Our ruling elites scamper and play while our world burns

The political wrangling — in Congress, among our elites, and between the peons — exists IMO (guessing) only because of confidence that mainstream economists are correct.  They believe that this recession (or depression) will trough late this year.  No matter how rapid the decline, there is little the government can do in the next few quarters.  So they maneuver for political advantage, assuming the recovery will take care of itself.

Conservatives organize tea parties to build support for their party, and vote against any action to mitigate the downturn.  They plan to run in 2010 as thrift heroes!  (For more on this see Are the new “tea party” protests a grass roots rebellion or agitprop?)

Liberals strive under the cover of the crisis to pass legislation unrelated to the crisis, playing the game that worked so well for FDR.  But the world has changed since the 1930’s.  They’re like elderly generals in 1913 reciting The 1907 British Cavalry Training Manual , unaware that the world had changed:

“It must be accepted as a principle that the rifle, effective as it is, cannot replace the effect produced by the speed of the horse, the magnetism of the charge, and the terror of cold steel.”

Liberals moronically play this game of deception in full view of the spectators, apparently believing that crisis means both danger and opportunity (perhaps having fallen for the myth about the Mandarin ideogram).  In this post we peak behind the curtain of liberal thinking to see their calculations.   It’s easy to do, just by reading the newspapers.

Playing these games while the world economy burns is the second major policy error of the Obama Administration (see here for the first).

Contents

  1. In Crisis, Opportunity for Obama“, Wall Street Journal, 21 November 2008
  2. The Great Non Sequitur“, Charles Krauthammer, Washington Post, 6 March 2009 — “The Sleight of Hand Behind Obama’s Agenda.”
  3. Never waste a good crisis, Clinton says on climate“, Reuters, 7 March 2009
  4. Buffett on CNBC explains this as being like war — and both parties are failing to take it seriously.  See the transcript.
  5. Afterword, and where to go for more information

Excerpts

(1) In Crisis, Opportunity for Obama“, Wall Street Journal, 21 November 2008 — Excerpt (slightly paraphrased):

Therein lies the opportunity for President-elect Barack Obama. His plans for an activist government agenda are in many ways being given a boost by this crisis atmosphere and the nearly universal call for the government to do something fast to stimulate the economy.  This opportunity isn’t lost on the new president and his team. Rahm Emanuel, Mr. Obama’s new chief of staff, explained to a Wall Street Journal conference of top corporate chief executives this week:

“You never want a serious crisis to go to waste. Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before.”

… That creates an opening through which Mr. Obama can drive a fair amount of his domestic agenda. Certainly the field is open for some immediate form of the president-elect’s middle-class tax cut to become part of a stimulus package.

By the same token, the yearning for government spending on “infrastructure” to stimulate economic activity creates an opening for the new president to push the kind of green projects that fit his call for a transition to alternative energy sources, including new kinds of mass-transit systems. And the Obama call for government “investment” in alternative energies will be easier to turn into reality if it, too, can be cloaked as part of stimulus spending.

At the same time, as thousands of additional Americans lose jobs in the recession that lies ahead, they also will lose their employer-provided health insurance and swell the ranks of the nation’s uninsured. That will add a bit of rocket fuel to the Obama call for universal health coverage. And certainly the broad dissatisfaction with the way financial markets were regulated will make it easier to rebuild regulatory structures.

(2) The Great Non Sequitur“, Charles Krauthammer, Washington Post, 6 March 2009 — “The Sleight of Hand Behind Obama’s Agenda.” Excerpt:

The logic of Obama’s address to Congress went like this:

“Our economy did not fall into decline overnight,” he averred. Indeed, it all began before the housing crisis. What did we do wrong? We are paying for past sins in three principal areas: energy, health care and education — importing too much oil and not finding new sources of energy (as in the Arctic National Wildlife Refuge and the Outer Continental Shelf?), not reforming health care, and tolerating too many bad schools.

The “day of reckoning” has arrived. And because “it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament,” Obama has come to redeem us with his far-seeing program of universal, heavily nationalized health care; a cap-and-trade tax on energy; and a major federalization of education with universal access to college as the goal.

Amazing. As an explanation of our current economic difficulties, this is total fantasy. As a cure for rapidly growing joblessness, a massive destruction of wealth, a deepening worldwide recession, this is perhaps the greatest non sequitur ever foisted upon the American people.

… The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe.

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing-in, Obama has yet to unveil a plan to deal with the banking crisis.

… Clever politics, but intellectually dishonest to the core. Health, education and energy — worthy and weighty as they may be — are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.

(3) Never waste a good crisis, Clinton says on climate“, Reuters, 7 March 2009 – Excerpt:

“Clinton told young Europeans at the European Parliament that global economic turmoil provided a fresh opening. “Never waste a good crisis … Don’t waste it when it can have a very positive impact on climate change and energy security,” she said.”

(4) Buffett on CNBC explains this as being like war — and both parties are failing to take it seriously

Warren Buffett on CNBC’s Squawk Box, 9 March 2009 — See pages 6 – 7 of the transcript.

BUFFETT:  If you’re in a war, and we really are on an economic war, there’s a obligation to the majority to behave in ways that don’t go around inflaming the minority. If on December 7th, when Roosevelt convened Congress to have a vote on the war, he didn’t say, `I’m throwing in about 10 of my pet projects,’ and you didn’t have congress people putting on 8,000 earmarks onto the declaration of war in 1941.

So I think that the minority really do have an obligation to support things that in general are clearly designed to fight the war in a big way. And I don’t think before D-Day on June 1st you ought to have a congressional hearing and have 535 people give their opinion about where the troops should land and what the weather should be and how many troops should land and all of that. And I think after June 6th you don’t have another hearing that says, `Gee, if we’d just landed a mile north.’

JOE: You might not have fixed global warming the day after D-Day, Warren.

