Posts Tagged ‘Ron Paul’

Theories of the Financial Crisis: The Government Did It!

Thursday, May 7th, 2009

The first person out of the box promoting the idea that the current financial crisis was actually caused by the government (specifically Democrats in the government – and even more specifically Barack Obama) was Rush Limbaugh. On the day Lehman fell (this crisis’s equivalent of September 11), Rush Limbaugh was already trying to exploit it for partisan gain – claiming “Capitalism Isn’t the Problem: Government Caused This Crisis.” On this date of crisis, Limbaugh had already unveiled in a near-complete form what was to become the Republican party’s position on the crisis. He embraced positions that had previously been associated with the Austrian School of Economics – but without much of the ideological baggage they had with them. He only embraced as much of them as was politically convenient – and he applied them only so far as they made Democrats look bad. He also began blaming Barney Frank for this crisis – something which many other right-wingers picked up on. Though I for one find it hard to see how this person who was a member of a Congressional minority had so much power to influence the entire economy and cause this severe crisis and the causal chain has never been made clear. At least to me.

Within a few days of the near-collapse of the financial system – with the crisis still causing panic – Limbaugh was already trying out names he could use to brand the crisis – from the “Democrat-Caused Financial Crisis” to the “Obama Recession.” None of them quite caught on as most people with common sense found it hard to blame Barack Obama for a crisis that occurred before he had won the presidency. But the right faithfully repeated this meme. (It has often seemed to me that Rush Limbaugh – with his vast influence via memes and love of pranks – is a forerunner of and competitor to 4chan.)

I need to say two things going into this: (1) for my analysis, I am merely standing on the shoulders of economists more knowledgeable than I – when it comes to economics especially, I am – clearly – just an interested amateur; and (2) I came to this issue biased against this theory of the financial crisis – although not with my mind closed to it. The best expression of why I started out biased against this idea is probably the analogy Tyler Cowen used while debunking it. Cowen invoked the legal principle of the “thin skull” - in which someone at fault is considered responsible for all the damage caused by their actions, even if a person without a thin skull would not have been seriously hurt by such damages. For example, if you were responsible for a car accident and the other party was injured seriously as they had a thin skull which was damaged much more than a normal skull when it banged into the side window, you would be responsible for even the extraordinary damages resulting from that individual’s medical condition. Cowen explains that those seeking to blame the government for the business cycle and/or the current economic crisis:

…are postulating a very thin skull for markets and then blaming government for the disaster which results from government’s glancing blow to that skull.

A surprising amount of the debate over what caused the current crisis centers around the causes of and solutions to the Great Depression. The reason for this is not because there is widespread disagreement about this among historians or economists – but because the Republican party has embraced recent revisionist histories to make their case against the current intervention. The traditional understanding – between Keynesian and members of the Chicago School is that the Great Depression was made worse by the application of variations of this “thin skull” theory – as Herbert Hoover heeded advice to do little or nothing to combat the financial crisis – preferring to allow the market to fix itself. As Paul Krugman describes (from a 1998 Slate column):

The hangover theory can do real harm. Liquidationist views played an important role in the spread of the Great Depression—with Austrian theorists such as Friedrich von Hayek and Joseph Schumpeter strenuously arguing, in the very depths of that depression, against any attempt to restore “sham” prosperity by expanding credit and the money supply.

But Amity Shlaes authored a recent history of the Great Depression to dispute this traditional understanding which had made her a hero of Republicans everywhere who have begun to cite her book more often than the Bible – almost. Shlaes passes herself off as an intellectual, but seems to be as partisan as Paul Krugman on his worst days. And her understanding of economics is quite shallow compared to the Nobel prize winner’s. Jonathan Chait in The New Republic took on Shlaes book – pointing out the holes in Shlaes revisions – how she attempted to blame liberalism for causing the crisis despite the fact that liberals had been out of power for the eight years before the depression started – and for the first three years after. She manages to pull this off by claiming that Herbert Hoover was a secret liberal interventionist – and blames Hoover’s meager attempts to stop starvation for undermining the recovery that her ideology maintains was imminent. Shlaes also fails to account for how we finally got out. As Chait explains:

