lurk. Hoffman is not nearly as unique a candidate as Chris Daggett; by and large, he seems to have many of the same political positions as most Republicans and frankly I'm not so sure he's any more sincere than most GOP politicians when it comes to fiscal issues. Unlike Scozzafava, though, he's ideologically pure from the Republican point of view which has led him to get all sorts of endorsements from well-known Republicans like Sarah Palin and Fred Thompson...that is seriously unusual in the world of third party politics where candidates are often treated like pariahs by the establishment. He's also a contemporary conservative -- he's aware of the widespread resentment among conservatives towards the bailouts and free spending in Washington and was able to conflate Scozzafava's support for a New York state stimulus plan with support for Obama's national stimulus plan. If Hoffman wins, my guess is he'll be running for reelection as a regular Republican...with the reendorsement of the Conservative Party of New York, of course.

Unlike Daggett, Hoffman has a very good chance to win the election. The nominal Republican, Scozzafava, has suspended her campaign though she'll still be on the ballot...she had fallen to third place in the race according to polling. Hoffman's policies may not be all that unorthodox, but just the fact that he has managed to do so well and even thwart the hopes of the Republican candidate bodes well for the possibility of other third party and independent candidates also succeeding in American politics. Daggett's success has also been a net positive for much the same reasons. I'm also glad whenever the voters have more of a choice about who to vote for. One thing we can say about both the New Jersey gubernatorial race and the NY-23 House race is that all the candidates have different views on some issue or another...hopefully fewer people than usual will have to hold their nose to vote this time around due to those extra options.

Friday, October 30, 2009

Can You Dislike Both Bush and Obama?

I've noticed that it's become common for Obama supporters to dismiss Obama critics by arguing that these critics aren't sincere because they said nothing as George W. Bush wreaked havoc on the nation. Obviously, this tactic does allow Obama supporters to avoid responding to individual criticisms, but there's certainly some validity to this idea. The two party system in the United States encourages the party faithful to ignore the failings of their own politicians yet make mountains out of molehills when it comes to even superficial blemishes of the opposition. Undoubtedly many Obama critics would say nothing if a Republican was in office and doing the very same thing. On the other hand, is it really so unreasonable that an individual -- not a dedicated follower of a particular party -- might dislike BOTH President Bush and President Obama?

I would say that yes, it is quite possible. In some ways, I even think it's quite a natural attitude to have. President Bush's greatest failings seem to me have been his push to war with Iraq, his general fiscal irresponsibility, and his disregard for civil liberties. President Obama has inherited and continued Bush's wars, he's not just continued on the path of big spending but pressed down the accelerator, and he has only done a little bit to reverse the excesses of the Bush administration in regards to civil liberties. Bush effectively had a cover for his wars and restrictions of liberty because of the nation's fear of terrorism. Obama effectively has a cover for his economic policies because of the recession. In both cases, I think there are legitimate reasons to question whether the pursued policies of both administrations were really the best thing for the country at the time.

Of course, there are differences between the two presidents as well. Bush earned much love by cutting taxes. Obama has tackled the issue of health care reform, which millions of Americans have been clamoring for for decades, more avidly than any other president. Bush preferred an aggressive foreign policy while Obama favors a conciliatory one, even to the point of not meeting with the Dalai Lama seemingly to placate China. In fact, I think it's quite likely that the majority of remaining support for Bush (and he's no longer a popular politician at all) boils down to the two issues of terrorism and taxation while support for Obama (who still is favored by the majority of Americans) is largely based on health care and the general hope for an expanded safety net. However, I'd say Obama and Bush have more similarities than they have differences overall. It's easy to mistakenly cast one or the other in a false political light. To say Bush didn't care about social issues, for instance, is to overlook his support (billions of dollars worth) for fighting AIDS in Africa, an unprecedented effort. Obama is sometimes presented as being "weak" on foreign policy, but during his presidency so far the image of America has improved globally.

