Chirp, chirp, chirp

Those are the sound of the crickets coming from the world of Naomi Klein (link to the worst book of the decade not provided) and friends as the real truth about the relationship between crises and political economy is now right in their faces, providing exactly the evidence against the "shock doctrine" that some of us pointed out right away: crises cause the state to grow and the free market to shrivel.  Disaster Socialism is back in business.

On a related note, will folks on the Left attack the Paulson bailout plan for the naked violation of the rule of law that it is?  From the proposal:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This abrogation of the rule of law, after all, is precisely what the Left has correctly opposed about the Administration's conduct in the "war on terror," so why not continue the same opposition here?  Anyone want to take a guess at the odds of that happening?

Cross-posted at Liberty and Power.

Comments

[Rafe Champion]

Disaster socialism indeed! Socialism feeding on the failure of intervention.

Arthur Koestler in his first volume of autobiography described how he stampeded into the communist movement when he heard about the destruction of food in the US under the New Deal. He thought that was capitalism at work.

"The event that aroused my indignation to a fever pitch never reached before was the American policy of destroying food stocks to keep agricultural prices up during the depression years – at a time when millions of unemployed lived in misery and near starvation. In retrospect, the economic policy which led to these measures is a matter of academic controversy; but in 1931 and ’32, its effect on Europeans was that of a crude and indeed terrifying shock which destroyed what little faith they still had in the existing social order. By 1932 there were seven million unemployed in Germany – which means that one in every three wage-earners lived on the dole. In Austria, Hungary and the surrounding countries the situation was similar or worse. Meat, coffee, fruit had become unobtainable luxuries for large sections of the population, even the bread on the table was measured out in thin slices; yet the newspapers spoke laconically of millions of tons of coffee being dumped into the sea, of wheat being burned, pigs being cremated, oranges doused with kerosene ‘to ease conditions on the market'."

"Indignation glowed inside me like a furnace. At times I thought that I was choking in its fumes; at other times I felt like hitting out, and shooting from a barricade or throwing sticks of dynamite. At whom?…My seething indignation had no personal target; it was directed at the
System in general, at the oily hypocrisy and suicidal stupidity that were driving us all to perdition. In my rage fantasies no people were killed but huge buildings burst open and their walls came tumbling down, as in an earthquake…Echoes of the hundred days of the Hungarian Commune; echoes of the indignant wrath of the Hebrew prophets, and of the forthcoming Apocalypse according to St. Marx; the memory of my father’s bankruptcy,, the sound of the hunger-marchers broken-down boots on the pavement and the smell of fresh wheat being burned in the fields – all these ingredients fused into one emotional experience. My political latency period had come to an end.

Though the mixture that set off the explosion varied from case to case, the reaction was the same for a large number of writers and intellectuals the world over: Barbusse, Romain Holland, Gide, Malraux in France; Piscator, Becher, Seghers, Brecht in Germany; Auden, Isherwood, Spender, Day Lewis in England, Sinclair, Dos Passos, Steinbeck, Caldwell in the USA – to mention only a few. In the nineteen-thirties conversion to the Communist faith was not a fashion or craze – it was a sincere and spontaneous expression of an optimism born of despair – an abortive revolution of the spirit, a misfired Renaissance, a false dawn of history."

"To be attracted to the new faith was, I still believe, an honourable error. We were wrong for the right reasons; and I still feel that, with a few exceptions – I have already mentioned Bertrand Russell and H G Wells – those who derided the Russian Revolution from the beginning, did so mostly for reasons that were less honourable than our error."

[sean andrews]

It's already happening.

There are plenty of "leftists" or "folks on the Left," who oppose this plan--though not necessarily for the reasons you give (some, as Doug Henwood, point out that many "radical leftists" agree completely with your general position of non-intervention: "let the whole rotten system come smashing down and then “we” can rebuild it."
http://www.leftbusinessobserver.com/Turmoil2.html

In addition to conversations on the Left Business Observer, the Progressive Economists, and Lou Proyect's Marxism listservs discussing whether the plan can and should be opposed, there are blogs such as...

http://www.nakedcapitalism.com/2008/09/why-you-should-hate-treasury-bailout.html

which cites exactly this provision in the bill as being an exorbitant abuse of power. Likewise, Krugman opposes it, along with a bunch of other people who might be considered "Leftists" have critiqued this from various angles--

http://krugman.blogs.nytimes.com/2008/09/20/no-deal/

http://www.thenation.com/doc/20081006/howl/print

http://michaelperelman.wordpress.com/2008/09/20/hey-secretary-paulson-whatever-happened-to-shock-therapy/

http://www.truthout.org/article/paulson-bailout-plan-a-historic-swindle

http://mailman.lbo-talk.org/pipermail/lbo-talk/Week-of-Mon-20080915/015339.html

http://www.salon.com/opinion/greenwald/2008/09/20/bailout/index.html

http://debtonation.org/2008/09/comrade-paulson-nationalised-banks-socialism-for-the-rich/

http://www.rgemonitor.com/roubini-monitor/253529/comrades_bush_paulson_and_bernanke_welcome_you_to_the_ussra_united_socialist_state_republic_of_america

