Friday, June 27, 2008

Who's afraid of the Daily Kos?

Kos indulges in conservative bashing and some delusional bravado when it comes to the practice of political fearmongering:
The conservative mind
by kos
Fri Jun 27, 2008 at 10:05:31 AM PDT


It must be really scary to be a conservative. To be one, you must live in constant fear of terrorists nuking the United States, of gay people on the verge of convincing you that you really enjoy sodomy, of Spanish becoming the official language of the United States next week, of every African-American voting seven or eight times in the next election, of radical Islam suddenly becoming the latest hip thing among kids across the country, of perpetual lesbian orgies in girls bathrooms in high schools across America, of liberals forcing everyone to become a vegan, of Christians being rounded up into concentration camps, and of Democrats outlawing private property if they were to ever take power again.

They do live in a state of fear, and what's more, they want everyone else to join them hiding under their bed, in their pool of urine.

Oh, they'll talk tough. They'll bluster and pound their chests like the neanderthals they are.

But inside, they are scared little children, terrified of the world, of people not like them, of change.

And they can't fathom any other way to live.

So Liberals have nothing to fear. Except..

1. Intrusive phone taps by shadowy, overzealous intelligence operatives.
2. Being shot by gun-crazed rednecks.
3. Being drafted and sent to fight an imperial war.
4. Being brought before an inquisition perpetrated by Christian theocrats.
5. Being drowned by rising ocean levels.
6. Legalized rape.
7. Rampant violence against Muslims, homosexuals and people of color in the wake of government conspiracies disguised as terrorist attacks.
8. Government internment camps for people who are different or who speak truth to power.

Don't buy any of Kos' bravado and bluster. Politics is always about fear-mongering, and there is nothing wrong with that. People are motivated by fear, as well they should be. When we think we have nothing to fear, as we did for a short period in the 1990s, we are most at risk.

The right politics are those that identify the right things to fear. People are generally pretty bad at identifying risks. Many times we fear the wrong things, but we are more at risk for not fearing the right things. Global Warming may or may not be caused by greenhouse gas emissions, or may or may not be even happening on a sustained, long term basis. But the risk of a catastrophic worldwide depression brought on by a too rigid policy of capping carbon dioxide emissions is a very real threat.

The next four years and the choices we will make in the areas of economic, energy and foreign policy will be very decisive for our long term prosperity and security. I just hope the leaders we elect this year are fearful enough about the right things.


Blogger Harry Eagar said...

The next 4? You'll be dam lucky to get past this one without a world financial crash.

I agree with you about how people fail to recognize real risks. That is the point of Restating the Obvious.

If you don't think that unregulated financial markets aren't a real risk, you haven't been paying attention for the last 300 years.

June 27, 2008 11:56 PM  
Blogger Susan's Husband said...

And if you don't think entrusting financial regulation to the government of people like Senator Chris Dodd, getting special deals to push through massive transfers of wealth from taxpayers to his corporate friends, while not evening knowing what the current interest rates are, isn't a real risk, then you haven't been paying attention for the last 600 years.

June 28, 2008 5:02 AM  
Blogger Ali said...

I doubt more regulation is going to work. Financial regulators just can't keep up with the scale of innovation in the markets. The current credit mess might have been avoided if credit instruments were treated like futures contracts and accruing losses were easily visible by all parties on a daily basis.

I've been asking around a lot lately if board members, professional advisers and management have seen much impact on their businesses thanks to the credit crunch. So far it doesn't seem to have filtered down. Which is surprising since you'd have expected at least one quarter of negative economic growth by now.

June 28, 2008 7:23 AM  
Blogger Duck said...


I think the chances of not getting new regulatory schemes with respect to credit and mortgage markets in the wake of this years elections is effectively nil. I see two main problems with regulations, one being that it encumbers legitimate economic growth. I think the second, more serious problem, is the reality of corruption of the regulators. You see it with Chris Dodd, and you've seen it with past congressional chairmen of finance and regulatory committees.

That said, I do think we need some commonsense regulations. How about more stringent margin requirements? Much of the market distortion that we see with asset bubbles has to do with margin.