BUFFETT: Absolutely. And I think that the Republicans have an obligation to regard this as an economic war and to realize you need one leader and, in general, support of that. But I think that the Democrats — and I voted for Obama and I strongly support him, and I think he’s the right guy — but I think they should not use this when they’re calling for unity on a question this important. They should not use it to roll the Republicans all.

I think job one is to win the economic war, job two is to win the economic war, and job three. And you can’t expect people to unite behind you if you’re trying to jam a whole bunch of things down their throat. I would absolutely say for the interim, untill we get this one solved, I would not be pushing a lot of things that are contentious, and I also would do no finger-pointing whatsoever. I would not say, you know, `George’–`the previous administration got us into this.’ Forget it. I mean, you know, the Navy made a mistake at Pearl Harbor and had too many ships there. But the idea that we’d spend our time after that pointing fingers at the Navy, we needed the Navy. So no finger pointing, no vengeance, none of that stuff. Just look forward.

5a.  Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For information about this site see the About page, at the top of the right-side menu bar.

5b.  For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest are:

About the policies of the Obama Administration:

  1. Our metastable Empire, built on a foundation of clay, 3 March 2008 — We elect leaders with vast ambitions, but can no longer afford them.
  2. American history changes direction as the baton passes between our political parties, 18 May 2008 – Importance of the November 2008 political landslide.
  3. Obama describes the first step to America’s renewal, 8 August 2008 — Obama’s statement about America may be the simple truth; this may be why so many find it disturbing.
  4. The evil of socialism approaches!, 22 October 2008 — Economic crisis and a leftist President.  Can socialism be avoided, or is it our destined fate?
  5. America gets ready for new leadership (or is it back to the future?), 14 November 2008
  6. “What Barack Obama Needs to Know About Tim Geithner, the AIG Fiasco and Citigroup”, 3 December 2008
  7. Obama proposes a new New Deal – like Japan, will we burn money to keep warm?, 8 December 2008
  8. The transition between Imperial reigns: what will it mean for America?, 16 December 2008
  9. Obama opens his Administration with a powerful act that will echo for many years, 4 February 2009

70 thoughts on “Our ruling elites scamper and play while our world burns”

  1. If Congress can’t rally against a “common enemy” as serious as the one at hand, they need to go. I think they all need to go anyway, so I am showing personal bias. (Vote out incumbents of any party.) If the world can’t rally against a “common enemy” as serious as the one at hand, we have a problem, Houston. For as bad as our current economic situation is, it is still much better here than most other countries. There are some international summits coming up. Let’s see what kind of cooperation comes out of them. If the world can’t rally together against a “common enemy” as serious as the one at hand, we have a problem, Houston. Should it come to that, think SMALL and think LOCAL.

  2. Journalism is not a term of derision in my vocabulary. The point is simple. In the earlier part of the 20th century there was a determined effort to put sociology, anthropology on the same footing as physics, chemistry and some biology. Sociology was the first to give it up. Great intellects like Erving Goffman made a determined effort to reduce observation of human conduct to categories that were measurable and reproducible. A great and noble effort, the last product of the Chicago school of naturalist sociology == Robert Park its most notable. Anthropology followed, Radcliffe-Brown, one of the great intellects of the 20th century, finally gave it up. The label political science held and polling was grafted on it, confusing statistical analysis with quantitative analysis. Economics, especially econometrics retained the aura of scientific rigor longer than the rest, but I do believe we can put to rest the idea it was science. Do you think Keynes is in the same league as Machiavelli? Possibly but it is not science F.M.
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    Fabius Maximusr replies: Whatever, dude. To put the sustained effort of poltical scientists and economists that created the modern world on the same plane as the folks who produce the daily news is nuts, IMO. One group of names will live for a thousand years, and some of their works will be read for even longer. The others is used to wrap fish and line birdcages a week later. That you confuse the two is sad.

  3. FM note: comments can be at most 250 words, per the comment policy stated at the end of every post and in more detail here. At 657 words this was far too long.

    I,m always amased by so called inteiiigent people. What really turns me upside and backwards is that they never seem to see the forest for the tree’s. Just once I’d like to see or hear someone speak with some knowledge rather than their own self imposed level of genius. It is not, the fault of either Democrats or Republicians it is and always has been about coruption and greed. A Country is only as strong as it’s weakest level of people. If the people are not prospering neither is the country. For far to long now the capitalists have convinced us that by giving more to the rich will ultimately lead us into prosperity. It’s an age old belief that has caused many a Nation to crumble and fall to it’s inevitable demise. No one has ever been able to prove that Capitalisiam, is the path to Glory and riches. In fact it always has been quite the contrary, but somehow or another people keep falling for the lie rather than the truth. Greed breeds coruption and as a result it kicks open doors that should be forever shut. Once this spirial is set in motion it appears to be the good ship lolly pop loaded down with all sorts of splendid opportunities. When in fact what really happened was someone let the wolves out. No one seems to notice until it starts to effect them personally,and then all hell breaks loose. They start pointing the finger of blame at anyone who disagree’s with them. It’s shameful to say the least but oh so true. {snip}

  4. Duncan’s comment at # 10 above is indisputable, IMO, and superficially so is FM’s response to it. However, DK is not advocating “leaving the Republic”, as FM chides, but figuring out how to survive within its present realities. Any “positive” proposal for change, if it is not to be merely an example of wishful thinking, has to include a realistic tactic for building a popular movement around it, communicating it past the watchful eye of the MSM, and defeating the counter-lobbying from established interests that will immediately be launched to try to defeat it.

    Remember how hard we tried, how many we mobilized, how passionately we wanted, to stop the invasion of Iraq? What did we accomplish? Michael Neumann commented on the failure of the anti-war movement (Fall 2007, Counterpunch) by saying the main thing we failed to do was recognize how powerless we were, and build our strategy from there. Failing to do this, we focussed our efforts on Congress, and the end result was a new administration which is following exactly the same game plan as the former. Don’t chide DK for recognizing that the structure and practices of our democracy are a charade, and need to be changed.

