Wednesday, August 5, 2009

Ayn Rand-- Our economy took a sucker punch from a bad idea

At work today I was pondering some recent right wing rhetoric... the theory it comes from and how it impacts the economy...
 
I'm not sure if that's what everyone else is thinking while they are loading their trucks...
 
I'm just saying I'm a dork--though sometimes I just sing really loudly, as its a warehouse and nobody cares... "its just Jim" as they often say with a smile.
 
But anyways i've come up with an example.  In a small way it hopefully answers the common of the questions I get. Why in the world would a guy training to be a political theorist want to run for office... and why in the world should anyone vote for him? 
 
Here's an example of how political theory has an impact on your life.
 
Ayn Rand
 
Ayn Rand, she has an impact on your life whether you know it or not.  Though many of you have probably never heard of her. 
 
Strike that, if you actually read my blog and are interested in the things I post about (for whatever reason i'm not quite sure) then you've probably heard of her.
 
Granted its an easy target as she was a pretty bad philosopher (so says the bad philosopher with a grimace...)
 
And we now have a massive government bailout via her intellectual decedents running amuck with government policy--mixing personal political preferences with economic realities--to prove it.
 
Even so, the anti bailout new deal deniers are out in force now that the Democrats have to clean up after the mess that conservatives and blue dog dems helped create.  These folks and have employed the "flat earth" errr... "birthers" who are taking to the authoritarian tactics of shouting down town hall meeting across the country so as to turn the agenda away from the facts about health care reform via the "liberal media bias" and allow their Congressional Republicans to hide in silence so that they don't bumble the facts that even conservative commentator Bill Kristol admits is true--health care reform would work.
 
Recently philosopher Brian Leiter, economist Robert Reich, and economist Mark Thoma nail the merits--or at least the lack thereof of Ayn Rand. : 

THE enduring popularity of Ms. Rand bewilders her many detractors, who complain that her writing is melodramatic, heavy-handed and intellectually bereft.

“To describe her as a minor figure in the history of philosophical thinking about knowledge and reality would be a wild overstatement,” says Brian Leiter, director of the Center for Law, Philosophy and Human Values at the University of Chicago. “She’s irrelevant.”

Professor Leiter conducted an informal poll in March on his philosophy blog, asking, “Which person do you most wish the media would stop referring to as a ‘philosopher’?” The choices were Jacques Derrida, Ms. Rand and Leo Strauss. Ms. Rand won by a landslide, with 75 percent of the roughly 1,500 votes cast.

Professor Leiter says Ms. Rand’s views on moral philosophy and objective reality are “simple-minded in the extreme.”

“She doesn’t understand the historical positions of thinkers on these issues, such as Hume and Kant,” he says. “Even the minority of philosophers with some sympathy for her celebration of the virtues of selfishness usually find her general philosophical system embarrassing.”

Others contend that a lack of constraints on self-interested and greedy business people set the financial crisis in motion — a view that tends to undermine Ms. Rand’s theories on the value and social benefits of unfettered ambition and limited government.

“It takes a great leap of ideological blindness to look at the past few years and think that the main problem was too much government involvement,” said Robert B. Reich, a public policy professor at the University of California, Berkeley, who was a labor secretary in the Clinton administration.

Mark A. Thoma, an economist at the University of Oregon, says the financial crisis would have been worse if the government hadn’t rapidly intervened.

“I completely disagree with the idea that letting the markets heal themselves is the best idea,” he says. “We tried that in the ’30s, and it didn’t work out so well.”

Fiscal conservatives take an opposite tack, arguing that the government has intervened in overly aggressive and risky ways. They find much to praise in Ms. Rand’s economic views. Yet even for that crowd, her social views are a tougher sell.

Ms. Rand was an ardent atheist who considered the cross a symbol of how “a man of perfect virtue” sacrificed himself for a bunch of losers. “It is in the name of that symbol that men are asked to sacrifice themselves for their inferiors,” she said.

Randian Craig Biddle responded
 
Andrew Martin has a nice article in today’s New York Times, titled “Give BB&T Liberty, but Not a Bailout.” The piece is, for the most part, positive, and I highly recommend it.

I must point out, however, that the article includes a smear by subjectivist philosopher Brian Leiter, who expresses his wish that Rand is “irrelevant” and that her ideas are “simple-minded in the extreme” and “embarrassing.” Well, I suppose her ideas would be embarrassing to someone such as Leiter, who, in the article, exposes his method for answering such questions as whether or not a given person is a philosopher: Take a poll.

The reason why Rand’s philosophy is not for Leiter & Company is that it is for those who are willing to think for themselves rather than follow the herd, and who are not embarrassed by clear, straightforward arguments, which characterize Rand’s work.

