Categories
Economics Financial Crisis

The Mechanics of the Market Versus the Morality of the Market

[digg-reddit-me]A rough draft of a thought:

There is a substantial difference in how many people view the market today that this financial crisis has brought out into the open. Some view the market primarily in moral terms – on both the left and right. Others view the market in mechanistic terms.

You can see this in the opposition of some extremists to any type of stimulus at all – believing that the market is sacred and the government an often unnecessary evil interfering in the market. You can see this in those on the left who believe the market creates fundamentally unfair situations or fundamentlly unjust processes. You can see this in the outrage many people feel at bailing out bankers, borrowers, shareholders – or anyone. In essence, those who view the market in moral terms tend to fall in two camps:

  1. Those who see blame our current crisis on the perversion of capitalist values, as people neglected to save, were pressured by the government to make bad loans, borrowed too much, were rewarded for short-term success, etcetera. (Capitalist values here mean a combination of Max Weber’s Protestant Work Ethic – diligence, hard work, and restrained expenditure among others – and libertarian values – freedom from government interference or coercion among others.)
  2. Those who see the roots of our current crisis extending back many years and blame it on the fact that capitalist values are perversions themselves. (Some of these thinkers focus on ends; the others on means. Income inequality and pollution are important issues for those who focus on ends. Government corruption by big business is a major issues for those who focus on means. These people see capitalist values as greed, selfishness, exploitation, social Darwinisn – all of which pervert our society and individual nature.)

I’m not sure everyone – or even most people – consciously take any of these positions, and I’m sure most people have contradictory perceptions. But those on the left and the right with strong opinions seem to fall comfortably in one camp or another.

On the other hand are those who see our economy as a machine. Specifically, this machine can be seen to produce something of great worth: increasing opportunity which is considered the main guarantee of societal stability. The question for those who take this approach to the economy primarily is, ‘How do we fix this?’ There is little worry about helping ‘losers’ and those who did wrong; there is no attempt to overthrow the entire capitalist system. Instead of treating the economic theory as a theological matter, they treat it as a mechanical matter. Something is gumming up the works; something is out of place. A mechanic doesn’t make a moral judgment about whether a cog or spring is doing it’s job – he does what he needs to do to get the machine running again.

As with the two types of moral judgments, many of those who are tackling this issue from a mechanical perspective also probably have moral opinions about what is going on. But they believe that fixing the machine is more important than judging who has sinned. Thus they pump money into banks that acted badly; they help bail out car companies that have been managed poorly; they help those homeowners who agreed to bad loans.

Categories
Barack Obama Economics Financial Crisis Politics

The Hypocrisy of the Traders’ Revolt

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[Click image for larger version.]

Matt Drudge seems to be cheering the call for a ‘Tea Party’ and other civil disobedience in opposition to Obama’s proposed mortgage plan.

ABCNews describes the plan as “help [for] up to 9 million homeowners facing foreclosure or struggling to make their mortgage payments.”

The plan seeks to help two groups of people as described by ABCNews:

  • First, some 4 million to 5 million families who have seen their home values drop, but are not at risk of foreclosure, would now be able to refinance into new mortgages.
  • The other group, 3 million to 4 million homeowners with adjustable-rate mortgages, would be able to temporarily have their loans modified to a lower interest rate – for at least five years.

In order to accomplish this, Obama is proposing that $100 billion be given to Fannie Mae and Freddie Mac to allow these groups to refinance the loans for those whose home values have dropped below what they owe.

For the second group, Obama is propsing that $75 billion be used to help those with predatory loans temporarily modified to a lower rate. That’s a total of $175 billion. The plan doesn’t yet have a complete budget, but these are the basics and the largest elements.

The response being promoted by Drudge and CNBC:

The government is promoting bad behavior… do we really want to subsidize the losers’ mortgages… This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama are you listening? How about we all stop paying our mortgage! It’s a moral hazard…

My emphases above. Am I the only one who finds it incredible that CNBC and financial traders are talking about civil disobedience and moral hazard and “losers” as soon as Obama proposes a $175 billion plan to directly help about 9 million Americans? Yet these same people assured us that bailing out the banks to the tune of $700 billion was necessary for financial stability – and that plan directly helped how many?

What the fuck is wrong with these people?

Edit: Apparently, the trader explained that “The trading floor is a pretty good cross section of America” as part of his justification. And of course, it’s better to help this “pretty good cross section” of rich America than to help an actual cross section of the population.

