Good: The Hidden Cost of War
November 28th, 2009Soros attempts to change Economic currents
October 27th, 2009Via Newsweek.com -
Converting the Preachers
George Soros launches a $50 million effort to purge economics of its free-market zeal.
By Michael Hirsh
Oct 27, 2009
“Large swaths of economics are going to have to be rethought on the basis of what’s happened.” So said Larry Summers, President Obama’s chief economic adviser, in an interview in the weeks after the markets crashed a year ago. Yet to a remarkable degree, economic thinking hasn’t changed very much at all. (Click here to follow Michael Hirsh).
Now financier George Soros is announcing a $50 million effort to speed things along. This week Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of “free-market fundamentalism,” among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees. He’s also creating an “Institute for New Economic Thinking” to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. Soros hopes matching funds will bring the total endowment up to $200 million. “Economics has failed not only to predict and explain what happened but has also failed to protect society,” says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. “That’s what the crisis revealed. The paradigm has failed. There is no guidance.”
It might be tempting to dismiss all this as a war of words among brainiacs. It’s not. The critical issues being discussed in Washington about the future regulation and control of the financial industry—the very nature of Wall Street and the health of the economy—depend on this battle of ideas. What led to wholesale deregulation in the ’90s and ’00s wasn’t just Wall Street lobbying money. It was also that key legislators and policymakers, among them Larry Summers, persuaded themselves that deregulation was sound economics and good policy, and that markets and Wall Street institutions could take care of themselves. Many of those views have been discredited by the crisis. But in the absence of a new paradigm of economics, confusion still reigns in Washington. With no new concept of the proper role of government and regulation in the economy, of the proper balance between the markets and their minders, the old school still dominates.
And almost by default, the profession and many of its leading journals remain controlled by free-market thinking out of the University of Chicago, Stanford, MIT, and other institutions, Soros, Johnson, and others argue. Free-market thinking also dominates the debate on everything from the “too big to fail” problem to health care. And some of the economists whose work was most prescient, and most ignored, remain marginalized.
Exhibit No. 1: the late Hyman Minsky, a bushy-haired dissident at the University of California, Berkeley, and Washington University who saw into the heart of financial-market mania perhaps more deeply than anyone else. Minsky’s “Financial Instability Hypothesis,” which he developed in the ’60s, held that success in financial markets always breeds its own instability. The longer a boom lasts, the less market players consider failure a possibility; as a result, careful borrowing, lending, and investment inevitably give way to recklessness and speculative euphoria. Margins and capital cushions come to be seen as unnecessary. At a certain watershed point—sometimes called a “Minsky moment”—the foreordained collapse begins. The most speculative bets crash, loans are called in, asset values plunge, and the downward spiral feeds on itself. That’s what happened over the last two years.
Minsky was in effect filling in many of the intellectual blanks left by John Maynard Keynes on the critical question of how financial markets affect the “real” economy. Nonetheless, an assessment of Minsky in 1997, a year after he died, concluded that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.” Since the current crash, Minsky has been rediscovered by economic pundits, and now a few economists are struggling to turn his insights into a model of how the economy really works.
But it’s all happening very slowly. And with no rules of the road, we have entered a Mad Max world of economics in which even the most eminent of our top regulators and central bankers can’t seem to agree on the fundamental nature of financial markets. One clash of titans is occurring between Paul Volcker and Ben Bernanke. Volcker, the former Fed chief, wants commercial banks barred from heavy proprietary trading. “I don’t want them to be Goldman Sachs, running a zillion proprietary operations,” he told me recently. Bernanke, the current Fed chairman, doesn’t want to tamper nearly as much with the structure of the Street; instead, he wants to restrain the big banks through changed incentives, such as by tying compensation to long-term performance, and through increased capital requirements. Across the Atlantic, Mervyn King, the governor of the Bank of England, is engaged in a fierce debate with Britain’s chancellor of the Exchequer, Alistair Darling, over breaking up big banks. King says breaking them up is the only way to prevent another catastrophe; Darling says King doesn’t know what he’s talking about.
