Capitalism’s Defenseless Fortress

FortressDefended.JPGPhotograph by Art Diamond.

(p. 143) . . . capitalism creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own; the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes but goes on to attack private property and the whole scheme of bourgeois values.

The bourgeois fortress thus becomes politically defenseless. Defenseless fortresses invite aggression especially if there is rich booty in them. Aggressors will work themselves up into a state of rationalizing hostility—aggressors always do.

Schumpeter, Joseph A. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper and Row, 1950.

FortressDefenseless.JPGPhotograph by Art Diamond.

Confidence in Market Is Undermined by Economist-Backed Interventions

(p. A17) This year will be remembered not just for one of the worst financial crises in American history, but also as the moment when economists abandoned their principles. There used to be a consensus that selective intervention in the economy was bad. In the last 12 months this belief has been shattered.

Practically every day the government launches a massively expensive new initiative to solve the problems that the last day’s initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public’s perception of the government’s competence and trustworthiness.

The Obama administration, with its highly able team of economists, has a golden opportunity to put the country on a better path. We believe that the way forward is for the government to adopt two key principles. The first is that it should intervene only when there is a clearly identified market failure. The second is that government intervention should be carried out at minimum cost to taxpayers.

For the full commentary, see:
OLIVER HART and LUIGI ZINGALES. “Economists Have Abandoned Principle.” Wall Street Journal (Weds., DECEMBER 3, 2008): A17.

“I Want Some TARP” Satirical Video Clip

TARP.jpg Screen capture from the link cited below.

Today (Weds., 1/21/09) on CNBC, I caught a snippet of a replay of Bill Zucker’s musical video parody of the government’s TARP (Troubled Assets Relief Program) bailout. It was funny, and mainly on-target.

You can view it on YouTube, at:

“In Spite of the Economic Crisis and Unemployment . . . Civilization’s Progress is Going Faster and Faster”

The Palace of Discovery mentioned in the passage below was a part of the 1937 Paris Exposition.

(p. 206) The mastermind behind the Palace of Discovery, French Nobel Prize laureate Jean Perrin, wrote, “In spite of the wars and the revolutions, in spite of the economic crisis and unemployment, through our worries and anxieties, but also through our hopes, civilization’s progress is going faster and faster, thanks to ever-more flexible and efficient techniques, to farther- and farther-reaching lengths. . . . Almost all of them have appeared in less than a century, and have developed or applied inventions now known by all, which seem to have fulfilled or even passed the desires expressed in our old fairy tales.”

Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.
(Note: ellipsis in the title is added; ellipsis in the quoted passage is in the original.)

Global Warming Benefits Democracy in Greenland

Ice.jpg Source of captionless photo: online version of the NYT article quoted and cited below.

(p. 20) . . . for the residents of the frozen island, the early stages of climate change promise more good, in at least one important sense, than bad. A Danish protectorate since 1721, Greenland has long sought to cut its ties with its colonizer. But while proponents of complete independence face little opposition at home or in Copenhagen, they haven’t been able to overcome one crucial calculation: the country depends on Danish assistance for more than 40 percent of its gross domestic product. “The independence wish has always been there,” says Aleqa Hammond, Greenland’s minister for finance and foreign affairs. “The reason we have never realized it is because of the economics.”
. . .
But the real promise lies in what may be found under the ice. Near the town of Uummannaq, about halfway up Greenland’s coast, retreating glaciers have uncovered pockets of lead and zinc. Gold and diamond prospectors have flooded the island’s south. Alcoa is preparing to build a large aluminum smelter. The island’s minerals are becoming more accessible even as global commodity prices are soaring. And with more than 80 percent of the land currently iced over, the hope is that the island has just begun to reveal its riches.
. . .
In November, Greenlanders will vote on a referendum that would leverage global warming into a path to independence. The island’s 56,000 predominantly Inuit residents have enjoyed limited home rule since 1978. The proposed plan for self-rule, drafted in partnership with Copenhagen, is expected to pass overwhelmingly.

For the full story, see:
STEPHAN FARIS. “Phenomenon; Ice Free; Will Global Warming Give Greenland Its Independence?” The New York Times, Magazine Section (Sun., July 27, 2008): 20.
(Note: ellipses added.)

Uncertainty About Government Actions Slows Recovery

In the commentary quoted below, Tyler Cowen makes the important point that recovery from the current economic crisis is being slowed by uncertainty about what the government will do next. While the uncertainty lasts, consumers will consume less, and investors will invest less.
Amity Shlaes has made a similar point about the Great Depression. Uncertainty about what policies FDR would try next, kept investors from risking their money in new entrepreneurial ventures.

(p. 5) The financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.
. . .
. . .    Today, . . . , that ad hoc intervention by the government no longer looks so wise. With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.
. . .
While there are some advantages to leaving discretion in regulators’ hands, this hasn’t worked out very well. It has become increasingly apparent that the market doesn’t know what to expect and that many financial institutions are sitting on the sidelines, waiting to see what regulators will do next. Regulatory uncertainty is stifling the ability of financial markets to engineer at least a partial recovery.

For the full commentary, see:
TYLER COWEN. “Economic View; Bailout of Long-Term Capital: A Bad Precedent?” The New York Times, SundayBusiness Section (Sun., December 26, 2008): 5.
(Note: ellipses added.)

For the Amity Shlaes book mentioned above, see:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

“Money Buys Freedom”


Source of book image:

(p. A17) . . . other farm alumni make no pretense to continuing the revolution but instead engage in the boomer habit of replacing youthful extremism with a middle-aged version: “We used to think money was the least important thing. Now I can see that it’s the most important,” says one former commune member, sounding like a budding Randian. “Money buys freedom.”

Few of the farm friends are terribly likable or sympathetic — with the notable exception of Tim, an “alienated citizen” of the farm while he lived there. Tim found the commune’s group dynamics stifling. He wanted time to himself and was promised that he could build his own room and work space in the barn, but the objections of others to his solitary plans thwarted him at nearly every turn.
Of the farm’s whole New Age mission, Tim remarks: “The error was, I think, imagining that there was somewhere new to go, someone new to be. It became increasingly clear that a closed system of myth did not jibe with the world as it really was.” Looking later at the outside world, Tim saw “a system formed less from malice than from a kind of natural order, less from inordinate greed than from longings much like our own for privacy, comfort, individual freedom, and one’s familiar or chosen way of life.” Unfortunately, “Farm Friends” spends too little time with Tim.

For the full commentary, see:

PAUL BESTON. “Bookshelf; A Look Back at the New Age.” Wall Street Journal (Tues., July 22, 2008): A17.

(Note: ellipsis added.)