Newsweek has decided to go back into the news business. The rest of the mainstream media show little if any interest in examining how Chas Freeman came to be appointed. But, sure enough, a decision this bad appears not to be an isolated incident. Newsweek reports:
Now both Republican and Democratic intel experts are raising questions about another Blair pick: John Deutch, a former CIA director once accused of major security lapses, who’s been appointed to a temporary panel reviewing troubled, top-secret spy-satellite programs.
Yes, this was the same Deutch who “stored hundreds of pages of classified files on his home computers, despite repeated warnings that they could be intercepted via the Internet” and thereby lost his top secret clearance.
This leads to the real issue at the heart of the Freeman matter: what is wrong with Admiral Dennis Blair? It is one thing to make an uninformed and unwise choice, but it is quite another not to recognize the error of your ways and then dig in your heels in a Congressional hearing. Outside critics are not alone in worrying about Blair’s fitness:
Congressional critics, including some Democrats, say the two appointments illustrate Blair’s tin ear. As he vigorously defended Freeman, Blair also downplayed evidence of substantial financial ties between the Middle East Policy Council, a think tank Freeman used to run, and Saudi interests. Blair had told Congress that “no more than one 12th” of the council’s $600,000 budget came from the Saudi government. But Freeman told NEWSWEEK that the council had also received a $1 million endowment from Saudi King Abdullah in 2005, plus another $1 million pledge for operating support from Saudi Prince Al Wahleed.
(So did Freeman, or Blair, or both misrepresent the extent of Freeman’s financial conflict of interest?)
Obama, having no executive experience himself, was thought to be putting together an all-star team. But Blair is now joining Tim Geithner (and perhaps others) who are showing themselves to be lacking the skills and judgment needed to lead in perilous times. If the president is unwilling or unable to do something about it, Congress should step up to the plate. That’s what Congressional oversight is all about.
Someone needs to make the argument that the free market didn’t fail– the market was not allowed to operate on its own merits.
Alas, I worry that anyone making that argument will get ridiculed as merely saying about capitalism what was laughably said about communism for decades– “The only reason communism never succeeded is because it was never tried!”
The difference today, however, is that free market economics WAS tried– and it’s made the world a better place.
We forget that lesson at our peril.
Wolf is something of an idiot — and an ignorant one at that.
Wolf is ignorant of Greenspan’s history — Greenspan got started in economics soaking in Keynes. Greenspan had a standard Keynesian / Ivy League economics education. Greenspan never learned “free market economics”. For a time he was the member of a cult, led by the weird lady Ayn Rand. Greenspan then went into politics, and played the political game as cynically as anyone. He showed no signs of being a principled guy.
At the Fed Greenspan explicitly REJECTED the free market macro of Wicksell and Mises, the foundation of the tiny bit of macro Greenspan published during his membership in the Rand cult.
It was Greenspan’s anti-free market policies at the Fed that provided the ultimate cause of the current crisis — far below nature rate interest rates, explicitly ignoring and even promoting the misdirection of capital across the time structure of production into the housing bubble.
All of this is utterly lost of Wolf, who seems to know nothing of the free market economics of Hayek and Mises, and nothing of Greenspan’s cynical betrayal of free market economics.
What we have long needed is much better economic journalism. When can we expect a recovery in that cratered sector of the economy?
it’s sad when older – and presumably wiser – journalists panic in their prose…
we are all still in the throes and thrall of the economic unknown…but the idea that rescue will come in the form of a state ‘elite’ is laughable on its face…of course, there will be ‘more’ regulation – but some regulations are stupider and more distortive than others…’free’ trade and ‘free’ markets has never meant ‘lawless’ trade and ‘rule-free’ markets…
…fwiw – free markets are no more an ‘ideology’ than physical chemistry or molecular biology…it is a collection of assumptions, mechanisms and methodologies that – in the aggregate – appear to allow economic growth, increased standards of living and technological innovation to flourish – relative to more statist alternatives….
sir martin should reread his von hayek…and have a brandy to steel his quivering nerves
buck up, old boy, buck up…
If Mr. Wolf is truly a “dean of financial writing”, and truly thinks that the worlds current economic ills are a thumbs down verdict on post-Reagan “free market” philosphy, I shudder to think what a “dunce” of fincancial writing might speculate concerning the “free market”.