In fact, the opposition of this plan from people on the Left has been characterized by TPM as "a rising chorus"

http://talkingpointsmemo.com/archives/218515.php

and Talk Left has all sorts of posts to this effect. Obviously, they may not oppose it for all the reasons you do (or for the singular interest in opposting government interventions of any kind: belated in this case because you seem reluctant to ever see when the state is working in the interest of "naked capitalism" since this is a "natural" state of affairs for you), but oppose it they do. Unlike the single dimension of this blog, they are able to recognize that this bailout--like the financial focus of the regulations that precipitated it--has a significant class aspect to it. The problem is not just that it is government intervention, but government intervention that will save the very people who have helped screw up the system through the demand for unfettered markets. The claim, ex post facto, that there simply wasn't enough deregulation, or it was the wrong kind, is ridiculous when the claim at the time that this was the necessary form of deregulation to help finance help us. Leftists knew exactly who those policies would effect and what kind of incentives they would create. The fact that this wasn't ever "the free market" was perfectly clear to them. Yet the people imposing those regulations claimed your Austrian mantle in slaying the regulations at the time. It all sounds contradictory--and yet it happened. Instead of focusing your energy on opposing the so-called Leftists, you should focus on the people who skewed the system to begin with, under the banner of deregulation. Trying to say that deregulation never happened or that it had no effect is an elegant, counterfactual argument, but it is a bit of a weasel move

You won the so called "war of ideas" with Clinton being forced to say "the era of big government is behind us" and, in response, (as Robert Pollin has catalogued) citizens and legislators agreed to all sorts of changes in the 1990s under the banner of "deregulation." Bush, whatever his actual moves, was overwhelmingly reelected by people supposedly adhering to this policy of "Freedom" and his method of instituting liberty via smart bomb--most of whom continue to stand by him to this day. If the chosen solution to the latest crisis is, as people here and at the Mises blog seem to indicate, deregulation, it is a bit disconcerting. And who should we trust to--let's face it, the word is IMPOSE--this deregulation authentically? Will the Austrians be the chosen experts?

If the economists at this blog want to remain convincing I'd suggest branching out a bit instead of holding an echo chamber of back-patting and the vilification of caricatured enemies. Having a bit more nuance around what could possibly create crisis might also be useful since this has such an obvious, and enormous, market dimension to it. Refusing to call it a market failure on some level, hewing strictly to the line of the singular evil of the interventions of government makes it seem like a fairly one-sided conversation. I'm all for exercising your ability to come up with convincing arguments to counter any empirical observation made by your perceived opponents, but if that is all you're doing, it's hard not to call that simple propaganda as opposed to principled scholarship.

[sean andrews]

you live in a pretty secluded bubble if you don't think there are critics of the plan on the left--most especially of the power it gives to Paulson (if links are needed I can supply them: the website wouldn't let me include them as it claimed they were spam). However, unlike you, they are also outraged about how it basically just affirms the kind of deregulation we were sold: when $85 billion--and evidently upwards to $1 trillion--can be used to bail out banks but we can't spring for children's healthcare or fixing medicare, it is completely apparent who the state was supposed to serve all along. Acting as if the problem was that there was still too much regulation in this case, is just to affirm what the actual leftists (as opposed to the imaginary ones you like to cite) have been saying all along: to claim that the answer is that there needed to be proper deregulation--and, of course, you guys would be the ones to help, let's face it the word is IMPOSE it--is a flimsy one at best. Finding a few policies that remained in place that still might buffer working class people and claiming they were the sole cause of the problem overlooks the dramatic market failure that has taken place regardless. The regulatory paradox, in this case, has come back to bite you in the ass.

All you end up saying is that, if the state had been set up to ONLY serve the interests of investors, a.k.a. the impersonal device of "the market" then they wouldn't have been so driven to crash the system. Evidently the market is the perfect mechanism for aggregating any amount of information, for bringing together the collective wisdom of all the individuals in this "extended moral order;" yet, like the princess and the pea, it's actors simply cannot fathom the repercussions of any government policy that isn't clearly set up to serve their interests. Removing the wall between commercial and investment banks; encouraging the practice of "originate-and-distribute" in bundles of securitized mortgages; refusing to step in when it was clear this was gaming first time home buyers...none of this action/inaction can be blamed. Only the hidden hand of the state.