  5. You are being thick-headed. Reporters are reporters, the best of them, Mencken for example soars above the rest. Journalists or as we used to call them, essayists are something else again. But the point was this: economic analysis is not science, period. Or do you think otherwise?
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    Fabius Maximus replies: You are on the wrong site if you think insults get you anywhere.

    You question has almost no meaning. Is economics a science in terms of following the scientific method, as described by Karl Popper and Thomas Kuhn? Yes, certainly. Political science, formerly known in academia as “government”? Not at all. But this is topic drift, an attempt to obscure your original statement:

    “The only possible reform I see coming out of this is canceling Nobel Prizes for economics or at least transferring them to a category of political science, which is of course journalism of a special kind.”

    The question is if political science and economics are the intellectual equivalents (in any sense) of journalism. I feel sorry for you if you consider the work of Hobbs, Locke, Smith, Keynes and so forth (supported and developed by thousands of lesser names) on the same level as the output of the NY Times. The first consists of a large part of the modern world’s foundation. The latter is just news.

    Also, I don’t see the basis on which you distinguish “journalists” from “reporters.” Most folks who call themselves journalists (and are regarded as such by the public) do not write “essays.”

  6. Captain Ramen

    I agree that not running a deficit in a downturn is unrealistic. But to these levels? Bush took 8 years to double the total outstanding debt. Will it take 4 years (or less) to redouble it? God forbid North Korea does something stupid or Mexico collapses entirely. Where will the money come from to deal with that crisis? The margin of error here seems razor thin.

    Again, I think these painful measures would receive more support IF people believed that the government would switch gears, become fiscally responsible, and try to run a surplus once we get out of the recession. I just don’t see that happening (I am in California, so perhaps I am less likely to believe in well run government). What I do see is politicians lavishing borrowed money on campaign donors. When tax payers bail out a city because they let cops retire at 50 with 90% of their salary stimulus?

  7. FM Note: As I said, the comment policy says 250 words max. This appears at the end of every post and in more detail here. A little over is fine, but 2x is too much.
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    Fabius Maximus replies: “I believe you are confused. It is not possible to have the national debt decrease during a severe recession, unless you wish to have a major depression. Government revenue declines, expenses increase (e.g., unemployment, welfare) — and that’s before considering any stimulus programs (e.g., job programs, retraining).”

    In a socialist gov you are correct (unemployment, welfare, job programs etc all are socialist programs, as well as FDIC). If we were a capitalist country we could very easily see a decrase in the national debt during a recession. But then if we were a capitalist country like China is becoming we would not have a national debt. Your History of Hoover is wanting. Hoover spend as much money in today’s dollars has Bush did at the end of his term. Obama is making the same mistake FDR made. If keyenism was correct and there was a mulitiply why is the $12 Trillion of excess government spending-$8trillion of that over the last 8 years-not giving us the greatest economy ever?

    If the government wanted to help they would cut spending which is a miss allocation of capital and pay off debt for a stimulus. This would place money back into the hands of capitalists who would invest that capital in profit making ventures thereby increasing the tax revs and pulling us out of a recession. To think that the government that is in the business of getting votes not profits would spend the money wisely is beyond foolish. The best thing the Gov could do is cut all spending except Defense …

    We should also after this crisis is over do away with the FDIC which has pushed Banks to take on more risk for higher rates of return to attract deposits since avg people no longer have to worry about their money in a bank. This has led the banks to change from a secure place to one of risk taking.

    Basically our entire economic system is fundementally flawed due to socialist policies enacted over the last 70 years due to FDR and every president since then with reagan being one of the only ones to try to cut some programs. Socialism does not work has never worked and now we are seeing the fruits of 70+ years of socialism.
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    Fabius Maximus replies: It’s always nice to hear from the true believers in the Gamma Quadrent! Esp their exotic re-writing of history so that it fits their theories, and their “if I were King” wand-waving cures for our society.

  8. Well, Hobbes, Locke, Smith and Keynes are all about on par with ny times when it comes to strict application of the scientific method. Economists may try double blind studies from time to time but the prognostications of economists aren’t scientific by any means. Science doesn’t make guesses about the future.

    If we are intellectually honest we see that economics and political “science” have none of the certainty of physics or chemistry. Rather they are merely theoretical models with which to view certain aspects of the world, and when these models start to break down we must be careful not to too rigidly adhere to their doctrines. The dogma be the theoretical model free market capitalism, based on an economy of scarcity, is as ill fitting in a new world of abundance as the British calvary manual in the age of gun powder. The old laissez faire ideal just doesn’t work anymore, and thankfully Obama recognizes that and so he is implementing real solutions.
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    Fabius Maximus replies: As I said, political theory has produced great results but is not sicience. As for Keynes, have you read his works about economics (the professional papers, not the articles for the public)? I doubt it.

  9. FM Note: As has been said so many times, the comment policy sets a limit of 250 words. This appears at the end of every post and in more detail here. This was over 600 words, and has been edited.
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    Comment by Strabo: “If we are intellectually honest we see that economics and political “science” have none of the certainty of physics or chemistry. Rather they are merely theoretical models with which to view certain aspects of the world, and when these models start to break down we must be careful not to too rigidly adhere to their doctrines. The dogma be the theoretical model free market capitalism, based on an economy of scarcity, is as ill fitting in a new world of abundance as the British calvary manual in the age of gun powder. The old laissez faire ideal just doesn’t work anymore, and thankfully Obama recognizes that and so he is implementing real solutions.”

    I agree with your point that economics is not a science. for the sole reason that human nature is in play with in the realm of economics. Therefore human emotions have to be factored in and since people act differently to different events and sometimes they act differently to the same event. they act different alone and in a group, when they are in a family or a society, when they are part of a religion or different relgion. In short human emotion is too complex to even begin to make observations on it a science.