Edit again: A commenter over at reddit says that the particular CNBC host in the clip has actually been calling on mobs to go after any CEOs who take the TARP bailout money too. That removes the charge of hypocrisy from him, although not from those others who supported the bailout out to Wall Street but complain about any funds being used to fix the mortgage situation. And it still leaves the CNBC anchor, Dylan Ratigan, open to charges of pure stupidity.

Continue reading “The Hypocrisy of the Traders’ Revolt”
Categories
Baseball Criticism

Comparing Michael Phelps’s and A-Rod’s Sins

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I had a column about how A-Rod wasn’t going to be charged with anything but that Phelps probably was – but apparently the local sheriff – after 8 arrests – thought better of wasting to many resources.

This image was inspired in part by this blog post by Timothy Egan at the New York Times. Egan initially focused on those who didn’t get away with youthful indiscretions:

At least one in five people in state prisons are doing time for drug offenses. What must they think, rotting away in musty cells, hearing a president or a celebrity athlete dismiss their mistakes with the hoary line of young and stupid?

…Phelps seemed contrite in trotting out his young and stupid defense. “I’m 23 years old and despite the successes I’ve had in the pool, I acted in a youthful and inappropriate way,” he said.

More like youthful and appropriate. I have a hard time going after him for taking a hit of pot after he spent most of his life as a robo-athlete…

 

But this passage’s appropriate savaging of A-Rod is what inspired the above image:

A-Rod will likely face no legal consequences, nothing from the the toothless barons of baseball. Phelps took his hit for recreation. Rodriguez did his drug to cheat the game and himself. He lied about it. And then he blamed it all on his age and pressure to perform because of his oversized contract.

His punishment will come from the Bronx fans, brutal in their daily assessments, people who know that if they put a syringe in their arm while working with heavy equipment nobody will cut them a young-and-stupid break.

 

Categories
Barack Obama Law National Security Politics The Bush Legacy The Opinionsphere The War on Terrorism

Andrew Sullivan’s Warning Shot

I agree Andrew Sullivan and Glenn Greenwald on this:

Glenn is absolutely right to remind us that the whole point of our resistance to the war crimes of the last seven years was not to rely on our subjective beliefs about the moral integrity of a lone man in the Oval Office. It is to restore a maximally transparent, lawful and effective policy against Jihadist terrorism under the rule of law and the Constitution. Obama needs to be held to exactly the same standards as Bush. And if he thinks we will give him a pass, he needs to think again.

The point of my previous post is that Obama may agree that we must force him to be accountable as well. It is better for the coequal branches of government to check the president’s power than for these branches to defer to the president’s renunciation of certain powers.

Categories
Barack Obama Law Politics The Bush Legacy The Opinionsphere

The Games Obama Plays

[digg-reddit-me]Thesis: Obama is a systematic thinker – and given some of his clearly expressed views on the presidency – he may be setting up a situation where the other branches of government will be able to definitively limit the powers of the presidency. This is preferable to the president voluntarily renouncing powers – as it places the responsibility for checking the executive branch on the system rather than on the chief executive himself.

The Rest: In his inaugural address, Barack Obama seemed to clearly repudiate the Bush administration’s lawless approach to the War on Terror with this oft-quoted line:

As for our common defense, we reject as false the choice between our safety and our ideals.

In this, and in many other instances, Obama made clear that he would restore the Rule of Law – and that he considered himself, as president, to be subject to the law. This may seem to be a fundamental and basic understanding for any chief executive in a liberal democracy, but for the last eight years, the Bush administration advanced arguments and pursued policies as if it were not subject to the law.

Every time the Supreme Court ruled against the Bush administration, Congress passed a law to restrain the executive branch in some way,some quasi-independent parts of the executive branch opposed him –  it was always uncertain what Bush would do – whether he would simply ignore the attempts to check his power; whether he would declare the checks unconstitutional and then ignore them; whether he would secretly ignore them and prosecute anyone who informed authorities that he was breaking the law; or whether he would attempt to force Congress to pass a legislative justification for his actions. In fact, Bush at one time of another did all three of these. Obama has made clear that he not only respects the Rule of Law but considers checks and balances on the presidency to be part of the democratic process set out by the Constitution. Obama is mindful of the chief executive’s role is in this system – and that, as Gregory Craig, White House Counsel explained:

[Obama] is also mindful as president of the United States not to do anything that would undermine or weaken the institution of the presidency.

