Ariana Huffington is someone whose naked ambition is impressive but her intellect is not. I can’t say I’ve ever read anything by her when I thought the woman was sharp. This isn’t just because I almost universally disagree with her politically and ideologically, but also due to her constant intellectual vapidity and sloppiness.
The latest example of this is her piece at Real Clear Politics. In it, she claims that the current economic crisis is proof-positive evidence of the death of laissez-faire capitalism. Indeed, she equates its failure and death with the failure and death of Marxism.
The collapse of Communism as a political system sounded the death knell for Marxism as an ideology. But while laissez-faire capitalism has been a monumental failure in practice, and soundly defeated at the polls, the ideology is still alive and kicking.
The only place you can find an American Marxist these days is teaching a college linguistic theory class. But you can find all manner of free market fundamentalists still on the Senate floor or in Governor’s mansions or showing up on TV trying to peddle the deregulation snake oil.
A few points. First, people in Cuba, Nepal, China, Venezuela, Bolivia, Vietnam, Sri Lanka, and various other places would probably be quite surprised to discover that Marxism is a dead political ideology given its impressive vitality in those locations.
Second, it’s bizarre to assert that the crisis proves the failure of laissez-faire capitalism considering that laissez-faire capitalism doesn’t exist in the U.S. or virtually anywhere else in the world and hasn’t for some time (if it ever truly existed at all). It’s a bit hard to argue a policy has failed when that policy was never in effect.
Huffington is actually being extremely lazy with labels. She refers to “free market fundamentalists” as laissez-faire capitalists and then goes on to name several such individuals on the right. In actuality, however, you will find very few real laissez-faire supporters who believe the government should be completely hands-off on the economy. The vast majority of free-marketeers believe in some kind of government regulation, but that lighter regulation is better while heavy regulation is harmful to individual businesses and the economy in general. Calling free market folks laissez-faire proponents is a bit like when know-nothings call libertarians anarchists. Anarchists believe in the complete abolition of government while libertarians argue for the fundamental necessity of government, though its scope should be limited and its powers restricted. Conflating the two is laziness or foolishness and so is conflating modern supporters of the free market and those of laissez-faire capitalism. The conflation, however, serves her rhetorical purposes and so she uses it.
I’d like to give Huffington the benefit of the doubt and say she’s merely talking about people whose ideology is closer to laissez-faire and so they’re discredited by ideological proximity. She nowhere makes such a subtle distinction, though. Instead, she asserts the laissez-faire line rather forcefully.
It’s time to drive the final nail into the coffin of laissez-faire capitalism by treating it like the discredited ideology it inarguably is. If not, the Dr. Frankensteins of the right will surely try to revive the monster and send it marauding through our economy once again.
Even if she wants to push the subtlety, it only damages her since the point can easily be turned around to argue that she and statist heavy regulatory supporters are also discredited since they’re much closer to the failed Marxists she already mentioned.
Also, while Huffington repeatedly claims that laissez-faire capitalists (or, though she doesn’t deserve it, we’ll be generous and say laissez-faire ‘attitudes’) caused the crisis, she never draws the causal link between the two. It is an assertion that is no more than asserted and is accepted as fact. Without making the case, she cannot use the crisis as proof of anything’s failure.
If the crisis occurred in a laissez-faire environment, she might have something. Given that it occurred in a regulated environment, the only question is about the degree and efficacy of regulation. Sadly, the tendency among liberals when something like this happens is to automatically assume that a dearth of regulation is the culprit, while hardly ever examined (or at least too little examined) are the effectiveness of current regulations, the effectiveness of the regulatory agencies, and the effects of current regulations on the markets. If, for example, current regulations could have stopped a crisis but didn’t, then the implementation of those regulations need to evaluated and there’s no need for new regulations. If the effectiveness of regulatory agencies is to blame, then this needs attention and there’s no need for new regulations. If current regulations are to blame, then they need to be revamped.
The latter can happen due to the law of unintended consequences. Very rarely do laws or regulations do only what is intended. They also often have unintended and undesirable side-effects. Regulations such as requiring banks to lend money to certain localized minority groups and to the poor (actuarial demographics that are poor credit risks) was an obvious cause of our current situation in that it altered business practices (the NY Times piece Huffington approvingly references says as much, though it incorrectly lays the blame on Bush, and as confusingly as Huffington, argues for both too much and too little government interference). Indeed, the left often does not seem to understand how laws and regulations affect business and individual behaviors, even though liberals often use laws for the purpose. At any rate, it is not at all clear that the crisis results from a lack of regulation since I’ve mentioned at least three other possibilities and I’d hazard there are more I haven’t thought of. To jump to the conclusion that more regulations or a heavier regulatory environment is needed is foolhardy.
Personally, I argue for a combination of the above factors. First, the government interference. There is the aforementioned government sticks compelling banks to approve loans and mortgages to people they ordinarily would shun. This is the root cause of the mess and the sheer amount of bad paper being issued due to the federal government’s compulsion was going to be disastrous regardless of what happened afterwards.
Aside from this, there was also the Fed’s interference in interest rates. When Greenspan dropped the interbank loan rate following 9/11, it also dropped the interest rate on many secure investments, like Treasury bills. It got so low that capital naturally started trying to find secure investments elsewhere that offered higher yields. This is when consolidated mortgage packages started looking so good. And in the beginning, they were good since it was mostly good paper and mortgages, being backed by the collateral of houses, would rarely fail terribly. As the various brokers realized the gold mine there, more and more money started shifting into them and to supply the demand, CDO’s composed of worse and worse paper were sold throughout the financial system. This is where the Wall Street greed part comes in as enormous commissions were quite appealing. And for many mortgage brokers, approving bad paper was low risk since the mortgage, and therefore the high risk of the bad paper, was sold to somebody else, making it no longer the mortgage broker’s problem.
There was some lack of regulation in that it is very low over the investment banks. Even if those regulations were there, it’s not assured that the regulatory agencies like the SEC could have caught it. Many smart people work for the SEC, but they’re still government employees who are usually not as smart as the high-paid Wall Street folks or who are but don’t stick around at the agency long enough since they go on to be a high-paid Wall Street person. This makes it difficult to spot and handle extremely complex dangerous phenomena like the mortgage mess. The regulators either don’t know what to make of it all, don’t have the expertise to put all the pieces together, or they lack employee continuity for the effort.
Frankly, this mess is far too complicated to pin on any one cause and Huffington and those like her are being every bit as overly simplistic as those she vilifies. We need to proceed slowly and carefully, two things politicians are terrible at doing in a time of crisis, no matter how real or imagined. Things are definitely going to get worse and I fear measures are going to be implemented that will hinder a long term recovery, not help it.