[img]7|left|Frédérik Sisa||no_popup[/img][Editor’s Note: As a non-narrative book, “The Young Conservative’s Field Guide: Facts, Charts and Figures,” by Brenton Stransky and Andrew Foy, MD, defies the usual short review and asks instead for a more comprehensive discussion. We are pleased to provide you with that discussion in the second of several parts.]
The charge of oversimplification can be leveled against the authors’ Rosy Capitalist perspective, the view that “permanently linked with Liberty is Free Market Capitalism.” Support for this view is cited from one of the giants in the pantheon of capitalist saints, Milton Friedman. Yet while Mssrs. Stransky and Foy are quick to condemn Friedman’s economic opposite, Keynes, by associating him with totalitarianism (via a quoted snippet, no less), they neglect the relationship between Friedman and Chilean dictator Augusto Pinochet. Writing for the “Nation” magazine in 1976, Chilean economist Orlando Leterier explicitly criticized Friedman for conveniently disconnecting economic policy from politics when those politics involve violations of human rights, as when Friedman said: “In spite of my profound disagreement with the authoritarian political system of Chile, I do not consider it as evil for an economist to render technical economic advice to the Chilean Government…” Leterier’s verdict on the success of this economic advice: “…several billions of dollars were taken from the pockets of wage earners and placed in those of capitalists and landowners. These are the economic results of the application in Chile of the prescription proposed by Friedman and his group.” http://www.tni.org//archives/letelier-docs_thenation
Put simply: Capitalism can work for dictatorships just as well as socialism. Just ask China. As for Keynes, well, the story isn’t as simple as Mssrs. Stransky and Foy would like us to believe. A piece for The New York Times entitled “How Did Economists Get It So Wrong?” (http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html) by Nobel Prize-winning economist Paul Krugman is worth reading for an alternative perspective to The Young Conservatives’ Friedman worship.
Deregulate This!
Another disconnect is between government for the benefit of people and government for the benefit of businesses, a disconnect that one can see in Grover Cleveland’s Presidency. “Congress had authorized seeds to be granted to the farmers there to stave hunger, but President Cleveland vetoed the bill,” the authors write. They quote approvingly from a letter written by Cleveland in which he states a fundamental tenet of conservatism, namely, that “Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character.” As Howard Zinn points out in “A People’s History of the United States,” however, “that same year Cleveland used his gold surplus to pay off wealthy bondholders at $28 above the $100 value of each bond – a gift of $45 million.” Today, we find arguments over caps on BP’s liability for the oil spill in the Gulf of Mexico, the Supreme Court’s “Citizens United” decisions that expands corporate influence on the political process, and what the Cato Institute calls “corporate welfare,” in which “The federal government spent $92 billion on direct and indirect subsidies to businesses and private-sector corporate entities — expenditures commonly referred to as “corporate welfare”—in fiscal year 2006.” (http://www.cato.org/pubs/pas/pa592.pdf) The book makes clear the authors’ preference to reduce or end social programs, but their silence on government largesse towards corporations proves conspicuous and telling.
We also find that the momentum over the past 30 years, from Nixon onwards, has actually been towards deregulation despite particular cases the authors refer to. As a result, we have a handful of companies owning the country’s media, huge banks, and lax enforcement that set up our current predicament. On Wall Street, relaxation on capital limits from investment banks, for example, saw the debt-to-net capital ratio grow from 15:1 to 40:1, creating a system of highly vulnerable leverage that popped with the housing bubble.
But the poster child has to be the Glass-Steagall Act, which once provided a barrier between commercial and investment banking. The purpose was, generally speaking, to avoid the conflicts of interest that come with lending money and investing money by the same entity. Abolishing that barrier influenced the formation of mega-banks like Citigroup (which merged with Travelers) and Bank of America – poster children for “too big to fail” – and fostered risky behaviour in an economy sprouting complicated derivatives like collateralized debt obligations and mystifying instruments as synthetic collateralized debt obligations. (Of the latter, a famous excerpt from Goldman Sachs VP Fabrice Tourre’s emails sums up the sort of thing that can happen in the unregulated netherworlds: “More and more leverage in the system. The whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab[rice Tourre]… standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” http://news.bbc.co.uk/2/hi/business/8646487.stm)
All this, and still more that could be discussed, make it hard to look at the relationship between business and government and see anything other than a cozy mutual dependence. Despite (arguable) protestations that government intervention has done more harm than good for the market, the fact remains that businesses from the railroads of old to Wall Street today actively benefit from government intervention, whether it involves calling in the National Guard to break up strikes, bailouts, lobbying, or the sabotage of regulations intended to curb profitable but risky and even unethical behaviour.
The unspoken problem is fundamentally theological, namely, the unbridled faith in the free market’s ability to regulate itself and yield rational, beneficial results. As Krugman observed at the “New Statesman”:
“Adam Smith, the father of modern economists, argued that the pursuit of self-interest (profit-making by competitive firms) would lead, as if by an invisible hand, to general well-being. But for over a quarter of a century, we have known that Smith's conclusions do not hold when there is imperfect information — and all markets, especially financial markets, are characterized by information imperfections. The reason the invisible hand often seems invisible is that it is not there. The pursuit of self-interest by Enron and WorldCom did not lead to societal well-being; and the pursuit of self-interest by those in the financial industry has brought our economy to the brink of the abyss.” http://www.newstatesman.com/business/2008/10/economy-world-crisis-financial
Ironically, this is no longer an exclusively liberal view. Testifying before the House Committee on Oversight and Government Reform at a hearing about the mortgage crisis and economic meltdown, former Fed Chairman and free-market/Ayn Rand devotee Alan Greenspan admitted that “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” When asked whether he was wrong in believing government regulators know better than the market at imposing discipline, Mr. Greenspan grudgingly replied “Partially.” (http://www.nytimes.com/2008/10/24/business/economy/24panel.html)
Not so suddenly, free market capitalism, aka “laissez faire,” isn’t looking so rosy anymore, and the authors’ case proves too flimsy to be convincing.
(To be continued)
Mr. Sisa may be contacted at fsisa@thefrontpageonline.com