Combine this statement with Obama’s decisions regarding rendition, the state secrets privilege, and investigating abuses of the Bush administration – and many civil libertarians and critical observers of the Bush administration from Glenn Greenwald to Andrew Sullivan to Charlie Savage are preparing to be disappointed.

Let’s take a step back for a moment and postulate that Obama holds these three relatively uncontroversial and related positions that he has articulated on numerous occasions:

  1. He believes the president is subject to the law and is committed to upholding the Rule of Law.
  2. He believes that correct processes should be followed and that, “Each branch of government is balanced by powers in the other two coequal branches.”
  3. At the same time, he has little desire to use his political capital and energy prosecuting Bush administration officials.

Obama articulated these three sentiments in a response to a question by Sam Stein of the Huffington Post at his February 9, 2009 press conference:

My view is also that nobody is above the law, and if there are clear instances of wrongdoing, that people should be prosecuted just like any ordinary citizen; but that generally speaking, I’m more interested in looking forward than I am in looking backwards.

Dahlia Lithwick, another chronicler and critic of the Bush administration’s legal abuses, interpreted Obama’s statements and actions this way:

…by keeping the worst of the Bush administration’s secrets hidden, the Obama Justice Department can defer awkward questions about prosecuting the wrongdoers. In his press conference Monday night, Obama repeated his mantra that “nobody is above the law and if there are clear instances of wrongdoing, people should be prosecuted just like ordinary citizens. But generally speaking, I’m more interested in looking forward than I am in looking backwards.” The principle once again is that Obama is for prosecuting Bush administration lawbreaking only when proof of such lawbreaking bonks him on the head. All the more reason to keep it out of sight, then.

But to me, this sounds like an invitation to push him to do what is right – as FDR said to numerous audiences who came to ask him to pay attention to their issue (and here I paraphrase):

I agree with you, I want to do it, now make me do it

Supporting this, aside from Obama’s many statements on these matters, are the public opinions of many of those he appointed to key positions in the Justice Department, including the attorney general:

Our government authorized the use of torture, approved of secret electronic surveillance against American citizens, secretly detained American citizens without due process of law, denied the writ of habeas corpus to hundreds of accused enemy combatants and authorized the use of procedures that violate both international law and the United States Constitution…. We owe the American people a reckoning. [my emhpasis]

Here is where the speculation really starts though – and only time will determine if these guesses are correct. Obama, as president, does not believe it is his role to give up executive power. For one, by doing so, he is antagonizing certain elements of the executive branch that he needs to bring to his side – in the state secrets case, for example, the CIA.

Secondly, by voluntarily renouncing a power, he is in some sense affirming the inherence of this power. Bush believed he had the power to say an entire subject matter was a state secret and thus have an entire lawsuit revoked; if Obama claimed he didn’t have this power, and the Courts then ruled he didn’t, the Court would not be “checking” the president so much as deferring to the new president’s view of his own powers. However, if Obama maintains he has this power – and the Court rules that he does not – it does provide a check. If Congress passes a law restraining the president’s use of this power, it will again provide a check. Each of these scenarios provides a firmer check on presidential power than does Obama’s giving up of these powers. It places the responsibility for checking executive powers not on the President, but within the system, where it should be.

Third, Obama has a number of crises to deal with right now and realizes that there are significant elements who feel strongly about these balance-of-powers issues. What he wants then – is for those groups that are passionate about these issues to prepare the public and to force him to act on them. This way, he can preserve his political capital – and by merely responding to issues forced upon him can avoid charges of looking like he is merely out for retribution.

If this is Obama’s thinking, then we can expect him to not oppose efforts to reign in his powers too strongly – and to accept those limits once they have been legitimated by the Courts or the Congress. If this isn’t Obama’s thinking, we can still attempt to force him to act but the outcome will be less certain.

Categories
Economics Financial Crisis Foreign Policy Great Britain Pakistan Politics Russia

An Age of Upheaval? – Instability, Legitimacy, and the Economic Crisis

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[Source, page 19 of the “Global Employment Trends 2009” [pdf report by the United Nations International Labor Organization.]

Niall Ferguson, writing for Foreign Policy with foreboding sees the current economic crisis as the final element needed for “an age of upheaval”:

Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.