The current state of affairs may be many things, but most certainly is not proof positive of failure of the free market…since we have had no such thing as a free market since at least 1913 with the advent of the Federal Reserve and its illegitimate manipulation of interest rates leading to chronic bust and boom cycles. Throw in a fiat currency and the natural tendency of politicians to engage in shenanigans (CRA, Fannie/Freddie, confiscatory taxes, and bailouts) guaranteed to expand government at the expense of individual liberty, and you have nothing at all that resembles a “free market” except maybe in the minds of leftists searching for bogeymen to legitimize their quest for a bigger state, wealth transfer, and equality of outcome. While all the enlightened ones simultaneously search for an answer to this economic crisis and trash the “free market”, I can not help but shake my head in disgust, as the answer lies in the very thing despised and once championed by Reagan himself….less government, less spending, less regulation, lower taxes, and faith in the little guy. Perhaps the reason that there is no countervailing theory waiting to ascend to the throne vacated by the free market, is that no such thing exists to begin with.
@Dave: So ostentatiosly true. The high taxes, suffucating regulation and parasitical litigation of the past 30 years did not, of course bear even a facile resemblance to a free market. To be sure they were, generally, an improvement on what preceeded and the growth that occurred illustrated the benefits of the slightest degree of freedom. We can be confident that improving on the policies of the last three decades with much lower, simpler taxes, significantly less regulation and some moderation of predatory litigation will generate still more real growth, perhaps even enough to enable us to get out of this mess.
This is not, of course, an argument for no taxation (indeed lower, more efficient taxes will generate more revenue – revenue needed, for, among other things, a much larger defense budget), no regulation (in some isolated cases – not just Fannie and Freddie – there was probably some underregulation) or no litigatin (there are indeed constant abuses and torts commited by businesses that need to be checked) but rather agains the dramatic, in absolute terms, excess of these functions in recent decades.
We cannot, to be sure, develop a perfect system and any regime will be both excessively repressive and fail to catch serious abuses. Still, the Reagan era did far more to validate free market principals than repudiate them and the clear way forward is to improve on the implementation of theses principals. That this is seems a dubious prospect at the moment is both contemptibly idiotic and tragic.
@Greg Ransom
Well, yes. One of the few things government has to and is generally capable of doing is preserving the value of the currency. Greenspan’s failure to do so (abetted) by Bush is undoubtedly the single greates cause of our present cirisis.
My simply posits that the real wealth aggragated up to the time of crisis would have been far greater in the context of freer markets unhampered by the constraints I enumerate.
Call up John Steele Gordon to handle this nonsense.
How does any respectable market theory deal with simultaneous, pervasive fraud in both the government and private sectors? It seems we have been through a stretch where both sectors have harbored many people and institutions trying to pick our pockets, while we citizens let our guard down. The decline of morality and the left-liberal hijacking of our educational system are key factors in this breakdown. Exhortations to resume business as usual without dealing with root causes won’t get things right. Neither will the creation of another hopeless socialist state.
Bob Miller: “The decline of morality and the left-liberal hijacking of our educational system are key factors in this breakdown.”
Uh, ok. No. That’s, hmm, that’s an awfully strange answer, Bob. Maybe you should have a seat for a while.
Also, what’s not Keynesian about the stimulus? (I do not want to debate its effectiveness.)
It’s a reaction to a failure of consumer demand in an economic downturn, where individuals (rationally) reduce their spending in a “belt-tightening” fashion. Their rational, individual act, along with the rest of society’s individual, rational acts, collectively have a devastating impact on that society’s economy. In that event, I *think* Keynes would say that in that case the government should intervene and correct that failure of consumer demand.
Ok, so if this was done under Roosevelt, and is being done now, where is the massive, irreversible global shift?
