WASHINGTON -- There is a pathetic quality to our discussion of deficits and fiscal responsibility because we never face up to how much we need government to do.
Our debates are also characterized by a politically convenient amnesia. Just a decade ago, we were running surpluses so big that Alan Greenspan, then chairman of the Federal Reserve, worried about what would happen once our national debt was liquidated. We had this problem well in hand until we started waging wars and cutting taxes at the same time.
Barely a week into George W. Bush's presidency, his tax cut seems almost inevitable. The Democrats appear set to repeat their sordid performance of 20 years ago--when, instead of resisting Ronald Reagan's tax cut, they larded it with special-interest subsidies of their own. The size of the tax cut acceptable to Democrats edges up almost daily, from $500 billion to (as we go to press) $850 billion. Republicans, meanwhile, have begun predicting that the eventual tax cut might end up even larger than Bush's bloated proposal. " The chances of a tax-cut feeding frenzy," crows Lawrence Kudlow, a Bush adviser, "are growing daily." It's disturbing enough that fiscal policy is in the hands of people who use the phrase "feeding frenzy" to describe a process they see as beneficial. What's more disturbing is that Kudlow's prediction could be right.
Read this one by Binyamin Appelbaum and David Cho of The Washington Post. It's just a terrific piece of financial journalism for a popular audience.
The shock of the financial meltdown has had congressional committees scrambling for their gavels for the better part of a year. Politicians have been discussing how to make sure that such a near-cataclysm never happens again, and, for the most part, they've focused on the need for new regulation. What's called for, President Obama said in March, is "a financial regulatory mechanism that prevents the kind of systemic risks that have done so much damage over the last several months."
But all the talk of regulation misses a key point: If we don't know which institutions are doing what--if we don't actually monitor what we've regulated--then that regulation won't work.
Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), to not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan).
This was pervasive cultural capture or, to be blunter, mind control. But when the crisis broke it was not enough. Having powerful people generally on your side is not what you need when all hell breaks loose in financial markets. Official decisions will be made fast, under great pressure, and by a small group of people standing up in the Oval Office.
If you run a big troubled bank, you need a man on the inside--someone who will take your calls late at night and rely on you for on the ground knowledge. Preferably, this person should have little first-hand experience of the markets (it was hard to deceive JP Morgan and Benjamin Strong when they were deciding whom to save in 1907) and only a limited range of other contacts who could dispute your account of what is really needed.
So I was anticipating this post from the moment Felix Salmon sat down in front of me during Alan Greenspan's talk at today's Aspen Institute/Atlantic conference in Washington. And he doesn't disappoint, particularly on the subject of derivatives.
Goddess of the Market: Ayn Rand and the American Right
By Jennifer Burns
(Oxford University Press, 459 pp., $27.95)
Ayn Rand and the World She Made
By Anne C. Heller
(Doubleday, 559 pp., $35)
I.
The current era of Democratic governance has provoked a florid response on the right, ranging from the prosaic (routine denunciations of big spending and debt) to the overheated (fears of socialism) to the lunatic (the belief that Democrats plan to put the elderly to death). Amid this cacophony of rage and dread, there has emerged one anxiety that is an actual idea, and not a mere slogan or factual misapprehension. The idea is that the United States is divided into two classes--the hard-working productive elite, and the indolent masses leeching off their labor by means of confiscatory taxes and transfer programs.
To many observers, the Federal Reserve has never looked more heroic than it does right now. This past winter, America’s financial system faced the prospect of utter ruin. And, while the economy has suffered plenty in 2009, the worst did not come to pass. The banking system that lends to our employers, thereby allowing our economy to function, never did collapse. Now, many of the accolades for averting catastrophe are going to the Fed. President Obama himself ratified this analysis last week when he renominated Fed chairman Ben Bernanke for a second term.
The big news from Martha's Vineyard is that Obama is appointing Ben Bernanke to a second term as Fed chairman.
Barack Obama has the type of mind--orderly, analytical, well-read--that takes naturally to the study of ideas. But he's always been uncomfortable describing himself in ideological terms. Is he a liberal? During the campaign, Obama would mock those who applied the label to him: "There's nothing liberal about wanting to reduce money in politics," he'd say. "There's nothing liberal about wanting to make sure [our soldiers] are treated properly when they come home." Is he a moderate?
Some people keep talismans in their wallets to remind them of those they love: a romantic letter, a set of dog tags, a family picture. Senate Majority Leader Harry Reid has such a token--but it's to remind him of the people he hates.
In the tumultuous history of postwar American conservatism, defeats have often contained the seeds of future victory. In 1954, the movement's first national tribune, Senator Joseph McCarthy, was checkmated by the Eisenhower administration and then "condemned" by his Senate colleagues. But the episode, and the passions it aroused, led to the founding of National Review, the movement's first serious political journal. Ten years later, the right's next leader, Barry Goldwater, suffered one of the most lopsided losses in election history.
Outliers: The Story of Success
By Malcolm Gladwell
(Little, Brown and Company, 309 pp., $27.99)
