Monthly Archives: March 2009

Healy on the Cult

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Great stuff by Gene in The Washington Examiner:

Obama “walks into a room and you want to follow him somewhere, anywhere,” George Clooney gushed to Charlie Rose.

“I’ll collect paper cups off the ground to make [Obama’s] pathway clear,” Halle Berry recently told the Philadelphia Daily News, “I’ll do whatever he says.” (Does Michelle know about this?)

Hollywood stars aren’t known for their political wisdom. More disturbing is how starstruck the mainstream media has become. Hardball host Chris Matthews isn’t the only one who gets a “thrill” up his leg at the very thought of our new president.

Last summer, San Francisco Chronicle columnist Mark Morford wrote that “Many spiritually advanced people I know … identify Obama as a Lightworker, that rare kind of attuned being who … can actually help usher in a new way of being on the planet.”

The Politico recently ran a 900-word article entitled “The Power of Obama’s Hand,” reverentially describing how the president “uses touch to control and console simultaneously,” laying hands on supporters and opponents alike.

And in February, author Judith Warner used her New York Times blog to confess that “The other night I dreamt of Barack Obama. He was taking a shower right when I needed to get into the bathroom to shave my legs.”

Instead of keeping that information to herself, Warner “launched an email inquiry,” which revealed that “many women—not too surprisingly—were dreaming about sex with the president.” Those of us who like to point out that the Emperor has no clothes now have to worry that when we do, we may give rise to a new round of lurid cougar fantasies.

Don’t worry, team players: Gene goes on to mock right-wingers’ equally grotesque G.W. Bush flightsuit fantasies. The general point is that people who care about freedom aren’t made humid by oft-televised public administrators.

Are We Flirting with Fascism?

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Folks are loose with ‘fascism’. The cops are fascists because they’re cops. Bush was a fascist because he blew new life into the military-industrial complex and herded protesters into “free speech zones.” And now, Obama is a fascist for sacking the executive of a private corporation and saying the government will back the warranty for your Yukon Denali. Is this fascist?

Fabio Rojas says no. He says fascists want to control capitalism, “but mainly as a tool for nationalism and clientelism, rather than redistribution.” He goes on:

Instead, we’ve got “quarterback capitalism.” The idea is pretty simple: don’t challenge the major features of capitalism, but opportunistically fix what you can with buy outs, loans, subsidies, and other ad hoc interventions. Reminds me of the great quarterback Randall Cunningham, who could scramble his way out of any mess. The idea behind Bush-Obama policy is that what ever mess you’ve got, you can probably fix with the right hodgepodge of incentives. The Federal government is the nimble quarterback who can get you out of the squeeze.

With regard to GM, Obama didn’t do what the fascists actually did – which was to make everyone dependent on the state so they could engage in militarism. Basically, the current strategy is to do what one can to save the financial and manufacturing infrstructure of United States, but not in ways the challenge the underlying structure. Better regulations for banks; new management for the auto people; a little help for homeowners. For GM, it was pushing out old management in exchange for money, a typical move in the private sector. Whether this is good is certainly for debate, but it certainly isn’t a return to fascism, socialism, or laissez-faire economics.

Sheldon Richman’s Concise Encyclopedia of Economics entry says:

Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, fascism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it. (Nevertheless, a few industries were operated by the state.) Where socialism abolished all market relations outright, fascism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, fascism controlled the monetary system and set all prices and wages politically. In doing all this, fascism denatured the marketplace. Entrepreneurship was abolished. State ministries, rather than consumers, determined what was produced and under what conditions.

If Sheldon’s right, it’s hard not to see the U.S. moving in a fascist direction. The government is indeed in the business of setting some prices and wages politically, which is troubling. But it’s pretty clear that we’re still pretty fully in the “mixed economy” mode. As Richman writes:

Fascism is to be distinguished from interventionism, or the mixed economy. Interventionism seeks to guide the market process, not eliminate it, as fascism did. Minimum-wage and antitrust laws, though they regulate the free market, are a far cry from multiyear plans from the Ministry of Economics.