So, I guess it all boils down to what really matters to you. If one or more of Bush's or Obama's pet issues are most important to you, there's a good chance you'll overlook their faults in other, less important (to you) areas. On the other hand, if you dislike big government spending and deficits, corporate bailouts, and wars that just keep going and going, you have every reason to dislike both presidents.

Friday, October 23, 2009

The Obama Administration Takes on Fox News

The American public has recently received a series of news flashes from the White House warning them that Fox News -- ostensibly just another cable news network, albeit one proudly carrying a slogan of being "fair and balanced" -- is in fact biased (it has a "perspective" according to Rahm Emanuel...scary!) and should not be considered to be a legitimate news organization but rather as a mouthpiece for the Republican Party. The Obama team evidently considers informing the public as to Fox News' true identity to be a matter of prime national importance: thus, we've heard administration figures such as Anita Dunn, Rahm Emanuel, and David Axelrod weigh in on the subject. Even the president himself has spoken out on the matter. The problem here is that all this isn't news to anyone: I'd think that everyone who has ever watched Fox News for an appreciable amount of time knows it has a perspective and a bias and does not quite live up to its slogan...they don't even have a single non-neocon opinion show host anymore since Alan Colmes stopped co-hosting with Sean Hannity. However, most sensible newshounds realize that virtually every news organization has a "perspective." Fox News tends to reflect a neoconservative point of view, MSNBC tends to reflect a progressive point of view, the Economist tends to advocate for free markets...is there anything really wrong with that as long as the facts presented are generally correct? I do think there is a lack of truly nonbiased reporting in the media, which is a shame (however, it's definitely not just a Fox problem), but I also appreciate being able to get my news from a variety of different viewpoints so I can see the issues from different sides. What the Obama administration seems to be saying is that some perspectives are legitimate and some are not -- in a democratic republic, I don't believe the government should be deciding that.

To be fair, it is very easy to make the administration's war of words against Fox into something it isn't. We're talking about public censure here, not censorship; there's been no discussion of the administration shutting Fox down thus far. Freedom of the press endures. In fact, the diatribes against Fox rather seem to lack teeth -- administration officials still want to appear on Fox News so the White House isn't even boycotting the network. Historically, presidents have often butted heads with the press. Obama is probably not thrilled to be lumped in with President Nixon and his notorious enemies' lists, but he might not mind sharing company with John Adams...Obama has actually been by far the least villainous towards the press of the trio so far, though he still has time to change that. To tell you the truth, this whole scenario has even reminded me of something our last president (you know, the one who butted heads with NBC) would pull off. Isn't President Obama essentially telling the press, "You're either with us or against us!"? While historically normal, it is still disturbing to me that this administration would go out of its way to try to discredit a particular news organization that has broken several stories that reflected negatively on the White House recently. The ACORN, Van Jones, and Anita Dunn controversies weren't all that big a deal in my view, but they certainly did deserve to be covered...Fox News is actually doing a good job of playing the role of presidential watchdog. They're keeping him honest and checking his power; that's one of the things the press is supposed to do. Does Fox always give president a fair shake? Heck no. They also sure didn't do an effective job of checking President Bush's power. At the end of the day, they ARE a bunch of neocons who'd like America to think just like they do. Nonetheless, they're the most important news organization in the country for the moment.

Obama apologists would argue that Fox News isn't being targeted because of its views but rather instead for its tactics. I definitely think it's a good idea for the administration to call out Fox News on actual factual errors. Certainly the network has been linked to unethical practices in the past such as displaying incorrect party affiliations on screen for scandal ridden Republican politicians. It's exceedingly hard to say what is the result of human error or newsroom shenanigans and what is a deliberate attempt to mislead and propagandize, however. Bias is to a large extent in the eye of the beholder -- for instance, conservatives often see the "mainstream media" as liberal and liberals often see it as conservative. When assessing bias, news watchers naturally consider intangibles like what isn't covered and to what extent something is covered. Some think Fox News showed a great deal of bias by giving so much coverage to the tea parties; others think it's other news sources that were biased for NOT covering the tea parties more. What I tend to think is that there's bias swirling all around the media world (and it's not necessarily organizational in nature -- individual reporters can be biased), but it's pretty hard to prove subtle bias conclusively. That's likely why the Obama attacks on Fox have been so lacking in substance so far.