Also, the new deal worked.
What an irresponsible government can do to fix an irresponsible system for its irresponsible citizens is hard to detect.
#9
You could say that the New Deal worked, in that the population of the country didn’t decline by 80%, wasn’t forced to dress in rabbit skins, and didn’t resort to mass cannibalism. So it worked.
As Thomas Sowell said, capitalism is the only “true” economic system, whereas the other “isms” are political philosophies. There is a profound difference.
“It’s a reaction to a failure of consumer demand in an economic downturn, where individuals (rationally) reduce their spending in a “belt-tightening” fashion. Their rational, individual act, along with the rest of society’s individual, rational acts, collectively have a devastating impact on that society’s economy. In that event, I *think* Keynes would say that in that case the government should intervene and correct that failure of consumer demand.”
The flaw in this analysis (as well as in Keynesian in general) is the assumption that all people “in the aggregate” will reduce their demand and thus not spend and “in the aggregate” will save. However, people “in the aggregate” do not entirely reduce spending nor do they “in the aggregate” increase savings. There will always be a borrower paired with a seller somewhere. However, when the government intervenes in the markets and becomes a spender it can crowd out other spenders from gaining access to resources they can use and put to productive uses.
Well, with Obama at the helm, we can be certain of one thing, the economy will stay flat, and not get markedly better for some time. Why? He’s increasing the size of government in a shrinking economy, which means the cost burden of government gets larger when it is least affordable.
When you tax something–income, investment, productivity, work–you get less of it. As the increase in government spending, and the taxes imposed, of a trillion dollars is spread across more taxpayers, the burden increases. Growth will be far lower than the out-years of Obama’s budget rely upon, hence revenues will be far smaller, deficits far higher, and the burden of government largess becomes even greater. One thing to be said about Obama, he knows not how an economy works–he sees his role as dividing up the pie, not in aiding, through incentives, growth of the economic pie. It’s truly a shame. But no surprise.
“Also, the new deal worked.”
The term “worked” can mean different things in different contexts. And for that matter, the term “new deal” can mean different things, too.
Chuck:
You could say that it cut unemployment by about half. And you could say that it set up programs like social security and unionization, which certainly “worked” in their own ways. Indeed, there are several constructive ways to gauge the effectiveness of the new deal, and there’s room to debate the import of one statistic over another.
Now, of course, you could also say something irrelevant, obvious, and childish, like “rain makes you wet”, but if you did that, then people would think you’re a little boy, and and they would stop taking you seriously.
You could also say that it didn’t do anything to improve GDP, smothered private investment, hindered employment, and required a World War to restimulate the economy – but I wouldn’t want to quibble about rain making you wet.
And I could also say that the World War II represented a *rather large* expansion of federal spending, and I would be right on the money. So how are you not in favor of a Keynesian approach after you admit it worked for the Depression?
Also, quick research indicates that US GDP increased by $400 Billion between 1933 and 1940 (From $6,000,000,000 to $10,000,000,000). What do your stats say?
And, please, it’s rather silly to say that I’m in favor of every single program & policy of the new deal. In that great notion of learning from history, I think we take was worked and toss what didn’t. For instance, the NRA comes to mind as one we might want to, you know, not do again.
Communism, fascism, &c. were not born of recessions and economic disappointment. The “god that failed” succeeded a God that was posited “dead,” not an uptick in unemployment. To compare the current frustration with governments and markets alike to the historical genesis of ideologies that sanctified the murder of tens and tens of millions of innocents seems thoughtless. So I agree with Bob Miller that this “crisis” is ultimately one of moral education – the same inadequacy that has agitated civilization throughout the modern era.
Why is it that the “Great Depression” is always the one held up as the example of an economic catastrophe and its successful defeat? What about the Panic of 1819, or 1893 or 1907? Isn’t there something that we could learn from those economic disasters? Is spending a decade in misery followed by a world war the best way to combat economic problems? That’s over 15 years of stagnating or decreasing living standards. In exchange we got social security and industrial union organizing? Good deal. That episode gives Keynes the same credibility in the economic realm that Jackson Pollock has in the art world.
