The Apparatchiks
Add comment November 21st, 2009
Posts filed under 'Libertarianism - the Debate'
Ron Paul hits his stride
Why the oft-marginalized congressman is the greatest threat to Obama’s regulatory plan.
Add comment July 9th, 2009
American Socialist State
President Obama’s visit to Moscow this week may turn out to be a very good thing. Forget all this jibber-jabber about nuclear disarmament.
There is no better reminder than the former Soviet Union for how the fantasies of a few collectivist zealots can turn into unending nightmares for its people — and for how a state-run economy ends up with no economy at all.
If we’re lucky, a little Russian history on this trip will turn into a welcome wake-up call for Mr. Obama.
It’s not that Mr. Obama is some radical who carries a warm nostalgia for the Soviet Union from his university days. He’s way too young and too smart for that.
But the president believes in the state, certainly more than any other recent American president. He believes the state must actively intervene in the economy and that the state can bring about a better future. And it seems he believes it is his destiny to lead the state to that future.
In that way — and others — Obama reminds me of Vladimir Lenin, the founder of the Soviet state.
CNBC’s Jim Cramer made the Obama-Lenin comparison back in February. And the more I’ve thought about it, the more it holds.
Associated Press
A painting made during the Russian Revolution, showing Vladimir Lenin surrounded by revolutionaries, date unknown.
Of course, Obama is a reformer, not a revolutionary. And he’s certainly no communist.
But just like Lenin, Obama is a supremely self-confident leader — an intellectual heavyweight and a clever political tactician — an elitist moralizer and a populist champion. And just like Lenin, Obama carries the true-believers’ righteous fervor for “change.”
I was thinking of Lenin as I watched the president’s Rose Garden remarks on energy and innovation last Thursday.
After his eight minutes in front of the teleprompter, the president turned to walk away, and a reporter blurted out a question, “Mr. President, do you have a message for the small businesses on health and economy?”
The president should have just walked away. But it was as if he couldn’t stop himself as he launched into a rambling, haughty answer that I found…well, a bit scary.
It was scary because it demonstrated that Mr. Obama — almost half a year in office — still has no grasp of the everyday realities faced by America’s small businessmen. They can’t make payroll, but the president is directing them to buy LED lightbulbs and urging them to contact “clean energy” CEOs.
And it was scary because it showed that the president is still possessed by an unshakable conviction in the power of the state over the individual and of the future over the past.
As he put it in the Rose Garden, we have to change the health-care system. We have to change how we use energy. We have to change how we “train our young people.” “We are not folks who are scared of the future or look backwards. We always meet the challenges by moving forward.”
Political clichés? Of course.
But the president seems to actually believe his clichés. And some of his Rose Garden remarks could have been lifted from Lenin’s speeches circa 1918 – the same hectoring tone and the same mockery of opponents who long for the “status quo”.
Even Mr. Obama’s call to move “forward.” “Forward!” in fact was one of the Soviets’ favorite slogans.
The good news for those of us who are a little freaked out by Mr. Obama is that even Lenin did an about-face after the utter failure of his initial hard-left economic policies.
By early 1921, faced with the ruin and famine wrought by nationalization of the economy, the Bolsheviks re-instituted a quasi-capitalist economy with its New Economic Policy. Ironically, the NEP was aimed to help small businessmen — the very same people that the Obama economy so desperately needs nowadays.
Lenin called the NEP taking “one step backward to take two steps forward.” While he’s in Moscow, President Obama may want to ask someone at the Kremlin, just what Lenin meant by that.
Editor’s Note: Mr. Newmark was a student in Moscow in 1984, worked with George Soros on Russian economic reform in 1988-89 and ran the Goldman Sachs Moscow office from 1992-1994.
Why Barack Obama Is Like Vladimir Lenin – Evan Newmark, Deal Journal
Add comment July 7th, 2009
Forgetting What We Learned
ILLITERACY IN HIGH PLACES
by Paul Craig Roberts
If a person lives long enough, he can watch everyone forget everything they learned.
