Economics

What Are the "Failed Theories That Helped Lead Us Into This Crisis"?

|

In today's Washington Post, Barack Obama pummels a strawman:

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis—the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

Raise your hand if you have criticisms of the stimulus. OK, I see a lot of hands. Since there are a lot of libertarians in the room (fatcats!), how many of you think that "tax cuts alone will solve all our problems"?

Whoops!

Well, you people hate socialized health care, right? (More than I do, btw, having enjoyed much of the delicious stuff in France.) So how many think we can "ignore" the "high cost of health care and still expect our economy our country to thrive"?

Weird. It's almost as if we agree that there are some problems in this country, but have different ideas about how to solve them!

There is one charge here that I for one am happy to embrace: We can indeed "ignore…energy independence"…because there's no such as thing as energy independence. Really. It's bullshit.

Why do people oppose the stimulus? Here are a few actual reasons: There is no strong evidence that stimuli work, and plenty of evidence that they don't (a relevant consideration, no?). Like the deeply flawed PATRIOT Act, the deeply flawed Iraq War resolution, and the deeply flawed bank bailout, it is being rushed through the legislature in an atmosphere of pants-wetting crisis and presidential warnings of impending doom. It is filled with special interest giveaways, big-government featherbedding, and "Buy American" considerations that have about as much to do with stimulating an economy as playing violin has with putting out fires. By taking from fiscally responsible states (like South Carolina) and giving to fiscally irresponsible states (like California), it violates basic notions of fairness and creates still more moral hazard in an already hazardtastic universe. These will do for starters; there will be more and better reasons in the comments.

And remember–aside from misportraying his opponents' concerns, Obama is also blaming their "theories" for the whole crisis in the first place. Neat! But who had the theory that the federal government should be the elephant in the room of the mortgage business, pressure commercial banks to write mortgages for risky borrowers, even while applying less oversight to Fannie Mae and Freddie Mac than on actors in private sector? It certainly wasn't the free marketeers. Who thought credit default swaps and mortgage-backed securities should be left to expand like crazy without providing for a clearinghouse to at least measure their number and worth? It wasn't the house libertarian on the SEC. Who thought elevating Alan Greenspan to deity status while he maestroed the long era of loose credit was the capital thing to do? I know this will come as a surprise for those who think an Ayn Rand habit gets people a lifetime get-out-of-jail-free card on Planet Libertarian, but Greenspan's bubble-blowing policies were plenty controversial in these quarters before the dukey hit the fan.

The burden of proof, as always, should be on those who want to spend our money. Obama's a smart guy; surely he can bring a better closing argument.

NEXT: Dispensing with Democracy

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Matt, why so serious? You had better get used to having our ideas falsely blamed as the source of all America’s problems, and being moronically accused of “pursuing failed ideas”, because it’s just getting started.

    Have a drink, take a hit of ether, and start laughing. What else is there to do?

  2. “[T]he real destroyer of the economy is Greenspan, through his inflation-generating last years at the Fed.

    So a man who betrays Ayn Rand, and who wrecks the economy of the U.S. in carrying out that betrayal, then succeeds in shifting the blame onto Ayn Rand and capitalism.”

    Alan Greenspan v. Ayn Rand.

  3. Yeah, Matt, did we get out our mirror, straw and razor blade this morning? you’re on a roll.

  4. Welcome back, Matt Welch

    That’s two beautiful rants in a row.

    Is someone here pulling for that NY Times vacancy? 🙂

    This is exactly the kind of post that most Americans need to see.

  5. Just remember, its not only the libertarians fault that this whole mess got started through our control of the republican party through Bush, its also our fault that Mr. Hopey McChange got elected and the democrats control the universe. For such an inconsequential segment of society, we sure do wield alot of power to fuck everyone over. Are my dictator sunglasses in the mail yet?

  6. For such an inconsequential segment of society, we sure do wield alot of power to fuck everyone over.

    So we’re Jews now? Sweet! When do I get my media check? 😀

  7. When do I get my media check?

    As soon as Drew Carey gets around to writing it.

  8. When you’re talking about the government spending trillions of dollars it doesn’t have, there is no such thing as “misguided criticism”.

  9. Great post, Matt. As someone else said on this board, this is the sort of argument that desperately needs to be repeated ad infinitum so that the Big Lie that this was all caused by “unregulated capitalism” is destroyed.

    I think those libertarians who ever imagined that things would be better under the Community Organiser are going to be disappointed.

  10. Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.

    Okay, it’s official.

    I fucking hate that guy.

  11. What would make you think he was talking about libertarians?

    I mean, why would he?