    However your point about free market capitalism is wrong. If we have an economy of scarcity which we do but one of resources-land,metals, food etc then human nature demands humans will try to gain as much of those resources for themselves, family, tribe, nation. It is only in an economy of unlimited resources can socialism stand a chance of working due to human nature. trying to change the basic fundemental DNA wiring of survival of the fittest is beyond stupid. Thus the only possible way to allocate those resources are to those that are productive with those resources.

    … Now if only we had a free market capitalism system in place instead of the quasi socialist/corrupt system we have now and have had for the past 70+ years. anyone that thinks this country is a pure capitalist country needs an education in what socialism is. Just because we are not as socialist as Europe does not mean we are not socialists. …
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    Fabius Maximus replies: More reports from the Gamma Quadrent. Is there anyone older than 15 who “thinks this country is a pure capitalist country”?

  10. FM replied: “Congress has immense power, allocating trillions of dollars per year. Which is why the elections are so well funded. I cannot imagine why you say that it is not “all that important.”

    Answer: my point was that they seem to be acting as agents and/or fig leaves for the elites, rather than being the elites themselves. Yes, they allocate trillions but do they really drive the agenda? I see little evidence that this is the case. A good example was given above: people demonstrated en masse against Iraq, changed Congress in 2006 on a clear anti-that-war impetus and the new Democratic Congress immediately announced they would make no changes in that arena. Is it solely the perversity of the individual and collective Congress members? Possibly, but it looks and quacks like a different sort of duck to me.

    FM again: “Your last sentence contradicts the first. The opening is about “wrangling among our elites.” In the last you speak of the elite agenda, as if it was a unitary entity. I dont’ understand what you are attempting to say.”

    I did not say they were unitary, simply that both in the original post (and in general) I am not aware of any ‘wrangling’ – unless you count Democratic and Republican rhetoric as wrangling in which case I will concede the point for you, although on my side I don’t ‘buy’ that Congress is a bona fide leadership, or ‘elite’, body.
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    Fabius Maximus replies: If you don’t consider Congresscritters as among the elites, you must have a very restrictive conception of them. Do they meet in some lavish secret base under the Arizona desert? Or in a private dining room in the “21 club”? Too rarified a view for me.

  11. Aggressive ignorance? Beyond help? Thanks for the ad hominem, FM. Okay, ignore the scholarly work I cited. Ignore Bernanke’s essays on the causes and resolution of the Great Depression. Ignore the fact that the first economic crisis in US history to which Keynesian was applied turned out to be the most severe and long lasting in US history. Ignore the fact that Hoover’s policies were indeed precursors to the New Deal. (Davis-Bacon Act ring a bell?) Ignore the fact that a decade of ‘stimulus’ in Japan has led to what is currently the weakest economy in the developed world. Ignore the fact that I listed more than a dozen policy proposals all of which would stand a better chance of improving the economic climate than an unprecedented borrow and spend spree. Ignore empirical research, theoretical coherence, common sense and history and believe what you want to believe. That is the fashion nowadays. But ten years down the line when the federal balance sheet becomes utterly insupportable, good luck ignoring that.
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    Fabius Maximus replies: I was off-base, and apologize for the ad hominems. Esp as you did provide supporting evidence. Too fast a reply, too little thought.

    Let’s try again. The liquidatist policies know as “Hooversim” were those of the first 2 or 3 years of his Administration. After their catastrophic failure, at the end of his Adminsitration he moved to the alternative set of policies known as the New Deal. But in a halting and ineffective manner, which produced few results. His major accomplishment were jacking up taxes and Smoot-Hawley, both exactly the wrong thing to do (neither Keynesian policies).

    Second, the New Deal was a grab-bag of policies. There was no well-developed body of economic theory for the crisis (In 1936 Keynes published his magnum opus, The General Theory of Employment, Interest, and Money). In hindsight we know that most of it was ineffective or even harmful (this is by now the standard view of economists, like Bernanke and Romer). The fiscal stimulus was far too small, as seen compared to the WWII spending that ended the Depression.

    Third, as I have so often said, fiscal stimulus clearly “works” in the sense of mitigating the downturn: reducing the suffering and economic damage caused by severe recessions. It does not produce a recovery, which results from resolution of the imbalances which caused the downturn. While a valuable tool, it is not a magic wand.

    Fourth, I beleive that due to decades of overuse fiscal and monetary policy will be relatively ineffective. For a very brief technical explanation see Death of the post-WWII geopolitical regime – death by debt, 8 January 2008. It can still mitigate the downturn (vital), but at great cost.

    This has been one of the major themes of my analysis of this downturn, as seen in these:
    * Our metastable Empire, built on a foundation of clay, 3 March 2008
    * Big changes loom before us; why are they invisible to most experts?, 28 July 2008
    * Causes of the financial crisis (no, its not the usual list), 29 October 2008
    * A situation report about the global economy, as the flames break thru the firewalls, 26 January 2009

  12. The poster “unseen” is very convinced that a pure capitalist model can solve everything, or at least would have prevented a lot of what is going on today. I have no idea how he arrived at this conclusion other than the fact that he has done an awesome job of disseminating GOP lore.

    “unseen” is correct that free markets are best at allocating resources but unfortunately, life is not that simple and markets are not infallible. For one thing, markets cannot tell right from wrong, and so they cannot control who enters or leaves it. As Spengler (Asia Times Online) succinctly puts it, “if moral rot has taken hold of a society, the market mechanism will take it to hell faster and more efficiently than any of the alternatives.”

    Markets only know how to punish incompetence and inefficiency, and by the time it gets around to that, it could be too late to stop or reverse a big race to the bottom. This is very much evident in today’s crisis.

    The success of capitalism is incidental rather than deterministic: it is the people that makes markets great rather than the concept of markets itself. After all, it is the people that run the markets. When things go awry, it’s usually because the markets end up running the people! People are the weakest link, a fact that cannot be mitigated by free markets, central planning or otherwise.

    I’m not anti-market or anything, nonetheless I feel we need to be mindful of the fact that the free market is not inherently better at forming long-term expectations than any other mode of production. Unless we recognize this, dogmatic faith in markets will once again bring us to the edge of financial ruin.