Everyone includes Federal Reserve Chairmen, economists, Bank of America “strategists,” and even Bloomberg.com.
Federal Reserve Chairman Ben Bernanke thinks he can hold down US long-term interest rates by purchasing mortgage bonds and US Treasuries. Sixty years ago the Federal Reserve understood that this was an impossible feat. After an acrimonious public dispute with the US Treasury, in 1951 the Federal Reserve forced an “Accord” on the government that eliminated the Fed’s obligation to monetize Treasury debt in order to hold down long term interest rates.
President Truman and Treasury Secretary John Snyder wanted to protect World War II bond purchasers by preventing any rise in interest rates, which would mean a decline in the price of the bonds.
The Fed understood that monetizing the debt to hold down interest rates meant loss of control over the money supply. The policy of suppressing interest rates could only work until the financial markets anticipated rising inflation and bid down the bond prices. If the Fed responded by buying more Treasuries, the money supply and inflation would rise faster.
Since Fed Chairman Bernanke announced his plan to purchase $1 trillion in mortgage and Treasury bonds in order to help the housing market with low interest rates, interest rates have risen. When will the Fed remember that printing money does not lower long-term interest rates?
According to Bloomberg (June 3), Bank of America strategists are recommending that investors buy Fannie Mae bonds because the rise in interest rates means the Fed will ramp up its purchases in order to prevent rising interest rates from adversely impacting the struggling housing market. When will financial gurus remember that printing money does not lower interest rates?
Treasury Secretary Geithner is another economic incompetent. He told China that he stood for a “strong dollar,” but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar. He simultaneously told China that their investments in US Treasury bonds were safe.
His Chinese university audience, being economically literate, laughed at Geithner. It apparently did not dawn on the US Treasury Secretary that if Chinese money is rising in value relative to the US dollar, the value of Chinese investments in dollar-denominated US Treasury bonds is falling.
Congressional Democrats are proving themselves to be as stupid as the Republicans. According to the Associated Press, the Democrats have reached agreement to appropriate another $100 billion to continue the wars in Iraq and Afghanistan through the end of the year. What are the Democrats thinking? The federal budget for this year is already 50% in the red. Why add another $100 billion to the red ink, which has to be monetized, thus causing inflation, higher interest rates, and a weaker dollar.
The red ink that Washington is generating is a far greater threat to Americans than any foreign “enemies.”
The hubris is extraordinary. A bankrupt government that has to send its Treasury Secretary begging to China thinks it can spend limitless amounts in a futile effort to control the culture, mores, and political system of distant Afghanistan.
Add comment June 6th, 2009
“Huh?”…asked the terminator
June 2 (Bloomberg) — Imagine a novel of more than a thousand pages, published half a century ago. The author doesn’t have a talk-radio show and has been dead for 27 years.
As for the storyline, it is beyond dated: Humorless executives fight with humorless public officials over an industry that is, today, almost irrelevant to the U.S. economy – - railroads. The prose itself is a disconcerting mixture of philosophy, industrial policy, and bodice-ripping: “The wind blew her hair to blend with his. She knew why he had wanted to walk through the mountains tonight.”
In short, you would think “Atlas Shrugged” might be long forgotten.
Instead, Ayn Rand’s novel is remembered more than ever. This year the book is selling at a faster rate than last year. Last year, sales were about 200,000, higher than any year before that, including 1957, when the book was published.
Some assumed the libertarian philosopher would fall from view when the Berlin Wall fell. Or that at least there would be a sense of mission accomplished. One Rand fan, former Federal Reserve Chairman Alan Greenspan, wrote in his memoir that he regretted Rand hadn’t lived until 1989 or 1990. She’d missed the collapse of communism that she had so often predicted.
But “Atlas Shrugged” is becoming a political “Harry Potter” because Rand shone a spotlight on a problem that still exists: Not pre-1989 Soviet communism, but 2009-style state capitalism. Rand depicted government and companies colluding in the name of economic rescue at the expense of the entrepreneur. That entrepreneur is like the titan Atlas who carries the rest of the world on his shoulders — until he doesn’t.