Yet I think it’s clear that we are in fact seeing fascism in vitro, though I don’t think that’s anyone’s intention. Nevertheless, we’d better swallow some gunpowder pretty quick. Like Tom Palmer, I find it extremely troubling to see Barack Obama talking like he personally looked over the GM situation and finally made some decisions because that’s obviously his job, to be the decider, and because the managers of private corporations can’t possibly do the right thing. It’s a very, very, very bad precedent. Tom says:

I was so happy to see the back of George W. Bush and his administration, with their disregard for the Constitution, foolish and unnecessary war, attempt to subvert habeas corpus, reckless spending, and overall arrogance and disregard for limits on power. His successor has decided to follow even more carefully the examples set by Benito Mussolini and Vladimir Putin, and has sacked the head of a company. That is a decision for the shareholders of a private firm to make, not for the head of state. What next? Will private firms end up in the hands of friends of the president? Will the White House Chief of Staff serve simultaneously as head of a major state-directed company? Will journalists who criticize the president end up shot in the head in elevators?

I predict that the answer to Tom’s three concluding questions will be “no.” That doesn’t mean they don’t need to be asked. It happens, and it can happen here. Asking these questions helps ensure the answers will be “no”, prepares us to stand up against overweening power. But it ought to make you a bit sick that it has become  necessary to say that, no, the President doesn’t run everything. Perhaps we’re getting “quarterback capitalism” and not yet “fascism,” but it’s still pretty troubling to anyone with a liberal bone in his body.

Dani Rodrik on Simon Johnson

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Of Johnson’s widely cited and highly regarded Atlantic piece, Rodrik writes:

Simon’s account is based on a very simple, and I believe misguided, theory of politics and economics.  It is an odd marriage of populist and technocratic visions.  Countries fail because political elites always end up in bed with economic elites.  The solution, apparently, is to let the technocrats (read the IMF) run your affairs.

On the whole, I think I side more strongly with Rodrik than Johnson. (I find it hard to have a firm opinion in these matters.) That said, perhaps it’s “populist” to think political elites always end up in bed with economic elites, but it seems, as a matter of fact, they often do. My opinion is that a certain “populist” enthusiasm for democracy, in the absence of strong legal and cultural constraints on government action, almost inevitably delivers a great deal of regulatory capture–that is, tucks political elites snugly in bed with corporate elites. Isn’t that a cynical vision? Moreover, when the incentives of insufficiently-limited democracies lead to this kind of result, supra-national technocratic institutions can in fact act as a salutary check on governments precisely because they are undemocratic.

Free Exchange’s Washington blogger seems to have something like this in mind:

Of course, the IMF can’t hold America’s feet to the fire in the way that the WTO can. But the WTO achieved that power, in part, because American leaders wanted an outside force to be able to tie their hands, so they could shrug at angry voters and say, “Sorry, them’s the rules”. I wouldn’t be surprised to see national leaders constrained in crisis response by domestic politics seeking to empower the IMF in the near term.

That’s a really interesting thought. Now, I am not, and have never been, the biggest fan of the IMF and Rodrik is right that it’s weird for Johnson to talk about the Fund as if everyone knows all about its totally awesome track record. That’s just a little too convenient for Johnson, an old IMF hand. Nevertheless, it’s not crazy to look for a disciplining force external to national democratic politics when the interest group dynamics of national democratic politics has helped create the problem and persist in blocking the solution.

I Am a Dysonite II

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Dyson has great affection for coal and for one big reason: It is so inexpensive that most of the world can afford it. “There’s a lot of truth to the statement Greens are people who never had to worry about their grocery bills,” he says. (“Many of these people are my friends,” he will also tell you.) To Dyson, “the move of the populations of China and India from poverty to middle-class prosperity should be the great historic achievement of the century. Without coal it cannot happen.” That said, Dyson sees coal as the interim kindling of progress. In “roughly 50 years,” he predicts, solar energy will become cheap and abundant, and “there are many good reasons for preferring it to coal.”