Certainly, around the world, the economic crisis is causing instability – as the legitimacy of many governments around the world is called into question. The constitutional legitimacy of most governments, the bargain they have made with their people, is based on a growing economy that provides for the people’s needs, and increasingly, also provides individual economic opportunity. While this “deal” was often discussed with regards to authoritarian capitalist systems such as China’s, it is also true of governments in democratic capitalist systems. Thus it makes sense that this economic crisis is a serious threat to the stability of nations throughout the world.

If, as the chart above suggests, the worst is yet to come, the current unrest is but a preview. Already though, this crisis has provoked significant concerns and serious riots. Nelson D. Schwartz described the worldwide destabilizing effects of this crisis in his New York Times piece entitled “Job Losses Pose a Threat to Stability Worldwide.” Schwartz saw the crisis as potentially more destabilizing for countries in the former Soviet bloc:

Many newer workers, especially those in countries that moved from communism to capitalism in the 1990s, have known only boom times since then. For them, the shift is especially jarring, a main reason for the violence that exploded recently in countries like Latvia, a former Soviet republic.

Meanwhile, Niall Ferguson described how the crisis is undermining one of the key stabilizing elements in Pakistan, it’s middle class:

Pakistan’s small but politically powerful middle class has been slammed by the collapse of the country’s stock market. Meanwhile, a rising proportion of the country’s huge population of young men are staring unemployment in the face. It is not a recipe for political stability.

Patrick Hosking in The Times of London predicts that Great Britain will be hit by social unrest as well, though it certainly is not as vulnerable to collapse as Pakistan which is simultaneously fighting a civil war:

[I]t may already be too late to prevent social unrest, especially in Britain, which is tipped to be one of the worst-hit countries economically.

The spectacle of bankers continuing to award themselves bonuses while taking taxpayer support is feeding an extraordinary public rage and a fierce sense of injustice. With 40,000 people losing their jobs each month, it is a recipe for trouble, come the traditional rioting months of the summer.

Despite the fact that we have yet to come to the “traditional rioting months of the summer,” there have been large riots in Latvia, Bulgaria, Iceland, Greece, ((Greece’s riots were of course triggered by a police shooting, but it is hard to imagine they would be as intense without the instability caused by the financial crisis.)) and Russia. Russia has proven to be especially vulnerable – and as Arkady Ostrovsky of Foreign Policy explained, “The Kremlin is acutely aware that civil unrest in Russia could trigger the country’s disintegration.” He describes Putin, however, as the best of bad options:

Putin’s social contract has been based on co-opting Russia’s elites, bribing the population, and repressing the disobedient. A mixture of nationalistic rhetoric, rising incomes, and pride in Russia’s resurgence won public support. Until now, money has been Putin’s most powerful weapon. Rising incomes and a strong ruble (due to high commodity prices) have enabled Russians to enjoy imported food, holidays abroad, and foreign cars and technology. But even if the lives of ordinary people have not improved dramatically (49 percent say they have enough money for basic needs but struggle to buy much else), Russians at least felt that they had stopped sliding backward. Now things are looking bleak again…

But the chances of a liberal renaissance as a result of Putin’s social contract unraveling are highly unlikely. There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former KGB agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular. ((A side note: Ostrovsky also describes “Putin’s most damaging and possibly longest-lasting legacy…that he has played to Russia’s worst instincts. Rather than develop a sense of pride in Russia’s victory over the Soviet Union in 1991, Putin has fostered feelings of past humiliation and defeat, and subsequently a longing for retribution.”))

What this seems to add up to – short of some economic miracle – is an increasingly unstable world – as long as this economic crisis lasts. At the same time, the trend towards the decentralization of power from the United States to corporations, individuals, non-governmental organizations, and other nations – the trend from unipolarity to nonpolarity, as Richard Haas describes it – could potentially make this problem harder to solve. Regardless, it seems certain that this crisis will reshape international politics – and that America’s power to effect the shape of what is to come is significant though limited.

Categories
Colombia Mexico National Security

The War on Drugs is Making Us Less Safe (cont.)

[digg-reddit-me]I’ve been writing for some time about how the War on Drugs is both undermining our national security at home and abroad. The Pentagon, with their Joint Operating Environment Report for 2008 [pdf], confirmed this:

In terms of worst-case scenarios for the Joint Force and indeed the world, two large and important states bear consideration for a rapid and sudden collapse: Pakistan and Mexico.