Back Ache
You get the feeling plenty of Atlases are shrugging these days, in part because their tax burden is getting heavier. It’s interesting to compare sales of “Atlas Shrugged,” provided by the Ayn Rand Institute, to Internal Revenue Service distribution tables.
In 1986, a year when “Atlas Shrugged” sold between 60,000 and 80,000 copies, the top 1 percent of earners paid 26 percent of the income tax. By 2000, that 1 percent was paying 37 percent, and “Atlas Shrugged” sales were at 120,000. By 2006, the top 1 percent carried 40 percent of the burden.
Yet President Barack Obama has made it clear he would like to see the rich pay a greater share. Anyone irked at that prospect can find consolation in Rand’s fantasy, in which the most valued professionals evaporate from the work place because of such demands.
Sounding Weird
The hard-money monologue of Rand’s copper king, Francisco d’Anconia, used to sound weird. Who even thought about gold in the early 1990s? Now, D’Anconia’s lecture on the unreliable dollar sounds like it could have been scripted by Zhou Xiaochuan, or some other furious Chinese central banker:
“Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’”
Other “Atlas Shrugged” characters are likewise relevant: Orren Boyle of Associated Steel, one of the corrupt businessmen, is so skilled at anticipating what government will do that he could have taught Jeff Immelt a few tricks. Wesley Mouch, the Washington fringe-character-turned-politician who unexpectedly makes his way to center stage, recalls Timothy Geithner at Treasury in his early days.
Game of Pretend
Rand knew that government tends to drive the most- productive economic figures away even as it pretends to utilize them. Today’s shortage of primary care doctors serves as an example. Various administrations, Democratic and Republican, have tried to nudge more medical students into primary care. Young doctors simply haven’t complied. That is in part because of the higher compensation of specialties. But it is also because the great charm of being a primary care doctor — autonomy to work in a range of areas — has been removed.
Rand foresaw this: “Let them discover the kind of doctors that their system will now produce,” says one of her characters. “It is not safe to place their lives in the hands of a man whose life they have throttled.”
Long before managed-care existed, Rand was describing doctors’ frustration with it.
Most compelling is Rand’s understanding of how politicians’ lack of imagination can kill economies. Of all American governors, Arnold Schwarzenegger of California is the one who most resembles Rand’s outsized characters.
Missing Gene
Yet Schwarzenegger seems to be missing the Rand gene. His policies are all pain and no growth. As the Randerati have been quick to note, California’s uncompetitive treatment of film production is driving Hollywood out of California. Yet Schwarzenegger moved disappointingly late to sign legislation that would even begin to address that problem.
Rand’s persistent heroine Dagny Taggart lectures a public official, but substitute Schwarzenegger for the official and the dialogue still makes sense:
Dagny: “Start decontrolling.”
Schwarzenegger: “Huh?”
Dagny: “Start lifting taxes and removing controls.”
Schwarzenegger: “Oh no, no, no, that’s out of the question.”
Dagny: “Out of whose question?”
In short, it’s time for all of us in policy land to tip our collective hat — though she detested collective anythings — to Ayn Rand. Politics today is proving dramatic enough to change even literary tastes.
(Amity Shlaes, senior fellow at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)
Rand’s Atlas Is Shrugging With a Growing Load – Amity Shlaes, Bloomberg
Add comment June 4th, 2009
How libertarian dogma led the Fed astray
http://www.ft.com/cms/s/0/705574f2-3356-11de-8f1b-00144feabdc0,s01=1.html
The Federal Reserve has been hobbled by at least two major shortcomings that were primarily responsible for the current and several previous credit crises. Its failure to spot the importance of changing financial markets and its commitment to laisser faire economics were big mistakes and justify a fundamental overhaul of the Fed.