I predict the transition to cheap solar will happen faster than that, but I would defer to Dyson.

I Am a Dysonite

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I agree with Freeman Dyson:

Beyond the specific points of factual dispute, Dyson has said that it all boils down to “a deeper disagreement about values” between those who think “nature knows best” and that “any gross human disruption of the natural environment is evil,” and “humanists,” like himself, who contend that protecting the existing biosphere is not as important as fighting more repugnant evils like war, poverty and unemployment. 

Here is my Marketplace commentary from this morning describing the risky fuiltity of cap and trade. I realize now that it may have been too strong to say that China is “the world’s largest owner of dollar-denominated assets,” though I’m not totally sure that’s wrong. What I meant is that China owns more U.S. debt and holds larger USD cash reserves than other country.

Why Climate Alarmism Alarms Me

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He’s not talking about climate alarmism in particular, but Matt Ridley (in an interview with Ron Bailey I finally got around to reading) states my own view nicely:

What the precautionary principle [the idea that when science has not yet determined whether a new product or process is safe, the government should prohibit or restrict its use] misses is the danger that in not progressing you might miss out on future improvements in living standards for poor people in Africa. I’m desperately hoping to persuade the world, not that everything’s going to be fine, but that there’s a chance everything’s going to be better for everybody and that we should be very careful not to cut ourselves off from that chance.

Cheap energy is a main source of prosperity. The effort to make the cheapest sources of energy more expensive is, in effect, an effort to ensure that more people are made to suffer longer in poverty. Energy Secretary Stephen Chu’s openness to using tarrifs against countries like China as a “weapon” in the effort to achieve global climate policy coordination illustrates the clear and present danger climate alarmism poses to the welfare of the world’s poor. I’m simply unwilling to trade certain immediate harm to vulnerable people in exchange for extremely uncertain future benefits.

Against Political Capitalism

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Somehow I have neglected my duty of blog self-promotion. Here’s my column for The Week, which went online Thursday. Here’s the bit on political markets, which I think looks even better today, with the announcement of the Treasury plan, than it did last week:

Political markets — less enabled by government than made by it — operate according to fundamentally different, and less trustworthy, principles. Propped-up by subsidy, structured by central diktat and created ex nihilo by edict, political markets may arise from noble aspirations but in the end are instruments always of the privileged and powerful. 

Take contemporary financial markets. (Please!) These are not so much regulated by government oversight as they are constituted by the convoluted web of regulation that dictates who may sell what to whom and on what terms. The shape of our financial markets has emerged from the gradual accretion and rare subtraction of political intervention. But it is now brutally clear that financial markets are not stable simply because they are framed by law and watched by bureaucrats. It is not so hard to see why.

In political markets, the battle for competitive advantage is in part a battle over the rules of the game. That, in turn, is a battle for the hearts of minds of regulators, who generally know less, and are far less motivated, than the industry insiders they regulate. It is no surprise when regulators come to confuse the interests of the powerful (for whom they might someday wish to work, after all) with the interests of the public. As we have recently witnessed, the heavily regulated nature of our financial markets did not keep them from going haywire and taking the entire economy down with them. Appointing a better breed of bureaucrat fixes nothing. Even now, in the morning of the Obama era, Washington remains convinced that the country is best served by “rescuing” its self-immolating Wall Street wards.

It is the failure of this capitalism that accounts for the suffering of millions and explains our bitter decline. Yet President Obama asks for more.

I go on to argue that cap and trade markets represent political capitalism on steroids.

Galbraith: Listen to Galbraith or the Economy Gets It!