Even if Fox News were worse than it is, I'm not sure I'd ever want the White House to enter the fray publicly in such a way as it has. Even a well-watched media outfit is nowhere near as powerful as the president. This is simply not a battle between equals -- it has made the president seem like a bully. Considering press censorship remains a huge problem in many areas of the world, I think it would be wise for all arms of government to refrain from attacking the press directly. Just speaking personally, this controversy has made me want to watch Fox News more. Watching Fox has become a REBELLIOUS thing to do! It's fighting the power! I can't believe I'm even saying that...it's amazing what a change in administration can do. I suppose there were political reasons for why the full court press was unleashed on Fox. For one thing, Obama's base of supporters seems to love it -- they've been bashing Fox News for being biased for years so this is official confirmation of something that was painfully obvious to them. Another bonus is that it has been a distraction from other issues. I don't believe there is any serious intent on the part of the administration to squelch freedom of the press. Instead, this has been a dog-and-pony show to take some time off the clock and allow the White House some breathing space. It's not easy to be in power in a free republic -- there are political forces that will resist everything you try to do and other political forces that will never be satisfied that you are doing enough. None of them will ever shut up...President Obama should just accept that and get back to work.

Saturday, October 10, 2009

Should Protectionism Be Embraced to Protect Domestic Industry?

Free trade is a bit like religion. Most people seem to claim to believe in some form of it -- virtually every politician does -- but you wouldn't always know it based on their actions. It seems like most every developed country uses protectionism to at least protect some sacred cow if not as a general policy. The United States provides generous subsidies to promote domestic agriculture. France has managed to "repatriate" some auto jobs by providing incentives for domestic automakers to move some of their production back to the mother country. Ecuador responded to the financial crisis by significantly increasing tariffs on many products. Clearly, a lot of self-described free traders find something seductive about protectionism.

Honestly, there IS something seductive about it, despite the fact that most economists think it is outmoded and perhaps even dangerous. A nation that produces a wide range of goods and has a strong service economy as well has a much more diversified range of employment options. One reason the unemployment picture in the United States looks so bleak is that people who have lost their jobs must in many cases seek out new training to qualify themselves for other jobs. There is a definite shortage of easy to do jobs...the unheralded victim of the economic crisis is the teenage worker who has seen normally despised starter jobs become suddenly quite desirable. Additionally, a country that can produce what it needs is less dependent on trade and better suited to survive a war that might disrupt international shipping. I would argue that having domestic production is indeed very good...perhaps even vitally necessary. I would even go so far as to say a country that doesn't produce a wide variety of goods cannot take full advantage of its citizens' talents. If good shoemakers and good steelworkers become bad teachers and bad salespeople, a labor problem has perhaps been resolved but society can hardly be said to have benefited, and neither has the individual who is stuck in a job he or she hates! With all that said, I still can't embrace the POLICY of protectionism even though I see domestic production as being very desirable.

The most outstanding benefit of free trade has always been that it has reduced costs for the consumer. Most protectionist policies involve either making foreign goods more expensive or domestic goods more cheap -- either way, the consumer suffers because he or she either must pay a higher price for goods or higher taxes to support governmental subsidies. Outright bans on foreign products reduce choice and competition. I can't really see a way the consumer would benefit from protectionism. You could make the old "foreign products are inferior" argument, I suppose; China seems to have made a mission out of trying to strengthen that argument by marketing such winning products as poisoned pet food, toys with lead point, and home-ruining drywall. However, few would call BMWs or Maseratis inferior. Most electronic devices are assembled in Asia and they seem to drive our increasingly technology-centered lives along pretty well. If foreign products were really that bad, people ultimately wouldn't buy them. In fact, they're good enough for the most part and priced attractively...people have found them irresistible. All citizens are consumers, even service workers and the unemployed -- governments which embrace free trade are looking out for the welfare for their people as a whole far better far better than those governments which embrace protectionism.

