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Category: Politics
[digg-reddit-me]Charles Krauthammer in a typically insightful yet wrong-headed article carries out an intriguing thought experiment:
Five minutes of explanation to James Madison, and he’ll have a pretty good idea what a motorcar is (basically a steamboat on wheels; the internal combustion engine might take a few minutes more). Then try to explain to Madison how the Constitution he fathered allows the president to unilaterally guarantee the repair or replacement of every component of millions of such contraptions sold in the several states, and you will leave him slack-jawed.
I’m somewhat surprised that Krauthammer knows who James Madison is – given his reluctance to acknowledge the Constitution places any limits on executive power in the realm of national security in direct contravention of Madison’s understanding of his Constitution. But I suppose Krauthammer rationalizes that away by explaining that the Constitution is not a “suicide pact” and thus in times of physical danger can be safely stored away – but in an economic emergency, it must constrict the president as much as possible to preserve the status quo. But by exclaiming how shocked Madison would be at power politics, Krauthammer manages to make Madison out to be a naif – rather than the student of human nature and power that he was.
Still, one can rightly imagine Madison questioning how we got here. So, I will answer Madison’s hypothetical question, namely – “How is it that the limited government he constructed in his Constitution can allow the president to unilaterally guarantee the repair or replacement of every component of millions of such contraptions sold in the several states?”
Because, Mr. Madison, in 1929, with a small percentage of Americans gaining control of a large chunk of the nation’s economy, the market broke down and the government was forced to assume some partial responsibility for the well-being of it’s its citizens and to curb the excesses of the markets.
Then, in 1980, the government began reducing it’s its responsibility for the well-being of its citizens and removing the safeguards put in place to prevent another disasterous market breakdown. This led to another thoroughly undemocratic concentation of power – which the public accepted in return for the assurance that their standard of living would constantly improve. And so it was under Ronald Reagan that the government became responsible for assuring constant economic growth that would benefit all classes of society, at least a bit.
And now, that arrangement has come to a screeching halt.
Obama is proposing a new social bargain – a fact which Krauthammer recognizes. But Krauthammer sees this bargain in terms that were relevant in the 1980s – as a resurgence of the Great Society liberalism he grew to hate. But instead, Obama proposes a new market-state liberalism – in which the government accepts a responsibility to referee and more actively maintain the markets and to provide investments that are too capital-intensive and long term for corporations with their limited time horizons to finance. Obama also believes it is the government’s role to reduce the disruption and instability that the creative destruction of capitalism wreaks. The end goal is to create a more level playing field and mainly through soft government pressure prevent destabilizing concentrations of power.
Krauthammer though only sees Lyndon Johnson reborn intent on “leveling” society and reducing the inequities between the rich and the rest of us. Krauthammer explains that for Obama the “ultimate social value is fairness” – and Krauthammer means this as a bad thing. The subtlety that Krauthammer sidesteps is that Obama is in favor of fair processes rather than enforcing some pre-determined fair ends. This was the traditional position of the conservative – but it is position that conservatives have long since abdicated. Presumably when he criticizes fairness, Krauthammer believes that markets should strive for efficiency rather than fairness – but he neglects to make any case that our current market structure is efficient.
Michael Osinski described in New York magazine the logic of how money is awarded on Wall Street:
I was very good at programming a computer. And that computer, with my software, touched billions of dollars of the firm’s money. Every week. That justified it. When you’re close to the money, you get the first cut. Oyster farmers eat lots of oysters, don’t they?
This describes neither a fair nor an efficient way of distributing resources. What “conservatives” such as Krauthammer do not realize is that capitalism, like democracy, is merely the least-worst system of managing the market – and that just as democracy’s excesses must be managed, so must capitalism’s. Krauthammer does not seem to accept that the structure of governance is changing with globalization – as the nations of the world are evolving into market-states. It was the beginning of this shift that led to Ronald Reagan’s and Margaret Thatcher’s success. Although some conservatives saw these successes as a return to a pre-Great Society or a pre-New Deal America, they represented instead a shift forward, an evolution from nation to market-state. Liberals lost elections because their solutions no longer spoke to this evolved America – and they could not see the sand shifting beneath themselves. They were stuck in the past.