  13. Gracious apology accepted. And I agree with all four of your subsequent points. But now I must respectfully disagree with #52 who says that the free market is not inherently better at forming long term expectations than any other mode of production. I think the evidence is compelling that the free (or semi-free, which is mostly what the West has had for the last 100 years) IS inherently better than all the alternatives. Test cases: Hong Kong (pre ’99) vs. mainland China. Mainland China pre-market based reforms vs. mainland China post-market based reforms. East Germany vs. West Germany pre-reunification.

    Are free markets a perfect mechanism for allocating capital and directing work effort? No. Nothing on this earth is perfect. But free markets are inherently self-correcting (given time) while command and control economies rely upon the brilliance and wisdom of politicians and bureaucrats. I know where I’d bet my money.

    Moreover, free markets have the inherent advantage that they are . . . free. Meaning individuals have autonomy to work, save, invest, invent, barter, trade, sleep, slack off, retire, give, borrow, lend, consume, refrain, despair or dream as they please. This is good in and of itself. Individuals don’t always use their freedom well, but it is precious none-the-less.
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    Fabius Maximus replies: You touch upon an important point. While no experiment in human history is definitive, the post-WWII experiments with different economic systems is as close to conclusive as we will ever see. Free market systems (more precisely, mixed economies built around free markets) out-performed socialism and communism almost across the board, around the world.

  14. I hear you DarkHelmet, I’m not saying that planned economies are better than markets at generating wealth or prosperity, in fact I agree with you heartily.

    I’m only suggesting that markets are not inherently better because it is PEOPLE who run markets, just as it is people who plan economies. Since both systems are subject to the same weakness, neither can be said to be inherently better; after all, greed and corruption are not exclusive to the visible hand! That is to say, free markets can fail just as spectacularly as centrally planned economies. Well, maybe failure is the existential fate of human endeavors altogether!

    Another great Spengler quote, who is among the most incisive conservative voices out there IMO: “Technological and social change occurs in unexpected and dramatic ways, frustrating the best guesses of the cleverest entrepreneurs, not to mention the stodgy decisions of central planners.”

    As things are today, let’s just say my confidence in markets has been temporarily shaken. Outside the US, just look at Hong Kong today (my hometown).. things do not look good! Good thing HK wasn’t running a budget deficit like the US, otherwise the city would be finished and I would have to cry.

    I’d like to address a few more points that you brought up. First, self-correction is not limited to market economies. How else can we explain China’s pre- and post-market transformation? That’s self-correction if I’ve ever seen one! Lastly, yeah freedom is great, I know, but in economic aggregate individual freedom has little meaning. China’s economic rise is a good case in point.

  15. The Krauthammer piece is a fine bit of right-wing buffoonery. He fails to see that immediate financial damage control isn’t the only imperative. The New Deal was only partly about patching up the economy. It was also intended to provide a lifeboat to keep people alive and to curtail a revolution of the workers who were threatening to drag the capitalists, then a dirty word, out of their mansions. Of course Krauthammer, always a water carrier for power, forgets the unwashed masses, their needs and how dangerous they can be.

    He also assumes that all programs are primarily instituted for political advantage not any real need. In the last 25 years the GOP has scarcely undertaken a move that hasn’t been aimed primarily at gaining political advantage. With only the crumbs falling to necessity. Fact is our roads and bridges are dilapidated. Our power grid is a disgrace. Yes, correcting this may bring some political advantage but the motivation is simply that it has to be done.

    As for health care reform not being productive we presently pay better than twice what other developed nations do for half the benefit. This is a load on every American and business. Reform represents the opportunity to get adequate health care for half the cost. In effect a savings for every family, a nationwide increase in productivity, and a stimulus for the economy.

    The nation will get through this. It has been through worse. The 1890s come to mind. But we have to think and act on multiple levels, Short term, keep people alive and prevent social unrest while patching the financial system. Mid-term, regulate business and finance to smooth out extremes, and start rebuilding the infrastructure. Long-term, restart R&D and education, get a grip on climate change, and start adapting the nation to deal with the higher cost of energy.

  16. Comment by miles: “I’m only suggesting that markets are not inherently better because it is PEOPLE who run markets, just as it is people who plan economies. Since both systems are subject to the same weakness, neither can be said to be inherently better”

    Not true. Markets while made up of People are the sum result of millions upon millions of individual decsions. Planned economies are at best made up of only a hadful of people. Markets use the law of avgs to self correct. Planned economies do not have this self correcting ability. thus markets are inherently better.
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    Fabius Maximus replies: This is debating on a pretty basic level. Regulation has been proven necessary at all levels, widely acknowledged by all except extreme libertarians (who served their purpose in life by provoking #2 in the list of Best geopolitical webposts, ever).

  17. Fabius Maximus replies: As I said, political theory has produced great results but is not sicience. As for Keynes, have you read his works about economics (the professional papers, not the articles for the public)? I doubt it.

    some not all of his works and I find they are at best a useful theory on human behavior. Keyens has been proven not to work over and over again. The New Deal’s problem was not that it wasn’t big enough. The problem with the New Deal is that it was a mis-allocation of resources. You say Keynes theories help mitagate a recession. I say it is the pain of a recession that makes people change their behavior. Without that pain no changes in group behavior occur and the behavior simply continues. If you want to change behavior-and from your blog it appears you do-then the only way to change that behavior is economic pain. Getting thrown out of your home is a very big wakeup call to change your behavior. Not having enough food to eat is a great teaching moment to save for a rainy day.
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    Fabius Maximus replies: Any cites for proof that Keynes theory does not “work”?

  18. @unseen: I recognize the distinction that you make and in that sense, as well as in many others, market economies are superior to planned economies. I do not dispute this! However this distinction does not exempt market economies from failing spectacularly as planned economies do, and so we cannot simply place faith in free markets as a be-all-end-all solution.