What has long puzzled me is not why people buy foreign products but rather why more don't CHOOSE to support domestic industry given the larger benefit to the country. As I see it, free trade has the potential to greatly improve the qualify of life for the poor (potential is too weak a word -- it has already done this around the world). They benefit the most from having cheap goods available to purchase. Every penny they can save counts and represents another step out of poverty. For that reason alone, I'd never oppose free trade...protectionism disproportionately hurts the impoverished. The story just isn't the same for people with some money to spare, however. It baffles me how people will willingly overpay on cars, houses, boats, jewelry, and designer clothes yet nonetheless try to skimp on more everyday items. I personally would rather save money by not overpaying on big ticket purchases that are priced more than they are worth but instead pay a bit more for small ticket items in order to support domestic industry...why aren't there more people who think like me? I suspect shopping habits have as much to do with the downfall of domestic manufacturing as anything else. Retailers like Wal-Mart save money before the consumer even sees a product by purchasing goods made in countries where labor is cheaper. Americans who want to support domestic producers may have to shop online to do so -- Still Made in USA is a good Web resource I happen to use (just in case you're interested in getting started...no pressure from this free trader is intended!). Additionally, many shoppers don't look at country of origin labels at all. It always takes me off-guard how people who frequently complain about the downfall of American manufacturing often don't check to see where the products they are buying are actually made. They have, uncannily enough, become part of the very problem they decry!

I think the toughest political question to tackle is not whether to embrace free trade or protectionism, but rather whether free trade should be followed as an absolute policy and all semblances of protectionism should be abandoned. Should, for instance, the United States stop providing subsidies to its farmers? Should it not use foreign aid to support its defense industry? I can see the national security reasons behind such forms of protectionism. Ideally, agriculture at least could be supported without subsidies, but we've already seen consumers can be fairly quick to abandon domestic producers. Should we just accept that the benefits of having strong domestic agricultural and defense industries are worth the price we pay? Rather than eliminate this limited sort of protectionism, I think I'd experiment with reducing the amount of subsidies slowly and cautiously first. We could at least contain costs if we can't eliminate them. Wasteful support of the military industrial complex and grants to owners of farm land that aren't in fact farming clearly aren't beneficial...in fact, they are an example of the inefficiency of protectionism and show why it really isn't a good idea to expand protectionism to other industries.

Before long, I wonder if arguments like those I've just made will even be relevant. While low wages have been a driving force in encouraging outsourcing of labor from rich countries to poor ones, moving overseas has its costs as well. When it comes to manufactured goods, a good portion of that cost is transportation. I anticipate more and more manufacturing will be done almost entirely by machine in the future as technology develops and the capital investment required falls. This will likely lead to more domestic production to save on transportation costs but perhaps not new jobs (well, apart from robot repairmen...or repairmen for the robots that repair other robots). Many would argue that countries that have a weakening manufacturing base have already entered the future, a future where human labor isn't strictly necessary for material production. Ultimately, I think that future does represent progress...it at least holds out the promise of more leisure and less drudgery for humanity even though it also raises many questions about the economics of the future. That said, the demise of the human laborer has been often predicted since the Industrial Revolution and so far those predictions have largely failed to materialize.

Thursday, October 8, 2009

Should There Be an Alternative to the FDIC?

The Federal Deposit Insurance Corporation has made saving a worry-free activity for most Americans. I tend to think of the FDIC as one government initiative that has worked quite well for the average citizen. Banks still fail today, but because the FDIC insures deposits and manages the receiverships of failed institutions most depositors lose no money in a bank failure. In fact, often even depositors whose balances exceed what is protected by the FDIC end up not losing any money as the government generally tries to broker deals in which all deposits from a failed institution are transferred to a healthy institution. People can feel confident that their savings really are safe thanks to the FDIC -- a failed bank no longer automatically results in financial failure for numerous depositors.