But now – as Niall Ferguson has admitted – it is only the liberals who are providing a coherent answer to the challenges we face.
Krauthammer – like far too many conservatives today – is stuck pretending we face the challenges of the 1980s all over again. Until conservatives like him notice the sand shifting beneath them, they will have little to offer. As a well-functioning democracy requires at least two functioning political parties, I hope they get their heads our of the sand sooner rather than later.
[digg-reddit-me]A thought-provoking essay by Liam Julian in the Hoover Institution’s Policy Review explores the relationship between Obama and Reinhold Niebuhr. The essay unsurprisingly concludes that Obama failed to learn the essential lesson of Niebuhr (unsurprising because it appears in the far-right Policy Review) – namely that:
[M]an must act forcefully but humbly and free from naïve expectations.
Julian explains the appeal of this Niebuhrianism as a kind of balancing act:
[Obama] is a liberal, as was Niebuhr, and idealism smolders within even the most sensible liberals. The point is not to suffocate the idealism but to control its flames…
The conservative Julian sees Obama flaming idealistically in his first few months in office because any liberalism is too much for him. But E. J. Dionne – like most liberals – sees Obama as constantly balancing opposites, attempting to control the risks associated with progress while not yielding to a reactionary politics:
That’s the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.
The Obama enigma is about balancing opposites. It is an idealistic pragmatism, a conservative liberalism. This constant balancing is inherent in every aspect of the Obama administration. As James Surowiecki observes in the New Yorker with regards to the banking crisis for example:
[T]he Administration is trying to do two things at once. In solving the current crisis, it’s partnering with Wall Street, using the existing system to try to stabilize the economy. But in thinking about the future it’s trying to use hostility to Wall Street to bring about serious changes in the system. This is quite a balancing act: let’s hope the Administration can pull it off.
Categories
Orwellian Tactics
According to an article in the Guardian, Clive Stafford Smith and his colleague Ahmed Ghappour wrote a letter to President Barack Obama asking him to reconsider the American stance on releasing information related to their client’s detainment at Guantanamo. Smith, who has some level of American security clearance, attached a memo to this letter which included some information which he had gleaned due to his security clearance – and so he submitted the memo to a privilege review team at America’s Department of Defense for clearance.
[T]he memo was redacted to just the title, leaving the president unable to read it. Stafford Smith included the redacted copy of the memo in his letter to illustrate the extent to which it had been censored. He described it as a “bizarre reality”. “You, as commander in chief, are being denied access to material that would help prove that crimes have been committed by US personnel. This decision is being made by the very people who you command.”
The privilege team argue that by releasing the redacted memo Reprieve has breached the rules that govern Guantánamo lawyers and have made a complaint to the court of “unprofessional conduct”.
The Guardian has posted the full letter here (pdf).
If the privilege review team is successful in pressing their complaint, Stafford Smith will be receive a six-month prison sentence. Unfortunately, the privilege review team has not yet identified what rule was supposedly breached.
Former CIA operative and current thriller writer Barry Eisler as interviewed by Scott Horton:
[T]orture is also an excellent way to get the subject to confess to anything at all, which is why it was a wonderful tool for the Spanish Inquisition and for the secret police of assorted totalitarian regimes. But if the goal is to produce accurate, actionable intelligence, torture is madness, as Alexander argues in his book, How to Break a Terrorist: The U.S. Interrogators Who Used Brains, Not Brutality, to Take Down the Deadliest Man in Iraq. To paraphrase Oscar Wilde, torture is worse than immoral: it’s tactically stupid. It produces false confessions, which can be used to confirm mistaken suspicions and even outright policy fantasies; it instills an insatiable thirst for vengeance in most people who are subjected to it, and so creates new, dedicated enemies; it permanently brutalizes its practitioners; and it cuts us off from intelligence from the local populace because so many people will refuse to inform on someone if they fear he’ll be tortured. [my emphasis]
Bush’s use of torture in the War on Terror demonstrated this amply – for example in the contrasting stories of Abu Jandal and Ibn al-Shaykh al-Libi.