“And I could also say that the World War II represented a *rather large* expansion of federal spending, and I would be right on the money. So how are you not in favor of a Keynesian approach after you admit it worked for the Depression?”
Great!! So you’re advocating war with Iran and North Korea and continue to support the failed Bush policies in Iraq, yes?
Regarding Seth’s comment #19, I do think that the totalitarian movements got a lot of push from:
1. WW1 and its aftermath, which included poor economic times in Central and Eastern Europe in the early 1920′s.
2. The great depression of the 1930′s.
Howver, if Seth’s point is that such movements could not have gained any traction if people had not become de-moralized beforehand, that may be so.
One argument advanced for the New Deal (and FDR in general) is that it somehow kept America from embracing one or more forms of totalitarianism. Possibly. However, if the New Deal also extended and deepened the depression, that in itself promoted a radical mood!
Well I would be happy to start looking at which programs to jetison – yes the NRA would be great place to start scrapping. I see many of Obama’s proposal’s that would have the same effect. WWII was so massive in its scope but how long can it be sustained? Part of the issue about dropping the bomb on Japan also surrounded a population tired of war, and rationing and shortages and demanding an end to the fighting. 2 million casualties invading an island armed to the teeth doesn’t quite scratch that itch. We also know once the War ended there was a massive economic setback as war production ceased and people got back on a normal footing. I would come up with a better argument.
I will have to come up with a full list of mistakes – of course I think Obama’s deficit spending as a percent of GDP is significantly higher than the “New Deal” ever was and even Keynes would suggest this extensive deficit spending won’t work because it will gut the value of the currency for one.
Your GDP numbers are wrong – you listed an almost doubling of GDP in your numbers (I presume you meant to say $4B not $400B) and I have never read a number like that. More research for me, but no problem – if GDP doubled during the Great Depression, we wouldn’t think of it as that, don’t you think?
My numbers were terrible.
US GDP:
1933: $56.4 billion
1940: $101.4 Billion.
- US Dept. of Commerce
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1933&LastYear=1940&3Place=N&Update=Update&JavaBox=no#Mid
I would also point out that you brought up the war, not me. So what’s your point? The War saved the economy, and then it didn’t save the economy?
I would come up with a better argument.
“I think Obama’s deficit spending as a percent of GDP is significantly higher than the “New Deal” ever was and even Keynes would suggest this extensive deficit spending won’t work because it will gut the value of the currency for one.”
Yes, you are absolutely correct. In 2009 that percentage will be about 44.7%. The new deal percentage never got above 22.4%, in 1933.
Unfortunately for you, deficit spending as a percentage of GDP has been greater than the new deal since the year 2000, when it was 33% (37% in 2008).
I would come up with a better argument.
“Unfortunately for you, deficit spending as a percentage of GDP has been greater than the new deal since the year 2000, when it was 33% (37% in 2008).
I would come up with a better argument.”
Hmm, that’s interesting, because in average government expenditures as a percent of GDP under Bush was 18% which is only 3% points higher than the average over the duration of the New Deal (15%). Now, this is in regards to total expenditures, not deficit spending, but even under the dreaded Bush the deficits incurred were not totally out of sync with traditional government expansion. Not that I WANT more government expansion, but this need to constantly demonize the prior President is old (you guys harped on about conservatives beating up on Clinton, one would hope a little balance would be factored into your thought analysis. Then again, that is asking took much.).
The nettle that Conservatives decline to grasp or avert their gaze from – I speak as a convinced Conservative – is that in any so-called market economy, there will be losers, serious losers, devastatingly lost losers. You simply cannot have winners without losers. The nettle that so-called Progressives avoid is that the market economy is a NOT a zero-sum game. There will be more winners than losers. It is plain illogical, given the presuppositions of market economics, for matters to fall out any other way, as has been known since Adam Smith’s “The Wealth of Nations.”