The first of these shortcomings was its failure to recognize the significance for monetary policy of structural changes in the markets, changes that surfaced early in the postwar era. The Fed failed to grasp early on the significance of financial innovations that eased the creation of new credit. Perhaps the most far-reaching of these was the securitisation of hard-to-trade assets. This created the illusion that credit risk could be reduced if instruments became marketable.
Moreover, elaborate new techniques employed in securitisation (such as credit guarantees and insurance) blurred credit risks and raised – from my perspective, many years ago – the vexing question, “Who is the real guardian of credit?” Instead of addressing these issues, the Fed was highly supportive of securitisation.
One of the Fed’s biggest blind spots has been its failure to recognise the problems that huge financial conglomerates would pose for financial stability – including their key role in the current debt overload. The Fed allowed the Glass-Steagall Act to succumb without appreciating the negative consequences of allowing investment and commercial banks to be put together. Within two decades or so, financial conglomerates have come to utterly dominate financial markets and financial behaviour. But monetary policymakers failed to recognise that these behemoths were honeycombed with conflicts of interest that interfered with effective credit allocation.
Nor did the Fed recognise the crucial role that the large financial conglomerates have played in changing the public’s perception of liquidity. Traditionally, liquidity was an asset-based concept. But this shifted to the liability side, as liquidity came to be virtually synonymous with easy borrowing. That would not have happened without the marketing efforts of large institutions.
My second major concern about the conduct of monetary policy is the Fed’s prevailing economic libertarianism. At the heart of this economic dogma is the belief that markets know best and that those who compete well will prosper, while those who do not will fail.
How did this affect the Fed’s actions and behaviour? First, it explains to a large extent why the Fed did not strongly oppose the removal of Glass-Steagall restrictions.
Second, it also helps explain why the Fed failed to recognise that abandoning Glass-Steagall created more institutions that were “too big to fail”.
Third, it diminished the supervisory role of the Fed, especially its direct responsibility to regulate bank holding companies. To be sure, the Fed’s supervisory responsibilities have never been very visible in the monetary policy decision-making process. But its tilt toward an economic libertarian approach pushed supervision a notch down just at a time when financial market complexity was on the rise. Fourth, as hands-on supervision slackened, quantitative risk modelling became increasingly acceptable. This approach, especially quantitative modelling to assess the safety of a financial institution, was far from adequate. But it worked hand in glove with a philosophy that markets knew best.
Fifth, adherence to economic libertarianism inhibited the Fed from using the bully pulpit or moral suasion to constrain market excesses. It is difficult to believe that recourse to moral suasion by a Fed chairman would be ineffective. Such public pronouncements about financial excesses are hard to ignore, reaching the broad public as well as market participants.
Sixth, the Fed’s increasingly libertarian philosophy underpinned its view that it could not know how to recognise a credit bubble but knew what to do once a bubble burst. This is a philosophy plagued with fallacies. Credit bubbles can be detected in a number of ways, such as rapid growth of credit, very high price/earnings ratios and very narrow yield spreads between high- and low-quality debt.
By guiding monetary policy in a libertarian direction, the Fed played a central role in creating a financial environment defined by excessive credit growth and unrestrained profit seeking. Major participants came to fear that if they failed to embrace the new world of securitised debt, proxy debt instruments, and quantitative risk analysis, they stood a very good chance of seeing their market shares shrink, top staff defect, and profits dwindle.
Ironically, the problem was made worse by the fact that the Fed was inconsistently libertarian. The central bank stuck to its hands-off approach during monetary expansion but abandoned it when constraint was necessary. And that, in turn, projected an unpredictable and inconsistent set of rules of the game.
We should, therefore, fundamentally re-examine the role of the Fed and the supervision of our financial institutions. Are the current arrangements within the Fed structure adequate – from its regional representation to its compensation for chairman and governors to its terms of office for governors? How can the Fed’s decision-making process be improved? If we were to create a new central bank from the ground up, how would it differ? At a minimum, the Fed’s sensitivity to financial excesses must be improved.
The writer is president, Henry Kaufman & Company
Add comment April 28th, 2009