There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.
I mention this as I’m working myself up to read Atlas Shrugged soon. Stephen Colbert, among others, piqued my interest.
[digg-reddit-me]Simon Johnson’s article in The Atlantic Monthly continues to generate attention and controversy. His thesis is essentially this:
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.
But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. [my emphasis]
My only worry about Johnson’s argument is that he portrays the crisis as the result of individuals’ actions. His experience with emerging economies trained him to view the “Masters of the Universe” as oligarchs corrupting politics. But what I think is going on is more insidious. The problem is not that democracy is becoming oligarchy – although this is a danger we are closer to than we realize given the escalating consolidation of wealth – it is a financial sector that has grown out of balance with the real economy. ((With again the caveat that this is not backed up as much with economic analysis but with my sense and knowledge of politics, government, and history.)) Johnson and Paul Krugman both point this out repeatedly in their work – but neither of them identifies this as the problem. They instead see this as a symptom.
They are probably right – but I have a nagging suspicion that the core of this financial crisis – and that of the Great Depression – is at root a similar imbalance between the size of the financial markets and the size of the real economy.
Fundamentally, it seems there must be a limit as to what percentage of an economy can be managed by the financial markets. Just as the centralization of decision-making in the government can lead to inefficiencies, so can the centralization of decision-making in large financial instituions. Many of these factors that Johnson and Krugman talk about – increasing income disparity, asset bubbles, solvency issues, etcetera – can easily be seen as causes and/or effects of this central imbalance.
Bob Gates in his 1996 memoir From the Shadows:
The White House is a poignant place. I spent more years working there than any President but Franklin D. Roosevelt. And it seems to me that for those who live and work there, if they are completely honest with themselves, with rare exception the most vivid memories are not of victory but of crisis and defeat — and, for a fortunate few, of one or two occasions of historical importance. This is why character counts for so much in a President. In the White House, the elation of victory is fleeting and the burden of responsibility is enduring.
Prefacing my thoughts on economics, as always, with the warning that I am not an economist, but only an amateur…
My non-professional observation is that when a disproportionate amount of money is controlled by the financial sector, a crash soon follows. This observation isn’t original. As Paul Krugman observed a few days ago in the New York Times:
After 1980, of course, a very different financial system emerged. In the deregulation-minded Reagan era, old-fashioned banking was increasingly replaced by wheeling and dealing on a grand scale. The new system was much bigger than the old regime: On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s. By early last year, the Dow contained five financial companies — giants like A.I.G., Citigroup and Bank of America.
Krugman concludes that this structural issue is at the root of the problem – rather than a liquidity issue with the banks:
I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.
Simon Johnson, an economist formerly with the IMF, agrees with Krugman in a long piece in The Atlantic Monthly, and he echoes another point I’ve been making:
Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail.
Reading both of these men, I find myself hoping they are wrong while sensing that they are at least partially right. Evan Thomas of Newsweek captured this balance nicely in his cover piece from the current issue:
If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he’s wrong, and you sense he’s being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking.
At the same time as Establishment defenders such as Robert Samuelson are uneasy about the scope of what Obama is proposing, other members of the Establishment are uneasy that he may not be doing enough. We don’t know who is right.
To some extent we can discount Krugman’s opposition due to his personal fantasy of how his life might work out:
Krugman says he found himself in the science fiction of Isaac Asimov, especially the “Foundation” series—”It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, ‘See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism’.”
His critique of Obama’s plans seems to follow this model – as his warnings take on more prophetic tones.