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James K. Galbraith’s Washington Monthly piece “No Return to Normal” is a mix of the completely sensible (propping up bad banks is a recipe for further looting by insiders and more stupid risk-taking) and a totally crazy conviction that modern states are economically magical institutions. That is, it is a James K. Galbraith piece. Here is some crazy:

Apart from cash—protected by deposit insurance and now desperately being conserved—the American middle class finds today that its major source of wealth is the implicit value of Social Security and Medicare—illiquid and intangible but real and inalienable in a way that home and equity values are not. And so it will remain, as long as future benefits are not cut.

Yes, 401(k)s are down, and Galbraith’s thesis seems to be that they always will be unless… guess what? But, okay, suppose he’s right and there is no recovery if we fail to embrace James K. Galbraithianism. In what crazy world does the economy both (a) fail to recover and (b) the government make good on already completely infeasible entitlement commitments? And how bizarre is it to say in the space of two sentences that a source of wealth is “real and inalienable” just as long as benefits are not cut through the democratic process — which of course they can be and probably must be if Galbraith is right about the likelihood of a no-recovery future. If voters can lose some portion of future government transfers by voting for politicians who vote them away, then those transfers are obviously alienable. (The courts clearly say there is no legal right whatsoever to these transfers.) And alienable future transfers from the government that are conditional on political will and economic feasibility are about as “real” as my future lovechild with Gisele Bundchen. Does anyone have an interpretation of Galbraith’s passage that makes sense?

He later goes on to claim, amazingly, that increasing spending on Social Security is “an economic recovery ace in the hole.” So the best I can do is guess that Galbraith is incoherently shuffling back and forth from a scenario in which we don’t use his “ace in the hole” (investments and home values worthless forever!) and one in which we do (Social Security checks good as gold.) But that’s hardly fair, is it? 

A main theme of Galbraith’s article is that things are so bad that mainstream economics can be of no assistance, so you’ve got to go heterodox. But he says nothing to clarify why, if we must abandon the consensus views of professional economics, one should prefer Galbraithianism over other departures from othodoxy. He seems to infer his own views from the alleged failure of standard views. It is rather gentle to note that that doesn’t follow. For example:

In short, if we are in a true collapse of finance, our models will not serve. It is then appropriate to reach back, past the postwar years, to the experience of the Great Depression. And this can only be done by qualitative and historical analysis. Our modern numerical models just don’t capture the key feature of that crisis—which is, precisely, the collapse of the financial system.

I largely agree about the inapplicability of many models, but it’s not at all obvious that the experience of the Great Depression is more rather than less applicable than those models. The Depression was a long time ago. The economy was a lot different then. If one is going to do “qualitative and historical analysis” then it seems that recent collpases in the financial systems of other countries are rather more germane. Why not look at those instead of reaching back “past the postwar years”? Because there’s some ineffable but essential Americanness to the American economy? Galbraith actually seems to think so, which is why one must look away from the examples of Argentina and Indonesia! This seems arbitrary and I don’t get it. Of course, if we go back to the Great Depression, we just become mired in competing “qualitative and historical” analyses, which in reality tends to sound a lot like “Must destroy Amity Shlaes!!!” And that’s obviously a lot more intellectually rigorous and helpful than stupid mainstream economists with their stupid mainstream models.

The Opportunity Cost of the Bailouts

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Richard Florida offers some insight: 

The bailouts and stimulus, while they may help at the margins, also pose an enormous opportunity costs.  One the one hand, they impede necessary and long-deferred economic adjustments. The auto and auto-related industries suffer from massive over-capacity and must shrink.  The housing bubble not only helped spur the financial crisis, it also produced an enormous mis-allocation of resources. Housing prices must come a lot further down before we can reset the economy – and consumer demand – for a new round of growth. The financial and banking sector grew massively bloated – in terms of employment, share of GDP and wages, as the detailed research of NYU’s Thomas Phillipon has shown – and likewise have to come back to earth.