The Pentagon understands that the escalating drug gang violence (with casaulty rates higher than Iraq) is destabilizing our neighbor to the south. Sam Quinones, writing for Foreign Policy, describes the changes in the levels of violence in the past four years (when he last lived in Mexico):

When I lived in Mexico, the occasional gang member would turn up executed, maybe with duct-taped hands, rolled in a carpet, and dropped in an alley. But Mexico’s newspapers itemized a different kind of slaughter last August: Twenty-four of the week’s 167 dead were cops, 21 were decapitated, and 30 showed signs of torture. Campesinos found a pile of 12 more headless bodies in the Yucatán. Four more decapitated corpses were found in Tijuana, the same city where barrels of acid containing human remains were later placed in front of a seafood restaurant. A couple of weeks later, someone threw two hand grenades into an Independence Day celebration in Morelia, killing eight and injuring dozens more. And at any time, you could find YouTube videos of Mexican gangs executing their rivals—an eerie reminder of, and possibly a lesson learned from, al Qaeda in Iraq.

The former U.S. drug czar, Gen. Barry McCaffrey, commenting on the same situation warned that:

The outgunned Mexican law enforcement authorities face armed criminal attacks from platoon-sized units employing night vision goggles, electronic intercept collection, encrypted communications, fairly sophisticated information operations, sea-going submersibles, helicopters and modern transport aviation, automatic weapons, RPG’s, Anti-Tank 66 mm rockets, mines and booby traps, heavy machine guns, 50 [caliber] sniper rifles, massive use of military hand grenades, and the most modern models of 40mm grenade machine guns.

The situation is clearly dire. Which makes last week’s report by the former presidents of Mexico, Brazil, Columbia, and other nation’s all the more significant. They see the status quo as unacceptable – and insist that we must decriminalize marijuana and stop treating the problem of drugs as a war lest we end up with nothing but failed states and military dictatorships in Latin America, or as the diplomatic language of the report states, current drug policies have”enormous human and social costs” and are “threats to democratic institutions.” In part, this is due to the “criminalization of politics and the politicization of crime, as well as the proliferation of the linkages between them, as reflected in the infiltration of democratic institutions by organized crime.” But it describes further threats arising more directly from the policies themselves.

The report describes the problem of the status quo in stark terms:

Current drug repression policies are firmly rooted in prejudices, fears and ideological visions. The whole issue has become taboo which inhibits public debate. The association of drugs with crime blocks the circulation of information and segregates drug users in closed circles where they become even more exposed to organized crime.

Hence, breaking the taboo and acknowledging the failure of current policies and their consequences is the inescapable prerequisite for opening up the discussion about a new paradigm leading to safer, more efficient and humane drug policies.

This does not mean the outright rejection of [all Drug War] policies…

There are two main strategies for combatting drugs which it describes – both of them critically – the prohibitionist strategy, or Drug War of the United States, which is reflected in Columbia, Mexico, America, and Afghanistan; and the harm reduction strategy of Europe. The report is most critical of the prohibitionist strategy. In the United States itself, the Drug War’s “policy of massive incarceration of drug users [is] questionable both in terms of respect for human rights and its efficiency.” Describing the effect of the Drug War on Columbia, the report is harsher:

For decades, Colombia implemented all conceivable measures to fight the drug trade in a massive effort whose benefits were not proportional to the vast amount of resources invested and the human costs involved…

The traumatic Colombian experience is a useful reference for countries not to make the mistake of adopting the US prohibitionist policies and to move forward in the search for innovative alternatives.

At the same time, the report finds fault with the European method of dealing with the problem of drugs, saying that:

[H]arm reduction minimizes the social dimension of the problem [and] the policy of the European Union fails to curb the demand for illicit drugs that stimulates its production and exportation from other parts of the world.

In other words, the European Union’s approach merely attempts to quarantine the problem as it exists within their own societies while doing nothing about the gang warfare and destabilization the production and smuggling of drugs means abroad. Apparently, at the same time drugs themselves are taking a greater toll on Latin America:

The levels of drug consumption continue to grow in Latin America while there is a tendency toward stabilization in North America and Europe

This collection of prominent Latin American politicians has a number of suggestions to help reverse the destabilizing effects of current drug policies. One of the most prominent is to descriminalize marijuana. While considered “the king crop” by the Mexican gangs thanks to the steady and broad market and it’s cheapness to produce (as opposed to the riskier cocaine and heroin production, sale, and smuggling), the report states that:

[T]he available empirical evidence shows that the harm caused by this drug is similar to the harm caused by alcohol or tobacco. More importantly, most of the damage associated with cannabis use – from the indiscriminate arrest and incarceration of consumers to the violence and corruption that affect all of society – is the result of the current prohibitionist policies.