But there is real intellectual weight to this theory of the financial crisis as something more than a liquidity or confidence crisis. Krugman outright rejects this explanation:
[T]he banks [are] really, truly messed up: they bet heavily on unrealistic beliefs about housing and consumer debt, and lost those bets. Confidence is low because people have become realistic. [my emphasis]
In other venues, Krugman describes the problems as extending far further than this – as above when he discusses the trend towards increasing the influence of American finance and increasing income disparity. This stands on contrast to the approach of both Hank Paulson and Tim Geithner who believe that the crisis is primarily one of confidence. They are treating the crisis as a more technical and esoteric version of a bank panic solved by a show of strength, as for example, the Panic of 1907:
Shipments of gold were on the way from London to New York, and confidence had returned to the French Bourse, “owing,” reported one paper, “to the belief that the strong men in American finance would succeed in their efforts to check the spirit of the panic.” During a panic, confidence is almost as good as gold.
Today, the government has taken the role of “the strong men in American finance” who are seeking a show of strength to boost confidence.
On the one side, you have economists – from Simon Johnson to Paul Krugman to Nouriel Roubini – who have been predicting doom for some time claiming that there are fundamental problems with our finance industry – and as a result of the size and influence of our finance industry – our entire economy. On the other you have men and women with power – in both finance and government – who are acting as if the problem is mainly one of a lack of confidence and a broken mechanism.
My bet – based in no small part on my innate optimism as well as a respect for people on both sides of this debate – is that in the short term, the Geithner plans will work to restart the “old” economy. In this moment before that happens though, pressure from Europe and internal critics as well as a desire to avoid a repeat of this fiasco will enable enough forward-looking, gradualist regulation and legislation to correct the long-term problems with high finance. Already, there are some signs that this is what is happening.
[digg-reddit-me]Contra this tirade which the Drudge Report is somewhat inexplicably promoting. (Inexplicable because it seems like such a fluff story of Hollywood conservatives elites.)
Joe Campbell (me) is not afraid to come out and say he doesn’t like how Angie Harmon is insinuating Barack Obama is accusing people of racism — but he’s sick of having to defend himself from being deemed a sexist.
“Here’s my problem with this,” I quote myself, “I’m just going to come out and say it. If I have anything to say against Harmon it’s not because I’m a sexist, it’s because I don’t like what she’s saying and anybody should be able to feel that way, but what I find now is that if you say anything against her you’re called a sexist,” Campbell told a reporter for 2parse.com, the esteemed blog. “But sexism has nothing to do with it, I don’t care what genitalia she has or doesn’t have – or what gender she identifies herself as. I’m just not crazy about what she’s saying. I mean – I understand Obama has been in office for 69 days so it’s hard to understand how he hasn’t accomplished everything he promised he would. He only has about 1,400 days in office. I know he said he’s gonna do that and change and change, so okay … but he’s still got some time. There’s still a recession over here, woman, and you clearly don’t know what you’re talking about when you say that “we’ve got unemployment at an all-time high” (Unless you mean “all-time” since after Reagan was president.) If I’m going to disagree with Angie Harmon, that doesn’t make me a sexist. It has to do with the fact that she sounds like an uninformed dolt. If I was to disagree with W, that doesn’t make me sexist. It has nothing to do with it, it is ridiculous.”
When asked to provide any examples of the accusations of sexism that provoked this tirade, Campbell finally fell silent.
Angie Harmon has also neglected to provide any examples of accusations of racism.
Unfortunately, Matt Drudge has only been promoting one of these stories, so the unfounded allegations of charges of sexism insinuated by Campbell will not gain as large of an audience as the unfounded accusations of Harmon.
Campbell admitted though that the fake umbrage-taking in the media circus was entertaining, even if it detracted from the overall political discourse. “But I get to promote myself!” he said.
[Image courtesy of Bristol Motor Speedway and Dragway licensed under Creative Commons.]