On the other hand,  there is the classic question: What better and more effective things might have been done with these trillions?  That’s for historians to ponder and decide. But the combination of the massively misallocated resources produced by the bubble (plus the costs of military adventures)  combined with humongous bailout spending puts the US behind the economic eight-ball in a way it has not been in more than the century. Having hold on the reserve currency helps, but it cannot absolve all these compounded sins.  Sooner or later the money will run out; bills will come due.

That creates a wide open structural opportunity to accelerate what Fareed Zakaria has dubbed the “rise of the rest” to accelerate.  Crises are periods where the relative position of nations and regions can and do  change dramatically.   (Do I think the US will lose its hegemonic position: Of course not.  My hunch is that the US is in the same position structurally as England at the onset of the Long Depression of 1873.  It was not until the next major crisis – the Great Depression of 1929 and the onset of WWII that it lost its position  [to] the United States. So worst case: The US has one more long-cycle at the top of the heap).   But, just think of all the ways the trillions of bailout money could be used to build the economy of the future. And while you’re doing that imagine that some other places … that have been patiently building and conserving their resources may start to figure out how to do just that.

I don’t give a fig about the U.S.’s relative position, but I do care about the absolute level of welfare and thus the absolute level of innovation and it is here that I worry about the costs of American decline.

The Revenge of Tucker Carlson

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I’m with Tucker Carlson on Jon Stewart:

Cynics might assume that the fury [behind the excoriation of Cramer] was a pose. Humor requires ironic detachment, and nobody as funny and sophisticated as Jon Stewart could possibly be getting that mad on TV over something so abstract. A fair assumption, but wrong. Stewart really was enraged. It was all entirely, strangely real.

I know this from my own run-in with Stewart, on CNN’s Crossfire a few weeks before the 2004 election. Stewart spent a couple of segments lecturing Paul Begala and me about how we were somehow “helping the politicians and the corporations,” a charge that baffled me then (I’ve never particularly liked either one), as it does now.

Unlike most guests after an uncomfortable show, Stewart didn’t flee once it was over, but lingered backstage to press his point. With the cameras off, he dropped the sarcasm and the nastiness, but not the intensity. I can still picture him standing outside the makeup room, gesticulating as the rest of us tried to figure out what he was talking about. It was one of the weirdest things I have ever seen.

Finally, I had to leave to make a dinner. Stewart shook my hand with what seemed like friendly sincerity and continued to lecture our staff. An hour later, one of my producers called me, sounding desperate. Stewart was still there, and still talking.

No one this earnest can remain an effective satirist, and at times Stewart seems like less a comedian than a courtier to the establishment. In August 2004, a week before the Republican convention, Stewart got an interview with then-candidate John Kerry. At the time, reporters covering Kerry couldn’t get closer than the rope line, so the interview qualified as a booking coup.

Stewart squandered it embarrassingly. His first question (after, “How are you holding up?”) was: “Is it a difficult thing not to take it personally” when your opponents are mean?

“You know what it is, Jon?” Kerry replied. “It’s disappointing.”

Four years later, Stewart had become, if anything, even softer. Over the course of a reverential eight-and-a-half minute interview with Barack Obama six days before the election, Stewart failed to ask a single substantive question, much less venture into policy (though, as with Kerry, he did open with, “How are you holding up?”). Instead, like the cable-news morons that he often criticizes, Stewart stuck strictly to the horserace, at one point even resorting to a sports metaphor.

Here’s what I said about Stewart way back in 2004 after his Crossfire soapboxing:

You know what? I’m just gonna say it: I’m bored bored bored of John Stewart. The Crossfire thing was the final straw, the shark jumping. He’s permanently tainted, and from here on out we can only look forward to the long slide into “Remember when that guy was funny.” Sanctimony is death to satire. The last thing I need is the fake news guy thinking he’s King Shit protector of the public interest. Yes, Tucker Carlson is a dick. But we all have eyes. Damn, John. You used to be cool.

My feelings haven’t much changed. The long slide has taken rather longer than I expected, however. At least there’s Colbert!

(Yes, I know it’s ‘Jon’.)