To act like the current situation, to let investors off the hook and encourage the public to accept even more protection for said investors--to make it seem as if this bailout plan is not the end result of that kind of deregulation--is patently dishonest no matter how many logical pretzels you can twist to get a coherent argument. Until people who advocate deregulation in general can admit some fault for supporting the ideology that helped give cover to this state of affairs, they cannot claim to have the legitimate scientific claim on what should or could happen afterward.

And, while we are on the subject of Klein; though contrary to your characterization leftists are certainly critical of the plan, there are plenty who simply don't want it because they would like to see the whole system come crashing down. When you come out on that side, it certainly sounds more like what Klien says of your preferred model of economics: if complete failure of the financial system is what is necessary to correct the market imbalance, then so be it: we just need to let it all fail and have the proper plan in place to make sure the resulting state stays within the appropriate parameters. Spin it however you want, that seems the logical conclusion.

All this sounds much more like what Polanyi said about "the liberal creed." He was no advocate of fascism, but realistically understood its roots--not just in ideas but in actual material circumstances-- and wouldn't tolerate the philosophical purists who didn't see the double movement as a likely result of their form of social planning. If all you have to contest this policy is strawman arguments about "The Left" I remain unconvinced. What about you? If the communists of the early 20th century are responsible for anything ever done in its name, why are the advocates of deregulation not responsible for accounting for "actually existing deregulation?" Explaining it away by saying deregulation never happened seems to be the kind of thing you'd call out a "leftist" on: the point is that the panacea of deregulation helped institute whatever state of affairs exists. Perfectly fine for you to stay on the defensive, but just so we're clear on where you stand. You may have, indeed, been wrong for all the right reasons, but that doesn't make you unequivocally right.

[Matěj Šuster]

Is there actually any austrian economist who has some deeper knowledge of financial markets and who can indicate what exactly went wrong? More detailed analysis is definitively needed!

[Matěj Šuster]

This article (1999) sounds almost prophetic:
The Dangers of Derivatives, http://www.brookings.edu/opinions/1999/0520useconomics_mayer.aspx

"Why are such derivatives dangerous? The one lesson history teaches in the financial markets is that there will come a day unlike any other day. At this point the participants would like to say all bets are off, but in fact the bets have been placed and cannot be changed. The leverage that once multiplied income will now devastate principal.

The banking supervisors have not begun to control the buildup of leverage on the derivatives chassis. Indeed, Federal Reserve Chairman Alan Greenspan has argued that the mathematicians are improving their formulas to make the business less risky. But the more security the math seems to give, the greater the risk on the day the highly improbable happens."

[Nick]

Klein is far too arrogant to acknowledge that she ever got it wrong. Her book and arguments are complete nonsense and do a real disservice to those who have suffered at the hands of brutal socialist/fascist regimes. I don't know about it being the worst book of the decade, more like ever.

[Ed Weick]

This blog gives a good Nero impersonation.

My suggestion is Mises' "The Theory of Money and Credit" if you are looking for a deeper understanding of what went wrong.

TMC was published in 1912; the basic argument was restated in "Human Action" published in 1949. Obviously the intervening global catastrophe only proved the theory expounded in 1912.

[Steve Horwitz]

Ed,

We've all read Mises and we all know the theory, but perhaps some of us think there's more to this than just an influx of credit. There's a whole regulatory apparatus in place that affected the way in which this all played out. Mises may be necessary but his work is hardly sufficient to explain the current set of events.

[liberty]

If you google the (very very frightening!) passage you quoted from the proposal, you'll see that the blogger far left are as upset about it and you and I.

Whether we'll ever hear a retraction from the Chomsky-lite Naomi Klein is another story. If she didn't get it from the hundred years of history of Road to Serfdom via emergency measures, and thinks we got more "capitalism" (freer markets??!!) instead of socialism from the great depression... well, she obviously doesn't care for facts, experience or reality at all. This won't change that.

[Steve Horwitz]

Matej:

For some examples of the regulations in question, this WSJ piece today is pretty much right on:

http://online.wsj.com/article/SB122204078161261183.html?mod=djemEditorialPage

[liberty]

And now the Democrats want to add wage controls to Paulson's powers.

[Ed Weick]

Steve,
You certainly are more educated than I in these matters. All I try to do is keep my clients' asset safe and growing.

By following Mises' analysis combined with all the other Austrian insights I am aware of, the clients have benefited.

I intend to continue to follow Mises' prognosis right through to the catastrophic conclusion. Paulson seems hell bent for leather to accelerate Leviathan’s gobbling up our political economic system and getting us to catastrophe asap.