Experience has shown – e.g. the so-called Great Depression – that whenever government attempts to “redress” the inevitable inequality of outcomes in a free society by putting its finger on the scale somewhere, it seems it must inevitably create more losers. It may take decades to discern that, but it is nonetheless true.
So the question becomes, How SHOULD society manage the travails of the losers, who, ideally, in losing should have learned something that will flip them to the other side of the ledger betimes? Losing is not an ontological category; i.e., it is not a state of being (at least in a Christian perspective it’s not), but a contingent status that demands mitigation. But by whom? Shall society confirm so-called victims in their victimhood? Can compassion be rationalized via government-instigated “caring”?
Human nature has not changed in the last 100,000 years. Attempts to regulate economic activity, like building better mouse traps, leads to smarter mice. Every attempt to prevent “fraud and abuse” by rule or regulation has failed. Caveat emptor still applies to every transaction.
Government can, by law, make world economies collapse. Anyone paying attention could forsee the collapse of housing prices and the collapse of the world credit markets based on requiring, by law, extention of credit to those who couldnt pay. Once that law was signed, the outcome was entirely preordained. All the actors acted rationally in their own best interest to maximize gain .
Modesty and restraint in public policy making is as important in preserving free markets which are required to preserve our liberty.
The Road to Serfdom is well traveled. We all should know where it leads.
Chris: I mentioned the years 2000 – 2008 not just because of the “hated” Bush (no, I’m not a big fan of the guy, but I’m not a reactionary idiot either), but because many of those years entailed a “conservative” approach to the economy. Or so I am told.
This is not to say that Bush mimicked your every wish, or that I am claiming that he did everything you would have (or the rather strikingly intelligent conservatives who write for this site) liked a “conservative” president to do. But you have to admit, if the electorate skewed towards your beliefs, the president we would have now would have a governing style very similar to president bush. (read: standard GOP policy)
If you guys win this battle, we have another 4, 8 or whatever, years of a bush-minded leader. I happen to think that that would be disastrous.
Anyway, if I have to talk straight numbers, I confess that I do not know the difference between the percentages I put down (which I believe to be correct), and the figures you wrote – “average government expenditures as a percent of GDP”. Can’t respond to that.
“Chris: I mentioned the years 2000 – 2008 not just because of the “hated” Bush (no, I’m not a big fan of the guy, but I’m not a reactionary idiot either), but because many of those years entailed a “conservative” approach to the economy. Or so I am told.”
Yes, if you think that expansion of Medicare, NCLB, multiple bailouts, rebate checks, and no vetoing of spending bills until the Dems took power entailed a “conservative” approach to the economy.
“But you have to admit, if the electorate skewed towards your beliefs, the president we would have now would have a governing style very similar to president bush.”
True, but don’t you have that now, only on steroids?
“Human nature has not changed in the last 100,000 years. Attempts to regulate economic activity, like building better mouse traps, leads to smarter mice. Every attempt to prevent “fraud and abuse” by rule or regulation has failed. Caveat emptor still applies to every transaction.”
To this point one only needs to see AIG. An insurance wholesaler gave a crude representation of what AIG was doing: it was taking money from its profitable arm (the insurance side) and putting it in Europe and investing it in securities that turned out to be bad bets (not to mention that it was also insuring the swaps on credit default of other investment banks). This was an attempt to get around using “reserve requirements” in this country to use the excess funds to make bigger bets. No regulator could’ve foreseen this, not unless they were privvy to inside information.
As for you last point (caveat emptor), I have an add-on, “Be involved with your money.” A problem with excessive regulation is that it transferred risk from the investor to the financial advisor or broker. I’m not saying be an expert in finance, but at least be curious about your money enough to ask tough, critical questions of your advisor. And remember: if anything doesn’t sound right to you, you can always say no.
You could also assert that the continuing Fed policy of lowering interest rates to keep credit cheaper than it might be created a leverage situation where that money found its way to malinvestments. That’s actually part of the home mortgage fiasco, easy money helped drive home prices up.