I think that the massive dilution of risks through the proliferation of derivatives instruments has actually added to risks, by making every financial house interdependent with every other, in ways that they cannot easily track. So a crisis with one bank threatens to bring all banks down. This is nuts. We need fire breaks in the financial system. Let each bank manage its own risks. They'd do a better job of it if they knew that other parties weren't going to bail them out. I think they's have better visibility into their own risks if their assets weren't so diluted.

June 28, 2008 8:02 AM  
Blogger Harry Eagar said...

With New Deal-style regulation you can get continuous steady to breakneck growth.

Without it, you get busts every 6 to 20 years.

I know which I prefer.

I'm not sure what Dodd could have done for Countrywide except to not regulate it, which was done with results we see. So your objection to corruption leaves me cold on a practical level.

June 28, 2008 12:39 PM  
Blogger Susan's Husband said...

It's not what Dodd did, it's what he is doing, which is arranging for a massive intervention / bailout to clear Country Wide's mortgage losses.

P.S. New Deal regulation, you mean like the kind that gave us an economy that didn't recover until FDR got us in to a war?

And what do you mean by "bust"? Less than optimal growth?

June 28, 2008 4:53 PM  
Blogger Harry Eagar said...

By bust I mean bust. I understand that you have never read economic history, although I have been hinting it would be a revelation.

Start with Kindleberger.

The idea that somehow the New Deal failed is hilarious.

Hoovernomics managed to wipe out 94% of the nominal liquid capital that had been built up over the previous century. The New Deal was in operation less than 12 months before the free market ideologues torpedoed it.

The idea that further liquidating financial markets in 1932 would have resulted in recovery of a century's losses in less than 6 years is ridiculous.

The recovery, once it began, was on the same order as the recoveries from the panics of '37, '57, '93 and '07 and faster than after '73.

Only people who know nothing -- and I mean nothing -- about American economic history can be taken in by the Shlaes (and earlier Paul Craig Roberts) contentions.

June 28, 2008 8:11 PM  
Blogger joe shropshire said...

The Schecter brothers were free-market ideologues?

June 29, 2008 12:00 AM  
Blogger Susan's Husband said...

I see — any failure of FDR style regulation is because "free market ideologues torpedoed it", and any one who disagrees is utterly ignorant. I do note, however, that bluster, insults, and misdirection do not constitute addressing my point.

As for busts, could you tell me when the last one was produced by our "unregulated financial markets"? I would merely note the difference in response to oil shocks between our FDR style economy in 1973 and our current unregulated one. Perhaps I'm not the one who needs to be reading economic history. Oh, wait, sorry — clearly the 1973 stagflation was a further torpedoing by free marketeers, lead by that fierce opponent of regulation, Richard Nixon.

June 29, 2008 6:55 AM  
Blogger Bret said...

The "New Deal" economy may well be steadier (I define a "New Deal" economy as one with a large government foot print like we have today) than an economy with a very small government footprint. It's like a boat with a massive lead keel weighing it down. It can't go very fast, but it is more stable. The problem with the Soviet economy was not a lack of stability.

June 29, 2008 8:54 AM  
Blogger joe shropshire said...

Well, yeah, it was. There is no Soviet economy. There hasn't been one for seventeen years now. They weren't done in by free-market ideologues either. Look: this is not an economic dispute. This is a dispute over whether FDR gets our undying loyalty and gratitude, which are his due, or not. This is about ancestor worship. What it is, is what it is.

June 29, 2008 10:12 AM  
Blogger Harry Eagar said...

Stagflation, while unpleasant, was not a crash.

The sailboat analogy doesn't work, since the post-New Deal era was the longest, fastest period of expansion.

June 29, 2008 10:39 AM  
Blogger Bret said...

But the boat has the potential to go much, much faster than in the past if it didn't have such a big keel.

June 29, 2008 12:35 PM  
Blogger Susan's Husband said...

Mr. Eagar;

So your point is that since stagflation wasn't a crash, it's better than what we are experiencing now?