    At the risk of incurring FM’s wrath for going off-topic, and if you’re interested, I invite you to visit my blog and check out the very first post in which I wrote about this topic at some length. Your comments would be most welcome!
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    Fabius Maximus replies: As I said in reply to comment #25, I don’t object to promotion of other’s websites (if non-commercial). So long as brief and relevant to the topic (yours is both).

  19. “Keyens has been proven not to work over and over again.”

    I have to agree with you unseen, Keynes is not even self consistent, hardly science. While we’re name-dropping, FM, perhaps you should read some John Rawls.

    But I must disagree with you, unseen. The economy of scarcity model is precisely what is becoming outmoded. The scarcity economy might work in theory, but it is subject to inertia, that is to say it winds down. Eventually wealth gets pooled in the upper class, as we have been witnessing, and the system must be reset or it will cease to function.

    This was the cause of the economic collapse as the system could support its own weight. We won’t see real solutions until we start embracing post-scarcity models that allow wealth to move more freely and bring the classes closer to the same level.
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    Fabius Maximus replies: Name-dropping? I’ve written 5 posts about Keynes, and described the role of his theories in a dozen more posts. At what point does Your Lordship do believe I have the right to mention his name? {my original cooment was inappropriate, and I apologized in comment #62}

    I have read Rawl’s A Theory of Justice, which I consider one of the weirdest books ever. Despite its vast appeal, Rawl’s value system is foreign to mine.

  20. Nothing wrong with dropping a name or four here and there, but when you launch ad hominem attacks at me implying that I have never read Keynes (an accusation that is both untrue and irrelevant to the topic at hand, as my post really had nothing to do with the specifics of keynesian theory) it detracts from a debate on the merits of the ideas themselves.

    As for Rawls, I was simply matching your philosopher of choice and raising with my own. Rawls’s value system may be “foreign” to you, FM, but it hasn’t failed as spectacularly as that of Adam Smith and John Keynes.

    FM, you have a real knack for finding pretexts to ignore ideas you disagree with, rather than addressing the merits. Perhaps this betrays a lack of confidence in your own position?
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    Fabius Maximus replies: Ad hominem attacks? Sounds bad. Let’s replay the tape, from comment #48:

    FM: “As for Keynes, have you read his works about economics (the professional papers, not the articles for the public)? I doubt it.”

    Does not look like an attack to me. I ask a question and give my opinion, based on your comments here. I do not even state it as an assertion or certainty. As for Rawls, let’s play the tape again.

    FM: “I have read Rawl’s A Theory of Justice, which I consider one of the weirdest books ever. Despite its vast appeal, Rawl’s value system is foreign to mine.”

    Again this reads like a statement of my opinion. No assertion of truth, just my personal viewpoint. I do not see the basis of your objections.

    “but it hasn’t failed as spectacularly as that of Adam Smith and John Keynes.”

    That’s too funny to bother with. Capitalism (in all its various forms) has brought prosperity on a previously unimagined scale to billions of people. We’re having a recession and you declare the experiment a failure. Perhaps you should go to a village in China or Singapore and lecture on your alternatives.

  21. Pingback: Top Posts « WordPress.com

  22. I took the “I doubt it” and “Your Lordship” as ad hominem or at least patronizing. If that is not how they were intended then please accept my apology for accusing you of ad hominem attacks.

    Now, here’s something that *I* find funny: “Capitalism (in all its various forms) has brought prosperity on a previously unimagined scale to billions of people. ”

    What’s funny about this is that so did the authoritarianism of Imperial Rome (it brought prosperity to millions at any rate), feudalism did the same thing. Just because it works for a while does not mean that it will not ultimately become a failed system once the gears wind down and it collapses under its own excesses. Though it may be more moral that the prior examples, capitalism is becoming similarly outmoded. Nevermind that, be it capitalism or feudalism, for all the prosperity there remains vast poverty for those who aren’t among the fortunate few who benefit from these systems.

    You say economics is a science, yet do you not realize the second law of thermodynamics applies even to economic systems?

    Changing times call for changing social structures. The system is broken, the rich have been getting richer and it is at the expense of an ever diminishing lower and middle class. Greenspanian capitalism needs to be left in the ash-heap of the twentieth century where it belongs.
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    Fabius Maximus replies: The “your Lordship” crack was inappropriate, and I apologize for that. (and have so noted in your original comment)

    I don’t understand much of this.
    * What is your basis for saying Rome brought prosperity to its Empire? To Greece and the Middle East? North Africa? They brought peace to much of it, but at a cost. Much of the Empire was prosperous before, and Rome brought nothing like the changes brought by free markets to most of our world.
    * Ditto for Feudalism. How much did the average peasant’s life improve?

    ” Just because it works for a while does not mean that it will not ultimately become a failed system”
    Yes, all that lives dies (Hamlet, the Matrix). But I see no evidence of that at this time.

    “You say economics is a science, yet do you not realize the second law of thermodynamics applies even to economic systems.”
    Do you have a point here, or is this Jeopardy and we all guess at the question?

    “The system is broken”
    Your evidence for this astounding statement?

    “the rich have been getting richer and it is at the expense of an ever diminishing lower and middle class.”
    First, that is not true for most of the world (e.g., Asia). Second, it is true to a slight extent within the US during the past few decades. This has happened before, still hardily justifying IMO your grand statement about broken and failed systems. Does this result from flawed education system (perhaps financing mechanism), tax policy, or high rates of immigration? None of these suggest terminal problems.

    “Greenspanian capitalism needs to be left in the ash-heap of history”
    Greenspan’s insane policies are a dot in the history of the western world. It’s absurd to conflate the policies of one Fed chairman with capitalism.

    Just guessing, but your comment suggests a utopian view. If we had a “good” system, then there would be no severe downturns and things would always and continuously get better. There is such a system. It’s found in Heaven; you die to get there.