[T]he classic right-wing critique fails to explain how the economy recovered at all. In one of his columns touting Shlaes, George Will observed that “the war, not the New Deal, defeated the Depression.” Why, though, did the war defeat the Depression? Because it entailed a massive expansion of government spending. The Republicans who have been endlessly making the anti-stimulus case seem not to realize that, if you believe that the war ended the Depression, then you are a Keynesian.

James Glassman’s influential arguments (in some circles) against any stimulus plan seem to have been inspired mainly by Shlaes’s flawed history.

Today’s crisis appeared at first glance (to most economists and us less enlightened citizens) to have been caused not by government interference but by private bankers controlling vast sums of money taking dumb risks with little government oversight. In time, other factors have come to the forefront, but this basic explanation seems right. Yet right-wingers and the Republican party continue to insist that government intervention was the cause – often out of what they see as a political necessity.

But on the other hand, there are some who seem to have less of a partisan interest in blaming the government for this crisis – and have embraced the Austrian School of Economics out of conviction rather than temporary partisan gain. Ron Paul, for example, blames both Democrats and Republicans for causing this mess. He seems to accept this “thin skull” logic and he has become an influential proponent of the Austrian school of economic thought. This school had its heyday in the 1920s as a result of Hayek, Mises, and others grappling with the issues of that time and perhaps most importantly discovering the business cycle. But this theory was largely abandoned as many saw it as responsible for worsening the Great Depression – as during the first years of the crisis, portions of the Austrian School’s prescriptions were tried. The theory was largely developed before the invention of central banks and while currency was still on the gold standard – but it had important insights in its time. Contemporary proponents such as Ron Paul tend to blame the changes to the financial system created to manage the boom-and-bust business cycle for causing the boom-and-bust business cycle. Yet this cycle has been part of capitalism since it’s inception – and has been managed since Great Depression by central banks and others using Keynesian theory and its successors relatively successfully. 

The appeal of this Austrian School of though though – aside from the partisan appeal for Republicans who are allowed to blame everything on liberals – is a moral one. It functions as a kind of religion-like palliative, telling a comforting story of sin and redemption. The Austrian business cycle tells of a recurring morality tale in which virtue is corrupted, until the sin of easy credit leads to the fall of the system. Then, the Market cleanses the world and virtue is restored to it’s proper place. The proper role of the economist in this is to act as a kind of priest – urging the people to stay true to this belief system in the face of adversity – to keep their faith that eventually the god of the Market will make everything better.

This fits well with the religious right of the Republican party – and perhaps this is why despite the theory’s rejection by most mainstream economists as outdated, it is gaining adherents among the Republican party, including the “rising star” Michelle Bachman.

[Image licensed under Creative Commons courtesy of elandru.]

The Populist Party Blog

Thursday, January 29th, 2009

On what seems to be the official Populist Party website, they are taking “Oh Bomb Uh” to task for launching a war without consent of Congress:

Even though he swore the oath twice, Barack Obama is in violation of the Constitution of the United States of America, Article 1, Section 8, Clause 11 which states that only Congress can declare War.

What they are referring to is the launching of military strikes against what they would call “alleged” Al Qaeda bases in Pakistan. What confuses me of course is that he starts out by quoting Ron Paul saying that to use the word, “War” in regards to attacking terrorism has no meaning – and that “You can’t have a War against a Tactic.” But if that’s the case, then how is what Obama doing a war?

And for that matter, Congress has not formally declared war since World War I. Which would make any military action – in Afghanistan, in Iraq, in Somalia – seemingly anywhere – also contrary to the Constitution. Of course this is a unique reading of the Constitution, but this is how the Populist Party can claim to represent “the people” – they know as much about the Constitution as the least of all people.