Another major change in policy the report suggests is to treat “those who have become addicted to drugs” as “patients of the health care system” instead of :buyers in an illegal market.” 

As I wrote before:

The War on Drugs isn’t just failing. The War on Drugs isn’t just causing us to imprison a greater percentage of our population than any other in the world. The War on Drugs isn’t just eroding our laws and institutions. The War on Drugs doesn’t just undermine the War Against Terrorism. The War on Drugs isn’t just making our efforts in Afghanistan harder. The War on Drugs isn’t just wasting law enforcement resources, and costing America gold medals.  

No – it is also destabilizing nations right next to us.

This is what makes a reevaluation of our Drug War a national security priority as well as a civil liberties issue. The former presidents of Mexico, Brazil, and Columbia all saw hope in the administration of Barack Obama, citing him in the report, hope that he will finally tackle this long-festering issue. He may on his own – and he has made some remarks which constitute progress.

But the issue may be, to paraphrase FDR’s oft-repeated line: Obama agrees with us in principle; now we need to put political pressue on him to do something about it.

Categories
Economics Financial Crisis Politics

What Are Republican Principles Again? (cont.)

Jonah Goldberg acknowledges how the political motives of the congressional Republicans may well backfire (h/t Andrew Sullivan):

Despite their successes in the newscycle, I think congressional Republicans made significant mistakes in how they attacked the stimulus bill. First, their recently discovered hatred for deficit spending is long overdue, but hardly persuasive given the previous eight years. The disconnect between their past actions and the requirements of the present crisis lend credibility to the charge that Republicans are just being petulant and partisan.

Previous post on this subject here.

Categories
Barack Obama Financial Crisis Politics The Opinionsphere Videos

What Are Republican Principles Again?

[digg-reddit-me]Dan Akroyd joined Saturday Night Live to explain how Republicans were using this crisis to move past business-as-usual while staying in touch with the citizens they represent:

(h/t TPIP for the link. I had already seen the clip, but was fruitlessly looking for it on Hulu until I saw it on his blog.)

I must commend the Republican Party for discovering the value of fiscal responsibility, of Congressional oversight, and of Congress’s proper role as a coequal branch of government and a balance to the executive branch now that they have no elective power except a slender foothold in Congress. A few more losses in Congress and we might see the Republican Party start making the much maligned case for judicial activism – as our federal court system is filled with conservatives, despite protests to the contrary.

It seems to be part of the nature of our oppositional party structure that such ideological shifts make fools of politicians from time to time. Sometimes I think it would be better for them if we just booted them all out so they wouldn’t need to face the embarrassment of changing their opinions on how things should work so obviously based on political calculations. 

Of course, giving the lie to the Republican’s newfound financial responsibility (aside from their continued support for such expensive programs as continuing Bush’s tax cuts and funding the various imperial activities which together cost some trillions of dollars and got us in the financial pickle we are in now) is their response to the Obama stimulus plan – a tax cut plan that would expand the deficit even further:

 

At the end of the clip, that was Kimberley Strassel of the Wall Street Journal. In response to her: yes, we all did notice that there are no Republicans in charge of anything in Washington anymore. I wonder how and why that happened?

At the same time, the Republicans are now trying to make a big deal of business-as-usual in Washington – after embracing the same practices while in power. This is, of course, standard fare in itself. As Republican opinion-makers suddenly begin to decry how Congressmen and women did not have time to read the stimulus bill, I think most of us remember that infamous exchange from Michael Moore’s Fahrenheit 9/11 in which a Congressman explains why no one read the PATRIOT Act before it was signed into law:

My purpose is not to defend these practices – but to point out the hypocrisy in suddenly objecting to them. The Republicans, led by Eric Cantor, are acting with the transparent hypocrisy of an Inspector Renault:

In all honesty, I do welcome the Republicans embrace of fiscal responsibility, of Congressional oversight, and of Congress’s proper role as a coequal branch of government and a balance to the executive branch, hypocrisy and all. Their sanctimony on the subject though is hard to stomach.