  12. Obama was spouting that same line about “failed policies of the past” before the election as well.

    It would have been better to have had some more ranting about then.

  13. joe,

    Does it matter if he is?

    Matt is right. For example, energy independence doesn’t exist and it is stupid – intellectually at least – to argue that it does.

  14. Well, everyone agrees things could be better, right? And in order to be better, they’d have to be different. Practically all proposals for a stimulus would result in some people getting money who wouldn’t otherwise, or getting more money than they would otherwise, right? Therefore they would make some difference. We can’t prove any of them would make things better, but they’re bound to make something better for someone. So why not try whatever it is?

  15. joe,

    The notion of energy independence does poll well, however.

  16. The notion of energy independence does poll well, however.

    So does “Buy American!”.

  17. Actually, there is one and only one way to make a nation “energy independent”; that is to make it really poor.

  18. Robert – because it is irreversable.

  19. Seward,

    Does it matter if he is? Since the gist of this post is to defend libertarians from the attacks he has allegedly launched against them, I’d say it matters a great deal.

    For example, energy independence doesn’t exist and it is stupid – intellectually at least – to argue that it does. In an absolutist sense, sure, but do you doubt that it would be a good thing to replace a good-sized chunk of our Saudi and Venezuelan oil purchases with North American resources? Political rhetoric tends to deal in broad strokes.

  20. Those Indians collecting “cow pies” and drying them out to use as cooking fuel are energy independent, by golly.

  21. P Brooks,

    …but do you doubt that it would be a good thing to replace a good-sized chunk of our Saudi and Venezuelan oil purchases with North American resources?

    I don’t think it matters; I think it is trumped up “security state” non-sense that a lot of the political class has bought into. Furthermore, it is thermodynamic non-sense. We won’t be replacing oil, coal, nuclear and water as our major sources of energy production for over a hundred years. Maybe in fifty years we will have a few more percent of energy production in alternative energies.

    So, no, you are simply wrong.

  22. I feel so much better, now that the boogeyman has traded his turban for a top hat and monocle.

    Change-a-liciousness!

  23. joe,

    Oh, and natural gas.

    P Brooks,

    Yes, energy independence = poverty.

  24. joe,

    Since the gist of this post is to defend libertarians from the attacks he has allegedly launched against them, I’d say it matters a great deal.

    Since libertarians make up a sub-set of folks who argue for limited government, if he is attacking notions about limited government then he is attacking libertarians. See, issue solved.

  25. joe,

    BTW, I will note that even if this is just an issue of promoting energy saving technology, that really doesn’t get us around the efficiency paradox. That is, greater efficiency paradoxically leads to more demand on a resource.

    Growing the pie instead of worrying about where its constituent parts come from, how it is divided, etc. is what makes for successful economies.

  26. Seward,

    1. That was me.

    2. I think it’s nuts to say that purchasing huge amounts of resources from hostile governments has no security implications.

    3. You’re dragging the issue of alternative energy into the question, when we were talking about energy independence.

    4. So, no, you are simply wrong. Well, if you assert so, series of pixels on my monitor.

  27. I think it’s nuts to say that purchasing huge amounts of resources from hostile governments has no security implications… You’re dragging the issue of alternative energy into the question, when we were talking about energy independence.

    So, joe, how do you feel about canceling oil leases on federal land? There’s a lot of talk about North American sources, but sometimes it seems like you can’t drill near people, because it’s near people and there might be environmental effects, you can’t drill away from people on land, because it’s pristine and unspoiled by people, and you can’t drill offshore.

    But it still doesn’t make sense to spend $100/barrel to get our own oil when we could buy it for far less. Making ourselves willfully poorer has national security implications as well.

  28. joe,

    I think it’s nuts to say that purchasing huge amounts of resources from hostile governments has no security implications.

    Sorry, I don’t buy into the neo-conservative line. Now if all the oil in the world were concentrated in one country it might make some sense; but it isn’t concentrated in that way. Indeed, if there was such a national security threat it seems likely that it would come to pass over the past four to five years. That’s a fairly natural experiment of the security implications of imported oil.

    You’re dragging the issue of alternative energy into the question, when we were talking about energy independence.

    Well, rightly so; since guess what, the two are linked in what energy independence folks talk about all the time. The two are linked constantly in the literature on the subject; in the rhetoric; etc. So yeah, I bring it up because it is integral to the plans associated with the desire for energy independence.

  29. John Thacker,

    Well, more to the point; the recent surge and collapse of oil prices illustrates rather nicely how little control the producers of oil have over that resource. If they had a lot of control over the price of a barrel of oil you wouldn’t be seeing these swing and you wouldn’t be seeing oil producers oil producers every six months saying this is the new standard for price that we are sticking too, then that new standard being wiped quickly away by what the energy markets are doing. That people continue to talk about energy independence as a national security concern in light of past recent experience is just odd.