June 29, 2008 3:39 PM  
Blogger Harry Eagar said...

About the same, but we haven't had a crash yet.

It's coming, I'm pretty sure. You'll know. I won't have to tell you.

June 29, 2008 8:41 PM  
Blogger erp said...

Not if we keep the dems out of power. The billionaires club won't be able to keep this pressure on the dollar for four more years.

June 30, 2008 6:09 AM  
Blogger Susan's Husband said...

I have to say, it's hard for me to take seriously the economic views of someone who doesn't see any difference between current economic conditions and the 1970s.

June 30, 2008 7:22 AM  
Blogger Ali said...

Harry is right in that we should have seen a recession by now. What's saved the US from one is the depreciation of the dollar and the big boom in exports over the last couple of years. Absent the growth in world trade and it's likely conditions would be substantially worse than 1990-91.

However, I doubt New Deal style regulation is going to be adopted or even work very well if it was. New Deal regulation worked adequately for a world of vastly smaller and simpler capital markets. And a similar regime now would send even more business to London.

To answer Duck's point, I don't think moral hazard is a real problem here. People working in banking are incentivised not to screw up too badly since it means their jobs are toast. The diversification and interdependency seems to have worked out OK as it's forced community action.

Also Gene Smiley is crying into his beer at the notion the US economy had recovered by '32.

July 01, 2008 8:59 AM  
Blogger Harry Eagar said...

Exactly the point I made in April at Restating the Obvious, Ali.

I don't know if New Deal measures could work today. Their absence (repeal of Glass-Steagall instead of extension of G-S approaches to novel institutions) surely made the current mess easier to achieve.

Ad hoc New Deal measures just barely worked in March. If Bear Strearns had suspended on Wednesday instead of Friday afternoon, the crash would have come on Thursday.

Phew! That was too close for comfort.

I cannot agree, though, that bankers are incentivized not to lend money to people who don't pay it back. Citi and its pals transferred approx. $1 TRILLION to the South in the '70s and never got it back.

Now they've done it again. How dumb is that?

Straw in the wind: Wachovia lost money in its last quarter.

July 02, 2008 11:24 AM  
Blogger Harry Eagar said...

I see I was wrong in my expectation that some people would recognize a crash when they see one. (And I suppose the nicest compliment to New Deal economic policy is that no one under the age of 95 knows how to recognize a crash any more.)

If the late '70s had been a crash, here is what you would have seen:

DJIA at 65, hundreds of thousands of solvent businesses closed for lack of credit facilities to carry receivables, thousands of banks fail, manufacturing output down two-thirds but inventories still rising, and -- rimshot! -- deflation.


We haven't crashed in 2008 -- obviously, inflation is raging ahead -- but that was the case up to October 1929 as well.

In my view, we are in considerable danger of a crash today. There was never any danger of a crash in the '70s.

I hope we will avoid a crash, although for some sectors (airlines, newspapers) it's already here.

July 03, 2008 11:53 AM  
Blogger Susan's Husband said...

Mr. Eagar;

Once again you are moving goal posts around so fast it's hard to keep all the changes straight.

You claimed "Without [New Deal financial regulation], you get busts every 6 to 20 year". Based on that, your definition, I labeled the 1970s a "bust". Not a "crash". You're the only one who's used that term. And you've refused to define "bust", even though that's a reasonable request, given how you use other standard terms like "free market" in ways nobody else does. I was also wondering how the "6 to 20 years" chronology applies to post WWII American economic history.

P.S. There was deflation from 1865 to 1900 — was that entire period a crash, then?

July 03, 2008 2:32 PM  
Blogger Harry Eagar said...

A bust is a panic, a crash, a period when financial facilities stop being available even to sound customers.

The last one was in 1929. You can have deflation without having a bust, but not the other way around.

A recession is not a bust. I said that already.

Even in the late '70s, sound borrowers (and some not so sound) could easily borrow money.

Probably more easily than today. I was talking to a sales manager in the machine tool business yesterday. "Nobody's investing," she says.

Well, not quite nobody. But we're getting there.

July 03, 2008 8:49 PM  

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