But it’s all happening very slowly. And with no rules of the road, we have entered a Mad Max world of economics in which even the most eminent of our top regulators and central bankers can’t seem to agree on the fundamental nature of financial markets. One clash of titans is occurring between Paul Volcker and Ben Bernanke. Volcker, the former Fed chief, wants commercial banks barred from heavy proprietary trading. “I don’t want them to be Goldman Sachs, running a zillion proprietary operations,” he told me recently. Bernanke, the current Fed chairman, doesn’t want to tamper nearly as much with the structure of the Street; instead, he wants to restrain the big banks through changed incentives, such as by tying compensation to long-term performance, and through increased capital requirements. Across the Atlantic, Mervyn King, the governor of the Bank of England, is engaged in a fierce debate with Britain’s chancellor of the Exchequer, Alistair Darling, over breaking up big banks. King says breaking them up is the only way to prevent another catastrophe; Darling says King doesn’t know what he’s talking about.
Even Alan Greenspan appears to be engaged in a fierce argument … with his own younger self. “U.S. regulators should consider breaking up large financial institutions considered ‘too big to fail,’ ” he said earlier this month. But for most of his life, Greenspan was an Ayn Rand libertarian who abhorred the idea that government should break up anything; he once wrote that “the entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance.” Bigger was better, he said, and that way of thinking largely governed his stewardship of the Fed from 1987 to 2005. “The control by Standard Oil, at the turn of the century, of more than eighty percent of refining capacity made economic sense and accelerated the growth of the American economy,” Greenspan wrote in Capitalism: the Unknown Ideal in 1961. But Greenspan now has this to say about banks: “If they’re too big to fail, they’re too big. In 1911, we broke up Standard Oil—so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”
Maybe it is, or maybe it isn’t. Does anybody know anything any more? Again, many of these debates go back to basic questions of economic wisdom. Even Adam Smith, the founder of free-market thinking, noted that banking should be treated differently than other businesses. Financial markets, constantly haunted by panics and manias, are more prone to failure and are more critical to the economy’s health. That wisdom was lost or marginalized in recent decades as the “efficient-market hypothesis” ruled the era. But that doesn’t mean the pendulum should necessarily swing all the way in the other direction. Should finance be regulated almost like a public utility, as Keynes and Minsky thought? Some, like Bernanke and Summers, say that too much of that kind of thinking will inhibit healthy innovation. “The Keynesians were romantic about the possibilities of governments. The free-marketers were romantic about the possibilities of markets,” says Johnson. “But the policies in neither camp have much validity at this point.” While this intellectual interregnum drags on, Wall Street-affiliated lobbies are moving into the vacuum and enjoying some success in watering down regulatory proposals, such as those concerning derivatives trading.
One thing seems certain: unless the economists get their act together, at least more than they have, the lobbyists may get to decide what the future looks like.
Michael Hirsh is also the author of At War with Ourselves: Why America Is Squandering Its Chance to Build a Better World.
Barack Obama: The Entagled Giant
September 28th, 2009Some perspective and a little context. Read. Pass along. Question.
via The New York Review of Books
Volume 56, Number 15 · October 8, 2009
Entangled Giant
By Garry Wills
George W. Bush left the White House unpopular and disgraced. His successor promised change, and it was clear where change was needed. Illegal acts should cease—torture and indefinite detention, denial of habeas corpus and legal representation, unilateral canceling of treaties, defiance of Congress and the Constitution, nullification of laws by signing statements. Powers attributed to the president by the theory of the unitary executive should not be exercised. Judges who are willing to give the president any power he asks for should not be confirmed.
But the momentum of accumulating powers in the executive is not easily reversed, checked, or even slowed. It was not created by the Bush administration. The whole history of America since World War II caused an inertial transfer of power toward the executive branch. The monopoly on use of nuclear weaponry, the cult of the commander in chief, the worldwide network of military bases to maintain nuclear alert and supremacy, the secret intelligence agencies, the entire national security state, the classification and clearance systems, the expansion of state secrets, the withholding of evidence and information, the permanent emergency that has melded World War II with the cold war and the cold war with the “war on terror”—all these make a vast and intricate structure that may not yield to effort at dismantling it. Sixty-eight straight years of war emergency powers (1941–2009) have made the abnormal normal, and constitutional diminishment the settled order.