If you can share anything that you think would be helpful in navigating this challenge, please pass it along.
ED

[Daniel J. D'Amico]

I like to begin a lot of my classes by explaining that economics is not all about boring GDP, interest rates and financial markets its about a much richer and deeper set of topics pertaining to all of human behavior.

Perhaps I've taken that too far because admittedly I know very little about the contemporary political history surrounding the American financial crises. It seems true regardless of the causes that we must in fact understand the causes before any proposed cure can hope to be effective. As for the cause there are two mainstream perspectives: (1) the republicans did it by de-regulating the financial markets, (2) the democrats did it by sub optimally regulating the financial markets. And both of these lead to some sort of bail out with tweaking today.

I think these obviously seem shortsighted, and I am puzzled at the state of economic understanding in much the same way as Boettke. If 500 planes fell out of the sky we wouldn't blame gravity we would blame some form of policy or plan, and rightly so. To blame markets in this case seems odd.

But what are these specific "de-regulations" that people are accusing the republicans of?

There's a host of literature that admits to temporary downturns after de-regulations, if the Republicans truly understood the process of deregulation and had some sort of ideological end in mind, then they would have owned up to the potential of downturns and been prepared for such social expansions (because it would threaten their end). I think this greatly weakens the claim that there is some sort of laissez faire conspiracy behind Washington republicans.

[Steve Horwitz]

Dan - It's not clear what "deregulation" people have in mind. Perhaps the Gramm-Leach-Bliley legislation that ended many of the provisions of Glass-Steagall, but that was 1999 under Clinton.

I sometimes think that people equate "deregulation" with "new financial instruments that I don't understand."

[Devin Snead]

Speaking of the worst book of the decade, Klein was on Bill Maher on Friday and claims that the current crisis is a part of the "Bush Shock Doctrine."

http://rawstory.com/news/2008/Naomi_Klein_Financial_crisis_part_of_0921.html

[James]

Left....right...must you all continue to be suckers and fight over crackers?

This has nothing to do with ideologies and hasn't for some time. Look at the stuff in common with people like Ron Paul, Dennis Kucinich, Ralph Nader, etc.

This is financial fascism at it's most flagrant with elitist twits at the top flipping coins to pretend they are Democrats or Republicans as if there is much of a difference.

You really need to stop playing their game of having you fight over ideology at the bottom as they squeeze us into wine for them to drink.

There is only two groups that are relevant anymore:

1) Elites...just about money and power...direct Financial sector connections as Paulson or Rubin shows. This is like the Top 0.01% or 0.1%...hard to tell.

2) Everyone else. This includes businesses as well as companies as they liquidate or buyout the concept of actual American companies. (Drink a Bud if you agree!) Asset grab, job outsourcing, all part of the same game.

*Hard Truth time: You don't need to connect this to Nazi's or the Queen of England, 9/11 or anything else in history too far back as it weakens your position. Just connect it to the 20s and Bush=Hoover and you're there.

Stop trying to win pointless arguments with the left on Abortion or Religion or Affirmative Action at this point. The elites are ruling you all (left and right) like idiots who will argue over any "issue" they play on Fox or CNN when the MSM are all on in the scheme.

You need to join together as a coalition, wake up the public and topple this oligarchy. Once the bubble wealth of these morons has been redistributed. (I mean Paulson is not letting them fail at the moment, so options are getting worse)

Then why not work on building a stable true competitive capitalistic system with checks and balances that don't allow either monopolies or government to manipulate or pick winners.

Did you see how easily they pumped up the price of Oil to rattle people. (no speculation my ass) It doesn't hurt when the futures are over 12x the total production/usage of Oil in the world. Bullshit paper.

And the whole regulation, rules and safeguard thing. Name one sport where there are no rules and it worked out okay? Name one. I'm all for competition, but you at least need safeguards to keep them from kicking it all over....definitely in the financial markets as history has shown. 1920s, 1907, 1895, (notice how all the JP Morgan stuff survives it all)...every time you let the money guys run without any rules...they destroy the productive real economy...every single time. And please...leave the whole Zionist connection out too...that just weakens your point as well.

That's another area where you and the left should agree. Replace the private Fed with US government controlled central bank that works for American interests.

You probably need some reforms to keep the elites from controlling you political establishment too or it all becomes meaningless very fast.

For the record it has been 30 years of acceleration of this starting with Nixon kicking the US off the Gold standard...with every subsequent President and Congress being paid to give powers to the bankers by stripping away all the constraints.

So do you want to keep fighting over the cracker? It's going to fall over regardless at some point and divided are the suckers!