  23. Strabo wrote in comment #62: “Nevermind that, be it capitalism or feudalism, for all the prosperity there remains vast poverty for those who aren’t among the fortunate few who benefit from these systems.”

    But what you call “capitalism” — a reasonably free market-based economy — has in fact benefited not just a “fortunate few,” but everyone in the system. The vast expansion of the “middle class” is itself a function of economic freedom. The standard of living for even the lowest decile of the U.S. population is substantially higher than the median living standard of any pre-capitalistic culture. And:

    “Changing times call for changing social structures. The system is broken, the rich have been getting richer and it is at the expense of an ever diminishing lower and middle class. Greenspanian capitalism needs to be left in the ash-heap of the twentieth century where it belongs.”

    Well, the ‘rich’ haven’t been getting richer lately. Over the last eighteen months they’ve gotten a whole lot poorer, in fact. And when the ‘rich’ were getting richer, it was not at the expense of the poor or the middle class. The entire income spectrum moved up over the last few decades. More importantly, there is social mobility in a free market system. Today’s poor frequently become tomorrow’s middle class, and sometimes tomorrow’s rich. Downward migration also occurs. It’s true that there has lately been a wider margin between, say, the top decile of income and the median. I, for one, don’t consider that to be a problem as long as mobility of the individual is preserved. Does it hurt me in any way that Warren Buffet’s net worth is thousands of times greater than mine? No. Does it offend Rawls’ sense of justice? Maybe, but that’s his problem. BTW, for a simple, powerful demolition of Rawls, read Thomas Sowell’s “The Quest for Cosmic Justice.”

  24. “Well, the ‘rich’ haven’t been getting richer lately. Over the last eighteen months they’ve gotten a whole lot poorer, in fact. And when the ‘rich’ were getting richer, it was not at the expense of the poor or the middle class. The entire income spectrum moved up over the last few decades. More importantly, there is social mobility in a free market system. Today’s poor frequently become tomorrow’s middle class, and sometimes tomorrow’s rich.”

    In theory, I agree with this statement, but in reality in the US it is less true:

    1. The rich have gotten richer at a greater rate than the poor and middle class while their taxes have decreased significantly (in relative terms since the 70s I believe). A quick look at the GINI and one sees that there has been an increasing income disparity in the US since the 70s (See Wikipedia). Now things aren’t going well for the rich, but they’re also not going well for the middle and working classes either. Many of the newly minted lower middle class face a whole different kind of social mobility.

    2. FM has posted on this in detail, but social and economic mobility in the US and UK are very overstated. We’re not as bad as the latter but it’s much harder to go from poor to rich than one thinks. I think the stories of rags to riches are more common in Horatio Alger books than reality.
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    Fabius Maximus replies: I agree, but suspect this could be stated more clearly.

    (1) The rich have lost much wealth during this downturn.

    (2) The “middle class” has proportionately lost more, due to the concentration of their asset holdings in highly leveraged investment in real estate. The collapse of homes net value has been awesome, in aggreagate (no comments please that in your neighborhood things are wonderful).

    (3) The real story will be the 2nd and 3rd quintiles of wealth and income (#1 being the porest). Work by the Levy institute (such as this) shows that roughly 40% of US households are 3 months or less from bankruptcy, due to low savings and high debts. Unemployment at levels of the 1973-75 adn 1980-82 recessions (post-WWII highs) might result in household bankruptcies at levels like that of the Great Depression. This March 9 study by Met Life has similar findings about the precarious state of US household finances. The poltical implications of this could be massive.

    (4) Studies show that social mobility is far less in America than commonly imagined (I was astonished). See these posts for more information:
    * A sad picture of America, but important for us to understand, 3 November 2008
    * Inequality in the USA, 7 January 2009

  25. 64 said: 1. The rich have gotten richer at a greater rate than the poor and middle class while their taxes have decreased significantly

    DH says: The first part of this statement is true. Other than from the perspective of envy I don’t know why it’s relevant. The second part of the statement is problematic. The top of the income distribution is currently carrying a higher percentage of the total tax load than at any time in U.S. history.

    64 said: A quick look at the GINI and one sees that there has been an increasing income disparity in the US since the 70s

    DH says: True. I think this is largely due to two factors: massive immigration of low skill low wage workers to the US, and the fact that emerging economies such as India and especially China flooded the global market with the output of low wage low skill laborers. In a sense, it’s a miracle that low wage low skill American workers didn’t see a complete collapse in their livings standards. I’m not saying this is good or bad, simply that it exerted powerful downward force on unskilled and semi-skilled U.S. labor, with no analagous downward pressure (yet) for high skill high wage U.S. labor.

    (1) The rich have lost much wealth during this downturn.

    DH: agree.

    (2) The “middle class” has proportionately lost more, due to the concentration of their asset holdings in highly leveraged investment in real estate.

    DH: Not sure this is true. It seems plausible, but the largest declines in home values have been in California, Arizona, Nevada and Florida, where median home prices were higher than the national median. Within those markets I believe the data will show high priced houses have lost more value than lower priced houses. Anyway, I agree that net worth has declined across the spectrum, and that lower net worth folks have much less of a cushion between solvency and bankruptcy than higher net worth folks, obviously.

    (3) The real story will be the 2nd and 3rd quintiles …

    DH: agree with all of this point.

    (4) Studies show that social mobility is far less in America than commonly imagined (I was astonished). See these posts for more information:

    DH: I don’t think the OECD study tells us much. Taken at face value it shows that the 6th, 7th 8th and 9th income deciles are better off in the US than the OECD average. The 10th decile is slightly worse. The top half of the spectrum is far better off. If one is offended by disparity in and of itself (GINI index) then this is a problem. I’m not offended by the existence of disparity, particularly if the cure is to make everyone poorer. I am concerned about the bottom decile. However, I think there is little to no connection between the economic condition of the bottom decile and the U.S. tax structure. The father/son statistic in interesting, but I don’t think it addresses the mobility issue. Mobility isn’t about where you start in life. It’s whether you can more up or down from your starting point.
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    Fabius Maximus replies: Two brief notes.