The truth of this was borne out in the early days of Barack Obama’s presidency. At his confirmation hearing to be head of the CIA, Leon Panetta said that “extraordinary rendition”—the practice of sending prisoners to foreign countries—was a tool he meant to retain.[1] Obama’s nominee for solicitor general, Elena Kagan, told Congress that she agreed with John Yoo’s claim that a terrorist captured anywhere should be subject to “battlefield law.”[2] On the first opportunity to abort trial proceedings by invoking “state secrets”—the policy based on the faulty Reynolds case—Obama’s attorney gen- eral, Eric Holder, did so.[3] Obama refused to release photographs of “enhanced interrogation.” The CIA had earlier (illegally) destroyed ninety-two videotapes of such interrogations—and Obama refused to release documents describing the tapes.[4]
The President said that past official crimes would not be investigated—certainly not for prosecution, and not even by an impartial “truth commission” just trying to establish a record. He said, on the contrary, that detainees might be tried in “military tribunals.” When the British government, trying a terrorist suspect, decided to use some American documents shared with the British government, Obama’s attorney general pressured it not to do so. Most important, perhaps, was the new president’s desire to end the nation-building in Iraq while substituting a long-term nation-building effort in Afghanistan, run by a government corrupted by drug trafficking and not susceptible to our remolding.
Even in areas outside national security, the Obama administration quickly came to resemble Bush’s. Gay military personnel, including those with valuable Arabic-language skills, were being dismissed at the same rate as before. Even more egregiously, the Obama administration continued the defiance of the Constitution’s “full faith and credit” clause, which requires states to recognize laws passed by other states, when it defended the Defense of Marriage Act, which lets states refuse to recognize gay marriages legally obtained in another state. Many objected when Dick Cheney would not name energy executives who came to the White House in 2002, though Hillary Clinton, as First Lady, had been forced to reveal which health advisers had visited her. Yet the Obama team, in June 2009, refused to release logs of those who come to the White House. (It later reversed itself, but only in response to a lawsuit.)
Some were dismayed to see how quickly the Obama people grabbed at the powers, the secrecy, the unaccountability that had led Bush into such opprobrium. Leon Panetta at the CIA especially puzzled those who had known him during the Clinton years. A former CIA official told The Washington Post, “Leon Panetta has been captured by the people who were the ideological drivers for the interrogation program in the first place.” A White House official told Jane Mayer of The New Yorker, “It’s like Invasion of the Body Snatchers.”
Perhaps it should come as no surprise that turning around the huge secret empire built by the National Security State is a hard, perhaps impossible, task. After most of the wars in US history there was a return to the constitutional condition of the pre-war world. But after those wars there was no lasting institutional security apparatus of the sort that was laboriously assembled in the 1940s and 1950s. After World War I, for instance, there was no CIA, no NSA, no mountain of secret documents to be guarded from unauthorized readers, no atomic bomb to guard, develop, deploy, and maintain in readiness on land, in the air, and on (or in) the sea.
Now a new president quickly becomes aware of the vast empire that is largely invisible to the citizenry. The United States maintains an estimated one thousand military bases in other countries. I say “estimated” because the exact number, location, and size of the bases are either partly or entirely cloaked in secrecy, among other things to protect nuclear installations.The secrecy involved is such that during the Cuban Missile Crisis, President Kennedy did not even know, at first, that we had nuclear missiles stationed in Turkey.
An example of this imperial system is the Indian Ocean island of Diego Garcia.[5] In the 1960s, to secure a military outpost without fear of any interference from indigenous peoples, the two thousand Chagossian inhabitants were forcibly expelled, deprived of their native land, and sent a thousand miles away. (It is the same ploy we had used in removing native peoples from the Bikini and Enewetak atolls and Lib Island, so that we could conduct our sixty-eight atomic and hydrogen bomb tests there.) Though technically Diego Garcia is leased from the British, it is entirely run by the United States. It was the United States that expelled the Chagossians and confiscated their property. Diego Garcia has become a vast armory, as well as a storage and staging area and harbor and launch site, from which supplies and air strikes are fanned out over the Middle East, especially to the Persian Gulf and the Afghanistan and Iraq wars. No journalists are allowed to visit it. It was funded on a vast scale by various deceptions of Congress. Even the leasing terms with Great Britain were kept secret, to avoid congressional oversight.
