As any astute media watcher knows, the Wall Street Journal was taken over by News Corp. (Rupert Murdoch’s news manufacturing company) a couple years back and has been headed for “Hannity-Quality Thinking” ever since.
I’m pretty sure it has reached that level when a simple RobotPirateNinja can completely obliterate the economic arguments of their editorial staff.
Let’s start this off where I did, with this WSJ Editorial about Barack Obama’s selection of Larry Summers to lead his Councel of Economic Advisors.
Take Larry Summers, the economist who will run Mr. Obama’s National Economic Council at the White House. We have our differences with the former Harvard President, in particular on the incentive effects of high taxation and the growth impact of government spending. Mr. Summers thinks marginal tax rates can rise significantly — above 50% — before they deter risk-taking and reduce federal revenues. But at least he thinks that taxes matter at some point.
That’s their emphasis and snark. Yes, the Wall Street Journal editorial page is written like a blog. I was watching the local news last week, and they kept showing YouTube clips. It seems that instead of elevating myself to the higher eschelons of media production, they have instead lowered themselves to mine.
Whatever, as long as people realize that it’s a lot more level playing field than previously assumed. With that in mind, we’ll continue…
As for spending, Mr. Summers is one of those economists who believes in the Keynesian “multiplier.”
[Citation needed. -ed]
Why is a citation needed? Because I’m having a hard time finding Summers published works on the topic that state exactly what the article says. This is a common tactic is bullshit political rhetoric and it’s called the “straw man” attack. Essentially the process is as follows; one ascribes a political position to an opponent that they may or may not actually hold, and then attack them for holding onto it so dearly. [bonus points: find two posts where I do that]
This quaint notion [see? -ed] holds that every dollar of federal spending yields something like 1.5 times that in economic growth. This ignores the fact that the $1 in spending has to come from somewhere, which means it is taken from the private economy in higher borrowing or higher future taxes. We thought we’d buried this Keynesian money illusion 30 years ago, but it’s now coming back to justify a half-trillion dollars in new spending.
I’m at something of a loss here, since it was about 30 years ago that Reagonomics and Laffer-nomics took over, and we decided that we can cut taxes and increase spending and run up a huge debt and everything will be fine. We’ve seen the results of that now, and I’m just wondering how the WSJ could have missed it.
On the other hand, Mr. Summers understands that government decisions can do real economic harm.
How could anyone who has watched Bush closely not understand how government decisions can do real economic harm? I’m pretty sure we’re all on the same page here in that our actions have actual results in the real world, and our government even more so. Why this is news to the WSJ is a question left for the reader.
They then go into a quote from Summers about how Fannie Mae and Freddie Mac walked the fine line of a private company and government mandate. What this has to do with overall economic meltdown is something of a question, unless you buy into that “it was poor people who stole your money” claptrap. If you do, read that link and disabuse yourself of that notion. [ I also did a bit about “Big Poverty” here.]
Then they get to the part that set this post in motion…
Mr. Summers also helped to pass the Gramm-Leach-Bliley financial “deregulation” of 1999. His predecessor at Treasury, Robert Rubin, had resisted the necessary compromises. But upon taking the Treasury chair, Mr. Summers pressed ahead and agreed to changes in the Community Reinvestment Act, among other things.
In the loopy left telling, Gramm-Leach-Bliley caused the current mess by allowing commercial and investment banks to merge. Bill Clinton has himself debunked that myth (see “Bill v. Barack on Banks“), and in fact the reform has helped in the current panic by letting the likes of J.P. Morgan and Bank of America buy ailing investment banks.
As a “loopy-lefter” who told it exactly like that and explained why it was like that, I kinda took offense here.
Unlike the Reagan-fluffers at the WSJ, however, I have no problem pointing out this mistake by Slick Willie. Clinton most certainly does try to “debunk” the notion that it was partly his fault [with a “prove me wrong” caveat that I will exploit], but I think we’ve all seen how far his denials of doing wrong can go. Big ego is a pretty consistent mark of Presidents of all flavors. There’s a simple reason for this, if you don’t have a big enough ego to think you should be sitting in that big chair, there is no way in hell you will ever do what it takes to get there (Gerald Ford being an obvious exception).
But I digress, let’s get back to the WSJ’s two reasons why the “loopy left is wrong”. The first is that Bill Clinton, his own bad self, debunked it. More on that in a second.
The second reason they offer is that deregulation allowed the barely surviving banks to buy the totally screwed ones. [I “debunked” that over here as well.]
So what *exactly* was Clinton’s debunking?
In BusinessWeek.com, Maria Bartiromo reports that she asked the former President last week whether he regretted signing that legislation. Mr. Clinton’s reply: “No, because it wasn’t a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter .
“But I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn’t signed that bill .”
So his first reason that he wasn’t wrong is that it would “reduce pressure on Wall Stree to produce [growing] quarterly profits.” That’s an asinine statement and Maria should have laughed at him. How does reducing government regulation lower private profit pressure?
Clinton’s second reason is, you guessed it, the exact same as the WSJ editorial page. They both even cite the same transaction [BoA eating Merrill].
Yup, the WSJ Editorial Staff gave two reasons why Clinton wasn’t wrong: Clinton’s reason and Clinton’s reason.
That, my friends, is complete and total political pwnage.
But back to Slick Willie for a moment. And here, dear readers, is why you should keep reading this site if you want actual political analysis and not party-line bullshit….I have no problems sacrificing sacred cows when it’s time to eat. I’m actually not all that into Sacred Cow political theory any way.
Clinton went on to say this….
One of the writers of that legislation was then-Senator Phil Gramm, who is now advising John McCain, and who Mr. Obama described last week as “the architect in the United States Senate of the deregulatory steps that helped cause this mess.” Ms. Bartiromo asked Mr. Clinton if he felt Mr. Gramm had sold him “a bill of goods”?
Mr. Clinton: “Not on this bill I don’t think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can’t possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I’d be glad to look at the evidence.”
Hmm…evidence….evidence you made a mistake…hmmm….evidence that allowing the two very different types of wealth to mix and intermingle….evidence that allowing the real estate bubble to kill the stock market was a bad idea….hmm….what can we find….
Oh, I got it! How about if we look for what we can’t find?
Per a statement released by the Fed last night, the independent investment banking era is dead:
(From the Federal Reserve):
The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve’s primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.
The above was followed very quickly by another press release, announcing that the Goldman Sachs (GS) and Morgan Stanley (MS) transactions could proceed immediately, without the five day waiting period.
(From the Federal Reserve):
Based on consultation with the Department of Justice regarding the applications of Goldman Sachs and Morgan Stanley to become bank holding companies, the Federal Reserve Board announced on Monday that the transactions may be consummated immediately without the application of the five-day antitrust waiting period.
I dunno, Bill, but I kinda have to think that a policy change that led directly, within a decade, to the deaths of companies that existed since the 1800’s and indeed an entire segment of the banking industry, would probably count as evidence that what you were trying to do failed miserably.
Dammit man, you screwed us all here, not just your intern. Admit your mistake and beg for forgiveness.
You remember how to play that hand, right?
note: good additional reading here.