Leiter retorts:
Yikes, Craig Biddle, a card-carrying member of the Rand cult, has (apparently without irony) explained why "Leiter & co." (i.e., 99.9% of all philosophers, who are in Rand-speak "subjectivists") don't take Ayn Rand seriously:  it is because Rand is only for those "willing to think for themselves rather than follow the herd, and who are not embarrassed by clear, straightforward arguments, which characterize Rand’s work."  Yes, that must be it.   And for a fine example of "clear, straightforward" argument, do compare Mr. Biddle's gloss on what I said with the actual content of the article

HOW RANDIANS THINK:  I received the following e-mail from a random member of the cult protesting my comments about Rand, and including this penetrating observation:  "As to Hume and Kant, they are the reason for  the most horrible atrocities committed by man.  The idea that reality is unknowable is false, and to promote otherwise is dishonest."

 
But Jim, what does this have to do with me?
 
As some of you know I'm an undergrad (read: bad philosopher) in the GA State Philosophy Department working on becoming a better one--and one thing I learned in the past two years as a legislative aide is that on both sides of the aisle there is lots of bad theory and personal opinions being played off without basis in easily available empirical data, if you know places to look (for example.. or here too!) but you won't always catch it if you miss the political framing that often goes on during the floor debates.  Its important to distinguish theory and the real world.
 
I have been shocked, watching up close what goes on in hearings and in floor debates, about the confusion about of "free markets" and "how the economy works" from booth sides of the aisle that are often wrong, confused, or out of context. 
 
Not only not only am I a grassroots activist who has spent a lot of time in the past year or two on the ground in the district hearing from every day constituents and their frustration with Davis and conservative policies impacts on their lives.  But my background is in theory and the approaches to policy that come from things that are quite often personal preferences disguised as empirical reality.
 
One of my core beliefs that I've driving at--and trying to unravel in my head in my efforts-- is a core belief that bad political theory, sloppy reasoning, and a lack of historical context can be very dangerous. 
 
I mean its pretty straight forward truism, all you have to do is look back at history.
 
But I don't think the story has been told very well or in a way that I would approach it.  I'm basing this on the political positions of many people I've grown up with and respect--but can't see eye to eye with politically.  Finding ways to communicate on the issues while acknowledging biological bias...  there is a narrative there that hasn't been told quite right. And i'm trying to unravel it.
 
Again, JIm, what does this have to do with me or running for office?  
 
Easy, the recent economic crisis is an example of how bad philosophers can impact everyday people...and influence legislators and policy makers.
 
If you are a state legislator that can't cut through cultural meme's and economic and policy narratives that are flawed you can't expect to approach important legislation in an appropriate manner.  Not everyone on the floor of the gold dome needs to be an expert on issues x, y, or z.  But we need experts in each and every area to help focus the important debates and questions the general assembly faces.
 
Ayn Rand and policy
 
For those who don't know Alan Greenspan was a pupil of Ayn Rands... and promoted the "markets regulate themselves" "government only causes problems" meme so popular in ivory tower's, conservative think tanks, and libertarian political circles.  But the real world is not an intellectual abstraction and doesn't work the way we want it to.  Ideas like liberty or equality at all costs are dangerous--what that not part of conservative Edmund Burke's criticism of the French Revolution,?
 
To make my point, lets reflect...
 
Oct. 8th of 2008 the New York Times did just that on the Greenspan era...
 For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

It appears at least one Randian had never seen greed before... in all of human history individualism has never, ever been destructive to society--right?  Or is it just a case putting an abstract idea before practical realities on the ground?
 

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.

Ooops... and now we get the massive bailouts that the same conservatives love to go on and on about... one example here--that has no basis in the actual facts which is unfortunately a common theme because of talking heads (read: entertainers) like Boortz and Hannity, rather than economists and policy makers, leading the debate.
 
But back to Greenspan and our little look back on history...

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately....

....

Greenspan reflects and yet still is a true believer....

In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably.

“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market.

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.
So we have a political philosophy mixing with ones economics...

As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets.

Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves.

“Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government.
And the DLC democrats like Clinton, Gore... and their econo heads Rubin and Summers went right along with it...

Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead.

“I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ”

Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks.

Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said.
We all know how well that worked...
“There is nothing involved in federal regulation per se which makes it superior to market regulation.”
 
Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said.
But he called that possibility “extremely remote,” adding that “risk is part of life.”
Eh... its a part of life!
 
Some people tried to do their jobs. The Commodity Futures Trading Commission under Brooksley E. Born looked into it but Greenspan wrote her off because regulating derivatives would cause a financial crisis(sic).  Again thats his political theory mixing with his economics...

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury.

“All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.”

The signs started to flash danger but we kept going full steam ahead:

Still, savvy investors like Mr. Buffett continued to raise alarms about derivatives, as he did in 2003, in his annual letter to shareholders of his company, Berkshire Hathaway.

“Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers,” he wrote. “The troubles of one could quickly infect the others.”

But business continued.

And when Mr. Greenspan began to hear of a housing bubble, he dismissed the threat. Wall Street was using derivatives, he said in a 2004 speech, to share risks with other firms.

Shared risk has since evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn.

The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers, and imperiled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives.