That is just one of the hundreds of holdings in the empire created by the National Security State. A president is greatly pressured to keep all the empire’s secrets. He feels he must avoid embarrassing the hordes of agents, military personnel, and diplomatic instruments whose loyalty he must command. Keeping up morale in this vast, shady enterprise is something impressed on him by all manner of commitments. He becomes the prisoner of his own power. As President Truman could not not use the bomb, a modern president cannot not use the huge powers at his disposal. It has all been given him as the legacy of Bomb Power, the thing that makes him not only Commander in Chief but Leader of the Free World. He is a self-entangling giant.
On January 25, 2002, White House Counsel Alberto Gonzales signed a memo written by David Addington that called the Geneva Conventions “quaint” and “obsolete.” Perhaps, in the nuclear era, the Constitution has become quaint and obsolete. Few people even consider anymore Madison’s lapidary pronouncement, “In republican government the legislative authority necessarily predominates.” Instead, we are all, as citizens, asked to salute our commander in chief. Any president, wanting leverage to accomplish his goals, must find it hard to give up the aura of war chief, the mystery and majesty that have accrued to him with control of the Bomb, the awesome proximity to the Football, to the Button.
Nonetheless, some of us entertain a fondness for the quaint old Constitution. It may be too late to return to its ideals, but the effort should be made. As Cyrano said, “One doesn’t fight in the hope of winning” (Mais on ne se bat pas dans l’espoir du succès).
— September 10, 2009
Notes
[1]Jane Mayer, “The Secret History,” The New Yorker, June 22, 2009.
[2]Charlie Savage, “Obama’s War on Terror May Resemble Bush’s in Some Areas,” The New York Times, February 18, 2009.
[3]John Schwartz, “Obama Backs Off a Reversal on Secrets,” The New York Times, February 10, 2009. See also my recent discussion of the Reynolds case, “Why the Government Can Legally Lie,” The New York Review, February 12, 2009.
[4]Evan Perez and Siobhan Gorman, “Obama Tilts to CIA on Memos,” The Wall Street Journal, April 15, 2009; R. Jeffrey Smith and Joby Warrick, “CIA Fights Full Release of Detainee Report,” The Washington Post, June 17, 2009.
[5]See David Vine, Island of Shame: The Secret History of the US Military Base on Diego Garcia (Princeton University Press, 2009). See also the review by Jonathan Freedland, “A Black and Disgraceful Site,” The New York Review, May 28, 2009.
Combo - a collaboration between Blu and David Ellis
September 24th, 2009Incredible.
VBS at the LHC
September 13th, 2009Via VBS.tv and Motherboard.tv -
The Tree of Life
September 6th, 2009Point and Type: Atlas Shrugged
August 19th, 2009From Newsweak.com -
“The handsome Mr. Anseed once again impregnates the sterile world of part-time blogging with his hilarious, genius, sexy, and holy-fuck-i-just-had-the-best-orgasm-of-my-life point and type feature. If Anseed’s blog were a monster it would be a sexy vampire on “True Blood”… it’s that hot!” — Bans Hultema, Newsweak Culture Critic
People of ze world, prepare to have your minds blown. I just walked over to my bookshelf, closed my eyes, and picked a book. I then opened it and pointed at a passage. What follows is that exact passage -
From Atlas Shrugged pg. 172
by Ayn Rand
She watched his car vanish down the winding road. She drove to the airport and hour later. The place was a small field at the bottom of a break in the desolate chain of mountains. There were patches of snow on the hard, pitted earth. The pole of a beacon stood at one side, trailing wires to the ground; the other poles had been knocked down by a storm.