On the whole, then, I would argue the FDIC does fulfill an important role and does benefit the depositor. However, I think its influence has also been pernicious in other ways. By creating such a secure atmosphere for depositors, the government has reduced competition among the banks. Sure, they still compete on interest rates, customer service, convenience, and product offerings. However, they no longer compete on safety. The incentive to put your money in the steadiest bank has gone away -- your money is protected no matter where you put it, so long as the institution is FDIC insured. I've noticed that banks tend to be anything but transparent. They don't want you to know what they do with your money. They don't want you to know how much money they keep in reserve. They benefit more from the public not knowing how safe their practices are as it takes their fiscal policies out from under the microscope. The less you know about mortgage-backed securities and credit default swaps the better as far as financial institutions are concerned. It has become the business of the government to determine when a bank has been too risky; the depositor can remain strangely unconcerned. Of course, the wise saver is still concerned -- he or she doesn't want to go through the disturbance of a bank being shut down and he or she also realizes that even the FDIC itself could fail at some point in the future. The cascade of bank failures we've had over the past couple of years has already strained the institution's resources. Another downside to FDIC insurance is that banks no longer have to compensate their depositors for risk -- at the moment, a 2% rate of return can be considered decent despite all the competition in the banking industry! Additionally, banks have to pay the piper...the FDIC is funded by its member institutions rather than the taxpayer. The FDIC fees tends to leave a little less money available to pay depositors with. The FDIC will even from time to time pressure institutions to pay lower interest rates for safety's sake; this happened recently with Ally Bank. In general, savers haven't been well-served by American fiscal policy which embraces controlled inflation that erodes the value of savings. I'm sure interest rates will rise before long, but they probably will only rise when inflation also rises so the extent to which the saver benefits will be limited.

Can we benefit from FDIC protection yet still make saving worthwhile and encourage banks to compete on safety? We probably can't have everything in one system, but I think we could have two competing banking systems that could do all this in aggregate. The FDIC system could continue be the safe, no-risk system it is now. FDIC-insured institutions would tend to give low returns to depositors and tend to be less transparent to the public. Competing with these safe banks would be a new breed of bank that would offer better transparency, better interest rates, and private insurance of deposits that depositors must themselves purchase if they want it. The person who wants to play it safe would likely have the bulk of their savings in FDIC members, but he or she could also seek out those new institutions that promise safety but still perhaps offer at least marginally better interest rates. Someone who welcomes a little more risk could aim for a higher rate of interest on his or her deposits but would be able to assess how risky the bank's policies really are and also purchase private bank insurance. This increase in banking competition would probably tend to make FDIC institutions more open as well and it might just reduce the amount of money stored in those "too big to fail" institutions that were so careless with depositors' money. I think ultimately it would be good for all if it could be done.

The biggest challenge would be ensuring transparency in the new banks. As it is, you can put your money in illegal ponzi schemes and temporarily earn a high rate of interest -- these, however, are in fact even less transparent than traditional banks and will always end in failure by their very design. Clearly there would need to be some overarching organization (presumably non-governmental) that would certify and monitor the new breed of banks just as the FDIC does and may also have a role of spreading information about banks to the public similiar to what the SEC does for the stock market. Undoubtedly some "banks" will cook their books and try to bilk as many people as possible, hurting not only depositors but the private bank insurer or insurers as well...banking would no longer be so safe. The extent to which it could be made safe would depend on the vigilance of the certifying institution. If put together cautiously by the right people, however, I think this system could be a successful alternative to the FDIC system. Both systems could thrive and make each other better over time.

As it is, the FDIC and the banking system does work for the most part. I remain confident in the FDIC as an institution and fully expect the government to bail it out if it should need help so there's no reason for savers to be too alarmed at its recent financial difficulties, though we should all be concerned about the government's ability to bail out all comers. I don't have the same confidence that the banks will pay good interest rates in the future and I have even less confidence that they will embrace prudent financial practices for the long-term. We need a "private option" in banking which rewards transparency and accountability!