Choose a side and stick to it Populists!

N.B. Can anyone at all make sense of how any of this evidence backs up the initial claim in this paragraph. For the life of me, it just doesn’t make sense. The evidence he cites is interesting – but does nothing to prove his point:

Although it is sacrilegious, some commentators are even claiming that Al-Qaeda does not exist. Their evidence? Just well-documented interviews with a key Oh-Bomb-Ah foreign policy advisor, Zbigniew Brzezinski, and footage of him extolling a bunch of muhajideen to fight for their god before the Soviets even invaded Afghanistan.

Overall, it’s nice to see the Populist Party has a blog. But they should work on the content a bit.

Jesse Ventura vs. The Black Swan

Sunday, September 7th, 2008

[Jesse Ventura, former professional wrestler and governor of Minnesota, speaking at Ron Paul’s Liberty Rally in Minneapolis last week. For the rest of this Jesse Ventura’s speech, check out Fora.tv.]

You certainly didn’t see this in the mainstream media.

I don’t agree with Ventura’s points completely – but he makes a very compelling case for libertarianism. He does it by avoiding subtlety and going for the jugular – which is what you’d expect of gladiators in either politics or professional wrestling.

He speaks to the tremendous anger at our current political and economic system – the anger tapped by Ron Paul in his presidential run.

Barack Obama stands for the hope that our current political and economic system does not need to be overthrown in a revolution, but instead can be ameliorated through gradual and focused change. For example, if the middle class is being squeezed – then give them tax cuts, and ensure that they can get health insurance, and attempt to create new green collar jobs in America.

Ron Paul (and Jesse Ventura) both stand for the anger and revolutionary impulse to overthrow the existing order. Revolution is a word both Ron Paul and Jesse Ventura use in their respective books prescribing what we need to do. Ron Paul for example preaches the reinstitution of the gold standard, the abolishment of the Federal Reserve, and other revolutionary measures. These men have little time for such tinkering as Barack Obama proposes within our current system. As such, they see him and John McCain as equally part of the problem.

That’s where I have to part ways with these two men. I admire them and their passion. But I mistrust any ideology to give me all the answers. As for tinkering – I think, in many ways, that is the best we can do.

Nassim Nicholas Taleb, a scholar who predicted the latest financial crisis, speaks of “tinkering” as the ideal form of change because we shouldn’t “disturb complicated systems that have been around for a very long time [as w]e don’t understand their logic.” As Brian Appleyard described Taleb’s views in the Sunday Times:

Taleb believes in tinkering – it was to be the title of his next book. Trial and error will save us from ourselves because they capture benign black swans. Look at the three big inventions of our time: lasers, computers and the internet. They were all produced by tinkering and none of them ended up doing what their inventors intended them to do. All were black swans. The big hope for the world is that, as we tinker, we have a capacity for choosing the best outcomes.

“We have the ability to identify our mistakes eventually better than average; that’s what saves us.” We choose the iPod over the Walkman. Medicine improved exponentially when the tinkering barber surgeons took over from the high theorists. They just went with what worked, irrespective of why it worked. Our sense of the good tinker is not infallible, but it might be just enough to turn away from the apocalypse that now threatens Extremistan.

By this logic – revolution is dangerous because it fully commits us to a change, a change which can result in enormous negative consequences. The American Revolution was a kind of beneficial black swan – that ended up producing a unique, stable, and free form of government. The French Revolution on the other hand unleashed a Reign of Terror and totalitarianism – all justified with the same values as the American Revolution. Tinkering allows us to experiment and see what works best and to adopt those measures that work best. It is precisely this determination to tinker that imbues Obama’s plans – from health care to energy policy to education. It’s why Obama’s health care plan works with the current system, creating incentives to fill gaps, rather than mandating an overhaul as the Clintons attempted in 1992 or attempting to push everyone out of the current system as McCain proposes now.