  30. Anyway, I’ll rejoin this discussion at a later time.

  31. Free marketeers are getting shithammered because the Republicans talked the talk, but they didn’t walk the walk. Sure Bush cut taxes and both parties got regulations repealed, but spending was never cut and the SEC was seriously asleep at the wheel for over a decade. Then, there are corporate subsidies, legislation that favors one company over others, no-bid contracts, etc.

    Let’s face it. There are no John Galts. No Howard Roarks. No Henry Reardens. Corporate titans are bastards that are just as willing to bleed the taxpayer as the worst welfare queen or Democratic congressperson from California. If you want to know why Americans are listening to the New Keyensians, this is why.

    Not that we have to be happy about it.

  32. I thought it was “dookie.”

  33. Corporate titans are bastards that are just as willing to bleed the taxpayer as the worst welfare queen or Democratic congressperson from California.

    You can say this about anybody. The point of limiting power is that it is rational to take advantage of governmental power when presented. If the government came and offered you 500K every year, you’d be a fool not to take it, and you would be a bigger fool not to spend somewhere south of 500K to keep that entitlement.

    Don’t blame the lobbyists or the interest groups or the welfare-queens…if legislators weren’t so poll-driven and power-hungry, they would have the intestinal fortitude of leadership to say “no” once in a while; they would have the balls to tell their own constituents “Do it for yourself; we cannot afford this and we shouldn’t do this.”

  34. if legislators weren’t so poll-driven and power-hungry, they would have the intestinal fortitude of leadership to say “no” once in a while; they would have the balls to tell their own constituents “Do it for yourself; we cannot afford this and we shouldn’t do this.

    That was kind of my point. Sorry that I wasn’t clear.

  35. Really president Obama? An irreversible recession. Really? That’s what you’re going with…an irreversible recession. We’ll never come out of this recession, it’s fucking irreversible. Boo!!

  36. John Thacker,

    Before I really drop out I would also note that the oil producers really cannot control where the oil goes; they weren’t even able to do that during the oil embargo of the 1970s. What got us into so much trouble at the time was price, etc. controls of the Emergency Petroleum Allocation Act.

  37. When you’re talking about the government spending trillions of dollars it doesn’t have, there is no such thing as “misguided criticism”.

    Oh, I disagree. There’s plenty of criticism that its not enough, and in fact in the Senate the bailout package is growing as we type.

  38. Obama’s a smart guy

    Being a convincing speaker and a con man makes him a wiseguy, not a smart guy.

  39. A Democrat blaming free marketers for the financial crisis is as moronic as a Republican blaming poor people for the financial crisis or a German blaming teh jooz.

    Moronic, but inevitable.

  40. What’s with the cynicism Matt Welch? And all this pesky ideological talk of “Failed theories”? Words of Wisdom from The One follow:

    “What the cynics fail to understand is that the ground has shifted beneath them – that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works – whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.”

    You hear that…they will end! When then certainly no wasteful programs will be introduced.

  41. I’m more concerned with the WaPo letting the POTUS write a column for the paper. WTF? I know Dubya appeared not to have been lettered, but doesn’t the POTUS have enough of a soapbox already?

  42. joe’s right. Obama’s not refuting libertarians. He’s clearly refuting Rush Limbaugh’s argument for nothing but tax-cut stimulus. And he’s right about that too.

  43. From LRC:

    Call it Mises’ Law: People of the most widely divergent views nonetheless always converge in condemning “free market” capitalism for whatever they believe wrong. Particularly relevant is its derivation, Loberfeld’s Law: In a mixed economy, it’s the market element that takes the blame. (See BAILOUT.) Statism is eternally innocent.

  44. Nick beat me to it. I thought it was “dookie”, too.

    Matt, you’re rantalicious today and I love it!

    *blows kisses*

  45. as playing violin has with putting out fires.

    Nice…and you did it without a baby carriage.

  46. What would make you think he was talking about libertarians?

    I mean, why would he?

    I thought Obama’s reference to the “failed ideas of the past” was potshot at laissez faire economics, which is a central libertarian idea. Hence, Matt Welch steps up and defends laissez faire.

  47. He’s clearly refuting Rush Limbaugh’s argument for nothing but tax-cut stimulus. And he’s right about that too.

    But tax cuts aren’t what “helped lead us into this crisis”. Obama is making several claims in this statement…most are false and some are contradictory. But I’ve no doubt his boosters are capable of the mental contortions necessary to continue hoping and changing.

