JZ: Are there structural reforms that you think need to take place?
BF: To get rid of the filibuster in the Senate.
JZ: Is that the only one?
BF: That’s the only one.
JZ: The last time, you talked about Trollope and you saw parallels between nineteenth-century Britain and contemporary America—
BF: In legislating.
JZ: Yeah, in legislating, but moving from legislating to the system itself, are there things about the American system that you think make it superior to these other systems? Or inferior?
BF: I never thought about it. But if you are running for prime minister of England and your party gets a majority on Tuesday, you’re kissing hands on Wednesday. We shortened the transition from March to January but we still have a more than two-month transition. The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it. During the critical period when the TARP was being administered, there was a vacuum of political leadership. And Obama at one point, when we were pressing him, said, “Well, we only have one president at a time.” I said I was afraid that overstated the number of presidents. We had no president. I would, I’d give them a week.
JZ: That long a transition?
BF: I’d give them a week, yeah.
JZ: When you were talking about the Republicans and not being able to work with them. But it’s the voters who reward that behavior.
BF: I’m glad you said that, you’re very smart. These days in developed countries, everybody says you need a private sector to create wealth, you need a public sector to create rules by which wealth is created. Sensible people understand that. Let me read this to you. [Picks up copy of Hayek’s The Road to Serfdom.] “In no system that could be rationally defended would the state just do nothing. An effective competitive system needs an intelligently designed and continuously adjusted legal framework as much as any other. Even the most essential prerequisite of its proper functioning, the prevention of fraud and deception, including exploitation of ignorance, provides a great and by no means yet fully accomplished task of legislative activity. There are undoubtedly fields where no legal arrangements can create the main condition on which the usefulness of the system of competition and private property depends where, um, it’s impracticable to make the enjoyment of certain services dependent on the payment of a price, competition will not produce the services; and the price system is, um, ineffective, um, we have to resort to the substitution of direct regulation by authority where the conditions for the proper working of competition cannot be created.” [Closes book.]
JZ: Do you read Hayek a lot?
BF: For these purposes. And so we’ve had people who understand you have the private sector, you need the public sector. The tension between left and right has been where you draw that line, but it’s been a contest between people who see maybe a 20 percent overlap. For the first time in American history we have people in power now who reject that. If they knew it was Hayek, they might think, well, maybe, but they reject the public sector. That’s why we can’t work together.
JZ: But that’s what I mean about the irrationality of voters. Just how—
BF: Okay, here’s the deal. The voters voted in general, not specifically. The voters were mad at the Democrats so they voted for the tea party. They didn’t vote to cut Medicare. They voted to denounce the Democrats. I think the tea party made the mistake that I think our side sometimes makes of overinterpreting their mandate. They didn’t like them. That doesn’t mean they love us.
JZ: Do you get frustrated with voters acting with such pique: They throw out the Democrats just because they’re mad?