I admire Jesse Ventura for his inspiring rhetoric – and we always need scourges who point out how our society fails to live up to it’s ideals. But if there is anything redeemable in America, if there is any hope that through some determined tinkering we might make things better, then revolution is not yet the answer. Barack Obama and John McCain are not equally part of the problem. Obama seeks to tinker with our economy and government to protect the middle class and to soften the jarring forces of globalization; John McCain seeks to double down on Bush’s policies based on an ideological faith that markets will, on their own, produce goodness and light.  Although Jesse Ventura doesn’t know it, he’s fighting the Black Swan – that knowledge that we do not understand the world as well as we think we do, and revolutions fail far more often than they succeed. That’s why we need a tinkerer in the White House come January 2009 – and not yet another ideologue.

(more…)

The Ron Paul Revolution

Thursday, May 22nd, 2008

It’s becoming more and more clear between Bob Barr’s Libertarian bid for the presidency and Ron Paul’s continued campaign that George W. Bush has done more than almost any political figure to resurrect the libertarian movement.

The energy motivating this movement is still there, seeking an outlet, even as Ron Paul’s campaign has been stymied. This libertarianism will be disgusted by McCain’s visions of an American empire; and it will not be satisfied with Obama’s pragmatism, though some may hold their nose and vote for who they see as the lesser evil. The assimilation of libertarian ideas into the mainstream Democratic party 1 will not be able to satisfy the revolutionary and vaguely anarchist2 goals of this movement.

While libertarianism is necessarily mainly concerned with process, the Ron Paul Revolution, and most of the rest of the animating forces behind libertarianism today are more ideological. It is this focus on ideology, on radicalism, on a refusal to compromise that leads me to reject libertarianism proper, even as I remain sympathetic to many of its basic ideas.

What I share with more ideological libertarians today is a sense that our nation has gone far astray from it’s founding ideals – that though George W. Bush has in many ways made this problems worse, the problems go far deeper than a single two-term presidency. The problems are systematic. That’s why I feel the appeal, the pull, the emotional release of revolutionary fervor motivating the libertarian movement today:

But I also am wary of such emotionalism. The martial beat is appealing, but dangerous from a historical point of view.

Jonah Goldberg and many other conservative pundits have talked about the “fascist” potential of Obama’s campaign. They see hundreds of thousands – millions – of people motivated and inspired. They are afraid and have been trying to paint Obama as a demagogue – perhaps to justify their own loathing of him. But Obama has refrained from inciting people’s fears or darker passions; he has called on people to hope and to act to create a better tomorrow. Historically, fascism has had an ugly element to its appeal – as it stirs nativism and unthinking jingoism to achieve it’s ends. This is not Obama’s approach.

This was the approach of Ron Paul, Lew Rockwell, and many other libertarians during the 1990′s as they sought to try everything to win some power to reverse the crisis they saw as imminent. As these libertarians adopted the tactics of fascists, they became even more marginalized.

Ron Paul’s campaign today succeeded because it avoided such tactics – and because the presidency of George W. Bush has demonstrated to many both how corrupt both parties are and how endangered our liberty has become. But what was evident both then and now is that ideology is the motivation behind the changes they seek. That is why Ron Paul was willing to use race-baiting as a tactic – because achieving a libertarian revolution was worth the price. That is why Ron Paul’s opinions are so simple, appealing, and revolutionary – because they are based on ideology rather than reality. The appeal of these ideas today comes from the fact that the libertarian ideology is such a relief from the neo-conservative and neo-liberal ideologies of the past sixteen years.

But what is needed is neither of these neo-ideologies. What we need is pragmatism and activism at all levels of our society. To accomplish this, we need what Lawrence Lessig has called a “process revolution.”

And that is why I support Obama.
(more…)

  1. The ideas having gained prominence in a large part due to the ascendance of Mountain West as a potential Democratic stronghold. []
  2. Which is an unfair characterization of many libertarians, but the tendency towards anarchism does color the movement as a whole. []