  48. Might I add that it won’t be long before libertarians are forced to wear yellow stars when they go out.

  49. damn, great post. So many links my head asplode.

  50. Am I the only one who can’t get the “house libertarian on the SEC” link to work?

    The link points here: https://www.reason.com/news/show/130707.html

    Unfortunately it seems to be a dead link.

  51. Ugh, can we please not make any Holocaust comparisons? It was annoying when people did it with Bush and it’s annoying with Obama. Not to mention incredibly insulting.

  52. What would make you think he was talking about libertarians?

    I mean, why would he?

    He’s not talking about libertarians. I mean, really, Obama never met one. It’s becoming clearer that if he ever did, he’d regard the encounter as one would regard some alien species. However, if you ‘described’ libertarianism to him, his response would be “Right, like George Bush. Yeah, I know all about libertarianism.”

    But he’s heard of their ideas, and he’s convinced that up until around late 2007- mid 2008, we were living in a wild, unregulated Capitalist Libertarian Utopia(tm). Since that era is now Over(tm), it’s time to send those crazies back into their cave and start the New Deal II, The Revenge of the New Deal.

  53. zoltan,
    I second that proposal. There’s plenty of real things to criticize Obama on that we don’t need the Hitler comparisons.

  54. This thread is Godwinlicious. In that spirit:

    So, how long before the singing children don brown shirts and begin reporting us to our beloved leader? We’ll be ordered to stimulate the economy by building the new, green autobahns.

  55. No, no, no. Barack Obama has met many libertarians. He taught at the University of Chicago, for crying out loud. But he did his whole, “wow, that’s such a neat take on that. I value you as a person, and will take your ideas to heart,” shtick before dismissing their ideas, and continuing his conversations with his brain-dead Marxist friends.

  56. economist, there are many things we can criticize Obama for. None of them are quite as bad as concentration camps. I think the likening of him and Bush to Hitler are not only hyperbolic, but insulting.

  57. To be fair to Bush he only built a few concentration camps.

  58. Michael, that link also appears to be dead to me as well. I assume it’s a Ron Paul related news story or something.

  59. You say: We can indeed “ignore…energy independence”…because there’s no such thing as energy independence. Really. It’s bullshit.

    If you believe it’s bullshit, then, for you, it probably is. But you should know, that European Monarchs and Aristocracy would say “Independence” is bullshit, whenever their power was challenged by the idea of democracy and freedom.

    Do you also believe that Capitalism is bullshit? If Capitalism fails to create new wealth, then it will create disillusionment. And then the people will call it bullshit.

    Why do you believe developing new energy is bullshit? Developing new sources of energy within the USA would not be protectionism any more than creating new products and services within the USA. Why must everything be outsourced and imported? Shouldn’t we do what the Founders of the USA did? They created new wealth right here in the USA. Why shouldn’t this generation of Americans develop alternative energy and invent new energy technologies in the USA?

    The USA has more than enough natural resources, technology and skilled labor to produce energy independence. But it can’t be accomplished by those who refuse to believe it is possible.

    Energy Independence isn’t about a commodity, it is about the “tea” — you do remember the Boston Tea Party?
    http://www.AmericanEnergyIndependence.com

  60. Matt, great rant. I really needed one of those right about now. 🙂

    Personally, I’d prefer it if the feds would just stop taking big chunks out of my paycheck every two weeks. That would really stimulate my economy.

  61. Obama’s a smart guy…

    Evidence?

  62. Oh, c’mon, you guys. We wanted Obama to win so he could do exactly what he’s doing – make an ass of the “intellectual” class and create an opportunity for independent thinkers. I’d say he’s doing a hell of a job to date.

  63. Energy Independence is a term that most don’t understand. To declare independence from what? Foreign oil? Ok. I’ll buy that. I’d like that actually. But independence from all things?

    What we need is a stable, reliable source of energy, or perhaps just a reliable way of carrying energy and build our grid around it.

  64. I remember reading the AP articles about Baracky and his woman’s tax returns. They don’t own any equities. What do they know that we don’t I wonder?