Categories
Barack Obama Economics Financial Crisis Political Philosophy

A Scientific Approach To The Economic Crisis

[digg-reddit-me]There are relatively few serious political figures who argue that our economy does not need fiscal stimulus at this time – few political figures are comfortable advocating inaction while serious disruption occurs. But there are a significant minority who do take this position – including, it seems likely, some number of Republicans who though publicly are not advocating this extreme course, position themselves to oppose what Obama is doing in whatever ways are feasible.

The majority of Republicans in power seem to advocate stimulus by enormous tax cuts while railing against deficit spending (although the proposed tax cuts cost more than the proposed spending). This piece does not address their concerns – although independent, non-partisan Congressional Research Service did – explaining why the economic consensus was that tax cuts stimulated less and less quickly than spending – and I will address them again later today. A significant number of other Republicans simply have a bad feeling about the stimulus and are looking for which approach best suits them to oppose it.

For those who do oppose any form of stimulus, James K. Glassman’s article in Commentary has proven to be a rallying cry. But it has also provided ammunition to many others who seeking to oppose Obama by any available means. Cited by House Minority Leader John Boehner and many others, this article has found a large audience despite Glassman’s previous infamous prediction (as an author of Dow 36,000) that the stock market was undervaluing companies in 1999 at the height of the tech boom. I addressed some of the questionable historical claims Glassman made to build his case in an earlier post, but now I’m going to address his broader, more basic argument.

Glassman makes two points which leads him to label fiscal stimulus a folly repeated throughout recent economic history:

  • Economics is a limited profession and we can never quite understand the market enough to affect it the way we intend to; which is why, “Government simply cannot know enough to direct an economy successfully.”
  • “Meanwhile, left alone, what Hayek called ‘spontaneous order’ will find its way forward;” meaning the market is self-correcting as long as the government does not interfere.

The inherent contradiction is obvious. If we do not understand the market enough to affect it deliberately, how can we predict how it will act. If economics is such a limited profession that it cannot provide us with enough information to affect the economy in any predictable way, how can we trust an economist’s presumption to do nothing? The market – as Glassman describes it – is a kind of god who we must have faith in. Letting our economy slide deeper into recession while taking no is the economic equivalent of a “leap of faith.” Given this understanding, economist are little more than priests of the free market – who cannot predict or effect their god’s will – but whose job is to assure us that this god will bless us eventually with plenty in its own good time, but only if we trust it and restrain sinful (government) interference.

But Glassman then says something extraordinary given the two above statements and the inaction he is advocating now:

[I]n the 1930’s, “something in the normal regenerative process was missing.”

He doesn’t offer an answer to this – but the economist he derides throughout, John Maynard Keynes, does.  My meager understanding of Keynes suggests he believed the economy, like an engine, would need to be primed from time to time to prevent it from stalling – and he saw the best means of doing this as stimulus spending. The spending boom of the Second World War, for example, can be seen from a Keynesian perspective, as finally getting the world economic engine started again.

Obama however seems to have incorporated Hayek’s admonition that he “cannot acquire the full knowledge which would make mastery of the [economic] events possible” with a cautious Keynesianism. For those who believe that grand challenges such as possible financial collapse demand a grand ideological vision, Obama’s approach will disappoint. But the kernel of wisdom in Hayek (as well as many other truly conservative thinkers) is that grand visions are as likely to fail as minor tinkering projects – except when they fail, they will cause far more damage than the tinkering. 

Obama’s approach to the crisis is in this mold; some call his bill too cautious and too small; some call his stimulus bill an ideologically mixed up mash with a little of everything; some are frustrated his bailout approach focuses more on process than results. But all of this makes sense if Obama is approaching this crisis as a tinkerer. 

Hayek believed that the economy was a mysterious thing and that, to quote another philosopher/economic thinker, we shouldn’t “disturb complicated systems that have been around for a very long time [as w]e don’t understand their logic.” This other thinker, Nassim Nicholas Taleb, believes that if we must act, we should “tinker” to use his word. As “[w]e have the ability to identify our mistakes eventually better than average,” we can avoid the worst outcomes, and potentially latch onto the best innovations:

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…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.

Instead of the paralysis and faith preached by Hayek, Taleb offers us a path forward – one of action tinged with doubt, of trial and error, of identifying mistakes quickly, of evaluatinr results honestly. His approach to economics is, at its base, science, in it’s most basic and primitive form. 

This seems to be the approach Obama is taking – pragmatic, cautious, aware of the wisdom of both Hayek and Keynes. He’s tinkering. And that’s exactly what we need.