    (1) Your guess about household holdings of real estate is incorect. See the Fed’s Survey of Consumer Finances, or any of the many other studies about this. (See this analysis of the 2004-2007 survey data. Compare tables 6 and 9, pages 19 and 30).

    (2) The father/son data directly addresses the mobility question. I don’t understand your objection.

  26. A request please, all comments about the ancient economy have a bearing on economics in many parts of the world even today, but since in some parts of the Empire slaves were 60% of the population and Freedmen added another large and anomalous component — and yes in some instances slaves owned slaves — there is little of value to compare. If you have peace for a long time in the heartland, the slave-owners live really well. What is most unusual about Rome is simply its endurance and breadth. They were at heart robber barons and pillagers, regardless of Vergil, Ovid, Sallust, Tacitus, Cicero et. al. There are disturbing elements in our picture that we may have an opportunity to correct in the coming decade for which Rome does provide some sobering examples if not evidence — the role of military power in the economy, the centralization of authority, the hollowing out of institutions designed to limit power of concentration and the inevitable kinds of decisions this leads to. I do mean a range of things that are usually described as corruption but that is a term which gets in the way of reasonable discussion.

  27. FM– I can see Obama’s logic, though. He’s regarding this as a once-in-a-generation opportunity for socialized health care/extension of the welfare state, and he’s taking it. One of the reasons the GOP runs up the deficits it always does is to prevent that kind of move–Reagan’s advisers (e.g., Stockman, etc.) were explicit about this, and I think Obama is essentially saying enough is enough, we’re going for it anyway, otherwise the only role for Democratic presidents is going to be cleaning up after the Republican ones ad infinitum. He may also be calculating that the Red States are going to be the primary beneficiary of a lot of what he’s doing–particularly vis-a-vis health care–and perhaps he can even transform electoral dynamics as a result (though that seems like a bit of a reach).

    Nonetheless, I fear you’re right–that our fiscal foundations are already so weak that his budgets stand a good chance of cratering what’s left.

  28. Capitalism is not the problem, but capitalism is just a set of rules as to how markets behave, and it has been around since the first cave men traded sea shells. The peculiar dogma that capitalism works best with minimal government intervention is the system that is broken, and it is what you adhere to so rigidly in the fact that it has blown up in the faces of everybody who was so confident in what is basically vision of Ayn Rand/Alan Greenspan/ Rick Santelli (who was chairman of the fed for nigh 30 years, not some transitory figure).

    I agree that the invisible hand of the market will always carry the day, but the market doesn’t exist in a vacuum. Even minimal government regulation has a ripple effect that can vastly distort the market and it is this attitude that less regulation is better that led to the economic devastation we are seeing right now. So more government interferes is not always a bad things and right now is very necessary to the survival of the economy.

    The Great Experiment was representative democracy, not unbridled robber-baronry. So who are the utopians, FM, the realists who see the broken system as it is or the dogmatists who clings to the failing ideology?
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    Fabus Maximus replies: Capitalism is a far more complex system than savages trading sea shells, and has created far greater material wealth than its predecessors.

    On the other hand, many of the people writing here seem to have little understanding of its theoretical foundations. Adam Smith probably would have regarded Ann Rand as a nut (me, too), as these quotes from Wealth of Nations suggest.

    “All for ourselves and nothing for other people seems, in every age of the world, to have been the vile maxim of the masters of mankind.” (Book III, chapter 4)

    “People of the same trade seldom meet together, even fore merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices.” (Book I, chapter 10)

  29. Adam Smith didn’t invent capitalism, he was simply the first to describe it so perfectly. Whether it’s sea shells or Wall Street or even a communist, capitalism is just the forces of the market at work. It doesn’t mean that there cannot be wealth redistribution, market principles hold true, and they adapt around regulatory principles. The real question is what regulations are in place and how effective are they?

    Capitalism doesn’t care about the poor any more than gravity cares about the falling.
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    Fabius Maximus replies: I love to hear from the disciples of Zeno. No matter how great the change in history, they point to tiny commonalities with previous history. The capitalism that produced the massive increase in wealth over the past few centuries is just like trading sea shells. Yep, after consuming sufficient dope — it’s just the same. Absurd.

    Plus the deep stuff. Capitalism does not care about the poor, unlike monarchies, fascism, communism, Disney-ism, blah blah blah. Capitalism has elevate living standards so that the poor in America live better than the rich in most other eras. Most of them have cars, telephones, and color TV. Their problems are obesity and excess consumption of alcohol and drugs. just like the savages trading sea shells.

  30. The recent mass increase of wealth was created by nearly a half century of unchecked speculation that mortgaged the future of the economy, and now the payment is coming due. I don’t see why you keep imputing to me this straw man argument as if I am anti-capitalism, nothing could be farther from the truth. The point I was trying to make earlier is that being anti-capitalist is like being anti-gravity. Gravity is a fact of life but this does not prevent us from making airplanes *and* parachutes, if you will permit me to overextend and analogy.

    But where we disciples of Zeno see “tiny” commonalities are in the unchanging nature of human greed, and it is not so tiny a commonality at all. You say the poor are just like the “savagaes trading sea shells” well I submit to you that the Wall Street speculators have proven themselves to be no different either.
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    Fabius Maximus replies: Not at all. I object to considering “capitalism” as equivalent to bubble in the past few decades in a small number of nations. The results of captialism are (as I repeatedly mention) the massive increase in wealth of most of the world, as capitalism has spread over the past several centuries. In the past 20 years the move to prosperity of billions in Asia is IMO far more important than the rise and fall of American speculators.

    Also, in the way of rich people, we consider every sniffle to be the End of the World. Despite our lamitations, the business cycle is part of the capitalist system. Booms and depressions are two sides of the coin, and over long sweeps of time both are inevitable. The booms were not the triumph of Ann Rand, the busts are not the end of life on Earth.

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