  65. Ron,
    Ignoring your first comments because they are irrelevant comparisons. Alternate sources of energy are perfectly reasonable and are happening so you are just beating a straw man there. But the notion that we can somehow accomplish all of that without trade is insane. Here’s why. Solar panels won’t be economically feasible unless the commodity parts are built where labor and materials are cheaper, which is why most of those parts are currently built overseas. Components for a “smart grid” can’t efficiently all be built here. We can’t simultaneously grow food to export and switchgrass to convert to ethanol – somebody else will be better at that. We’re currently artificially inflating our fuel costs by slapping a tariff on Brazilian ethanol and requiring our own corn-based ethanol to be used, which is less efficient and distorts the food market, harming the world’s poor. It is perfectly fine to pursue alternate energy, and it is highly plausible that many of the jobs building those sources will be here. But if we distort the markets by demanding that all of the energy is produced here, including all of the constituent parts, software, innovations, and what not, then we’ll end up paying our entire paychecks to fund that energy. This is why trade is necessary in energy and in every other facet of the economy – it lets those who can most efficiently produce a good or service produce it in the most efficient and hence least costly manner. Everyone benefits. This is the point of the post – if you think that we can produce our current energy load without engaging in trade, you are deluding yourself. If we do engage in trade, then we are not “energy independent.” Thus it is BS.

    BTW, great post, Matt.

  66. the SEC was seriously asleep at the wheel for over a decade …

    The SEC was thereby putting Libertarian theory into practice, no?

  67. “The point of limiting power is that it is rational to take advantage of governmental power when presented. If the government came and offered you 500K every year, you’d be a fool not to take it, and you would be a bigger fool not to spend somewhere south of 500K to keep that entitlement.”

    That’s not an accurate description of what’s been happening though. It’s not the case that the pure and noble businessmen have been corrupted by the evil politicans. Our captains of industry have worked hard to buy the political process.

    That’s always been a weakness in libertarian theory.

  68. Bengtson

    “Why shouldn’t this generation of Americans develop alternative energy and invent new energy technologies in the USA?”

    No reason at all. But (1) I don’t see why the state should be doing that development and (2) such initiatives, even if worthy in their own right, have no place in this so-called “stimulus bill”.

  69. Sigh.

    It’s not that I disagree with you one principle, or even a fair number of your conclusions. But the Iraq War started in 1991, regime change was committed to as US policy in 1998, the AUMF resolution passed in October 2002, and the actual combat started in March of 2003. Only in a fever dream or the imaginations of people who would rather have a political point than deal with the world does a 12 year shooting war and a multimonth buildup to active combat with multiple diplomatic initiatives on the ay count as a “rush”.

  70. Time to stop calling Obama “smart”, etc., when what he is really is just a smooth talking very liberal politician who we would be better off were he selling used cars than making executive decisions that affect the lives of many people. I told every hope and change, cool aid drinking person I came in contact with for the last two years that this guy did not have the executive decision making experience to handle this job and that he would be overwhelmed once in office. Regrettably I was right, in spades. It’s going to be a long four years on both the domestic and foreign fronts.

  71. “The SEC was thereby putting Libertarian theory into practice, no?” – David Davenport

    Are you ignorant, or just being disingenuous? Because, libertarian is not a synonym for ‘do nothing’; it simply rejects aggression as a legitimate act. As such, in libertarian society, private entities would serve the intended purpose of the SEC. The need for such would be greatly reduced though, since as a rule, it is only coercive government power which has the ablility to entice the market to venture into places where it would not naturally go on its own. To wit, what is the difference in percentage that you put down on your home vs. what your father did? It was not the market’s decision that things like this would change as they have. Real investors taking real risk are not apt to be comfortable with 3% equity backing their investments.

    “Our captains of industry have worked hard to buy the political process. That’s always been a weakness in libertarian theory.” – Mike DeSoto

    Didn’t you mean to say ‘minarchist theory’? Because, that particular issue is a non-factor in the libertarian variety.

  72. Query how it violates basic notions of fairness for SC, which has a net gain of 8 billion federal dollars, to contribute a bit to balance the books in CA, which has a net payment of 48 billion federal dollars?

  73. “By taking from fiscally responsible states (like South Carolina) and giving to fiscally irresponsible states (like California), it violates basic notions of fairness and creates still more moral hazard in an already hazardtastic universe.”

    In 2005 California received 78 cents from the federal government for every dollar it paid in taxes. South Carolina received $1.35 for every dollar it paid. http://www.taxfoundation.org/research/show/22685.html

    This has been going on awhile. Who is subsidizing whom exactly?

  74. Universal health care would be amazing. It would save americans BILLIONS each year. It would create thousands of jobs, and it would make us overall more healthy.

    The only complaints any foreign country has about health care that has it universal is the fact that non routine surgeries and other “feel good about how you look” surgeries aren’t done as fast, and you can’t just pay your way to be treated first, the poor kid has the same rights as the rich guy.

  75. With many new announcement about the wizard of oz movies in the news, you might want to consider starting to obtain Wizard of Oz book series either as collectible or investment at RareOzBooks.com.

Please to post comments

Comments are closed.