In recent months, as the financial crisis has gathered momentum, Mr. Greenspan’s public appearances have become less frequent.

The rest is history...but Greenspan held strong to his core political beliefs about unregulated markets...

“Risk management can never achieve perfection,” he wrote. The villains, he wrote, were the bankers whose self-interest he had once bet upon.

“They gambled that they could keep adding to their risky positions and still sell them out before the deluge,” he wrote. “Most were wrong.”

No federal intervention was marshaled to try to stop them, but Mr. Greenspan has no regrets.

“Governments and central banks,” he wrote, “could not have altered the course of the boom.”

Until he didn't...
 
In an act of intellectual honesty that you don't often see in the political world, Greenspan came out less than a month after the Oct. 8th article and admitted his fundamental political philosophy was wrong:
almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“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,” he told the House Committee on Oversight and Government Reform.

So much for that certainty about his political theory... once again pure theory from the Ivory Tower runs head on into the real world and this time one of its most famous adherents acknowledges this fact...  

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives....

.... 

Mr. Greenspan, celebrated as the “Maestro” in a book about him by Bob Woodward, presided over the Fed for 18 years before he stepped down in January 2006. He steered the economy through one of the longest booms in history, while also presiding over a period of declining inflation.

But as the Fed slashed interest rates to nearly record lows from 2001 until mid-2004, housing prices climbed far faster than inflation or household income year after year. By 2004, a growing number of economists were warning that a speculative bubble in home prices and home construction was under way, which posed the risk of a housing bust.

Mr. Greenspan brushed aside worries about a potential bubble, arguing that housing prices had never endured a nationwide decline and that a bust was highly unlikely.

Mr. Greenspan, along with most other banking regulators in Washington, also resisted calls for tighter regulation of subprime mortgages and other high-risk exotic mortgages that allowed people to borrow far more than they could afford.

The Federal Reserve had broad authority to prohibit deceptive lending practices under a 1994 law called the Home Owner Equity Protection Act . But it took little action during the long housing boom, and fewer than 1 percent of all mortgages were subjected to restrictions under that law.

As you remember the conservative machine tried to spin some nonsense that Fannie and Freddie were the culprits--a la their "government can't do anything right" meme. 

Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

Whats the lesson? 
 
Be careful with Ivory Tower theory in the hands of sloppy thinkers... the real world tends to come crashing down on you as Utopia has never come--despite the best intentions of the likes of Karl Marx or Ayn Rand--and I doubt it ever will.
 
In response to the Oct. 8th article on the Greenspan era, philosopher Gerald Dworkin notes that Keynes pointed this out long ago
 Put this together with Keynes:

” . . . the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

and we get Ayn Rand as an important cause of the catastrophe we are in.

Go figure.  A novelist cum sloppy thinker gets it wrong!  Granted (grimace) I think she's a good novelist--errr at least I did when I was a teenager prone to certain types of political propaganda of the liberty and freedom rant... I mean slant.  I ate her up back then.
 
Ayn Rand is dead... long live Ayn Rand!  Let us watch over time as the libertarians revise their intellectual history.
 
Jim in 2010
 
Steve Daivs, whether he's heard or Ayn Rand or not comes from a line of thought based in her political ideology.  All you have to do is look at his economic policy.
 
If you'd like to see a guy who is grounded in actual political theory instead of bad philosophy then help me out with $5, $25, $200 contributions!  Send them to:
 
The Committee to Elect Jim Nichols
217 Turnstone Rd
Stockbridge, GA 30281
 
Please indicate your occupation and employer with your contribution.
 
Without small donors I won't be able to keep up with a career politician like Steve Daivs who will raise $15,000 a few times over between now and election day.  Davis is a good guy who truly does care about his community.  He's just a good guy, with bad votes and the wrong skill sets to end the gridlock at the Gold Dome.  He's a conservative that votes against the interest of his constituents and is even too conservative for many in his own party.   
 
But Davis is certainly going to be backed by birthers who think Obama is a marxist.  There is a local businessman who has helped instigate the birther movement which I was quoted on in the local paper
 
 
And I have to keep up in contributions or I'll lose. 
 
9 out of 10 races are won by the candidate that raise the most money--which has nothing to do with being able to do the job or represent the citizens of the district.
 
We need new energy, new ideas, and a new generation of leadership at the gold dome.  Without bringing in fresh blood and changing the dynamics we will never end the grid lock and get GA moving in the right direction!
 
My approach to the issues and my background in theory is--no matter how small-- one more dynamic which is currently lacking at the Gold Dome which I can bring that Rep. Davis cannot, he's proven that time and time again. 
 
All the while GA keeps falling behind...
 
-----
James A. Nichols IV
cell: (770) 312-6736
 
"Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'Press On' has solved and always will solve the problems of the human race."     ---Calvin Coolidge (1872 - 1933)
 
"I have come to the conclusion that politics are too serious a matter to be left to the politicians."    Charles De Gaulle (1890 - 1970)
 
 

Posted via email from Jim Nichols

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