Has the banking crisis killed libertarianism?

[Spoke]

@xtisme

Well, YOUR argument rests on Greenspan being a libertarian AND pushing through a libertarian agenda…and you haven’t proven either.

How about the failure of the Bush administration to regulate subprime mortgages, a failure which Greenspan defended as late as April 2008:

Aside from far greater efforts to ferret out fraud (a long time concern of mine), would a material tightening of regulation improve financial performance? I doubt it. The problem is not the lack of regulation, but unrealistic expectations about what regulators are able to anticipate and prevent. How we otherwise explain how the FSA, whose effectiveness is held in such high regard, fumbled Northern Rock? Or in the US, our best examiners have repeatedly failed over the years. These are not aberrations.

Could tightened regulation of subprimes have contained some of the reprehensible, and presumably criminal, acts of lenders? Probably. But the broader crisis would likely have arisen even with increased micro-surveillance.

He is wrong here, of course (as he seems to have finally acknowledged in his recent Congressional testimony). If the government had, for example, merely required lenders to obtain proof of income instead of allowing so-called “liar loans” (loans made in reliance on the word of the borrower as to the borrower’s income), the size of the problem might have been greatly reduced. And that is just the easiest and most obvious example of a simple regulation that would have helped.

[Spoke]

Here you can find criticisms by several economists of Greenspan’s philosophically-driven failure to regulate. From economist Paul De Grauwe:

…There are at least two reasons why Greenspan’s Federal Reserve bears a heavy responsibility for the present crisis.

First, as has been argued by John Taylor, the Fed kept the interest rate at very low levels for too long after the recession of 2001. The Fed waited until the middle of 2004 to start raising the interest rate from its historically low level of 1%. The point is not that in 2001 the Fed reduced the interest rate too much when it cut it from more than 6% to less than 2% in less than a year. This was probably the right thing to do in a recession. The problem is that it kept the rate there for too long, when the economy showed signs of recovery. This laid the groundwork for a massive credit and liquidity expansion which in turn created an asset bubble in the housing market.

Second, the Fed failed to take up its mandated responsibility to supervise and to regulate the financial institutions. Why did this happen? The root cause is the religious belief of Greenspan in the benevolence of markets and perniciousness of government interventions. At the moment financiers were increasing their exposure to liquidity risk and made fantastic profits doing so, in the knowledge that the Fed was insuring them freely against such a risk, Greenspan stood by and marveled at the creativity of markets. In his wonderful book “The Age of Turbulence” he discusses the new financial instruments and he concludes with a beautiful metaphor: “Why do we wish to inhibit the pollinating bees of Wall Street” (p 372). The problem is that the financiers of Wall Street were mostly pollinating themselves.

The corollary of this religious optimism in the wondrous workings of the financial markets is the belief that governments and the Fed can do nothing to regulate these new financial instruments. On p 489 of the same book Greenspan writes: “Only belatedly did I, and I suspect many of my colleagues, come to realize that the power to regulate administratively was fading; We increasingly judged that we would have to rely on counterparty surveillance to do the heavy lifting”. So he did nothing and decided that self regulation is the answer. It can now be seen by everybody except the blind, that financial self-regulation does not work and has never worked. Yet in his FT column Greenspan continues to hope that financial self-regulation will be the “fundamental balance mechanism for global finance”.

Religion quite often stands in the way of rational analysis. Greenspan, who was at the helm of the most important monetary institution in the world, failed to take his responsibility to supervise the financial markets blinded as he, and his colleagues, were by a belief that markets and bankers know better than governments.

[The_Second_Stone]

@xtisme

So…if I understand you here, your entire theory centers on the ‘fact’ that Allan Greenspan was a supposed libertarian and following a libertarian philosophy? Can you point to some libertarian policies he pushed through?
…

Well, YOUR argument rests on Greenspan being a libertarian AND pushing through a libertarian agenda…and you haven’t proven either. I concede that Greenspan was an adherent of Ayn Rand (which, you know, isn’t the same thing as being a libertarian)…but I see no sign that his policies reflect his personal philosophy. You do realize that the Chairman of the Fed doesn’t have carte blanche to push through anything he wants…right?

I’ve already made my case. No amount of proof would satisfy you.

In case those observing don’t like my take on it, I offer Robert Reich, a better man than I, who puts the arguments so much better than I ever could: http://robertreich.blogspot.com/2007/12/2008-and-beyond-alan-greenspans.html Reich tears your arguments to pieces in detail and in force. The fact is that most libertarians are not more convinceable that Libertarianism is capable of propounding dangerous ideas than any other religious adherent is of an entirely illogical religion.

Reich establishes Greenspan as a libertarian (not that many other sources don’t do the same), establishes how he blackmailed Clinton with interest rates and kept easy credit legally available.

Reality, meet Xtimse. Xtimse, Reality. Now, don’t be shy.

[MichaelQReilly]

@RickJay

Really? Show me the evidence of their influence. Real evidence, not “George Bush takes their calls.”

Do Republican governments (in recent years) reduce spending? Well, no, quite the opposite - they jack spending up every chance they get. Do they get the state out of the citizen’s life? Quite the opposite, it would appear. Do they reduce regulation? On the whole, actually, they do nothing of the sort; for every example you can show me of deregulation, I’ll show you more regulation. PATRIOT Act? Department of Homeland Security? For Christ’s sake, Republicans want to pass a flag burning amendment. Where in the hell is all the libertarianism?

You’d have far more luck proving Bill Clinton was a libertarian than you would George W. Bush.

From Nobel Prize winning economist Paul Krugman in today’s New York Times editorial on the financial meltdown:

What’s happening, I suspect, is that the Bush administration’s anti-government ideology still stands in the way of effective action.

http://http://www.nytimes.com/2008/10/27/opinion/27krugman.html?_r=1&oref=slogin

You know the saying. If it walks like a duck and quacks like a duck…

[The_Second_Stone]

@MichaelQReilly

You know the saying. If it walks like a duck and quacks like a duck…

No! No! Not if everybody can’t agree on what a duck is! Some people think that ducks are pink and have one horn in the middle of their heads and have four legs with hooves and wings! Surely you can’t consider other people’s concepts of ducks to also be ducks.

[XT]

@The Second Stone

I’ve already made my case. No amount of proof would satisfy you.

What a completely BS answer to give. You essentially make statements by fiat with nothing but bullshit to back it up and then do a handwave about no amount of proof being enough to satisfy me.

Feel free to listen to the echo chamber of clue-less-ness and be smug in your ignorance. Ado…

-XT

[Blake]

@The_Second_Stone

I’ve already made my case. No amount of proof would satisfy you…

Speaking for the peanut gallery, you haven;t made your case at all, and you have presented no proof at all that I can see. You’ve quoted various op-ed pieces that agree with you, but they aren’t evidence, nor do they cite any evidence in their turn.

I will be convinced by evidence when I see some.

[MindWanderer]

Why has everyone been ignoring the taxes in this discussion of Bush’s policies?

Bush has consistently pushed for lower capital gains taxes, lower taxes on upper income brackets and lower alike and has succeeded in dropping taxes at least a small amount.

He has also reduced spending in some non-defense areas, and defense spending is something that, as far as I know, most Libertarians support (and Ayn Rand did as well).

As far as Greenspan and Objectivists vs. Libertarians, I think its a very minor change, after hearing the Objectivist rhetoric when I was younger, Libertarianism seemed pretty normal. The situation between them was a result of Ayn Rands belief that only she could be the source of truth, and also that Libertarians didn’t follow her belief that all morality is objectively determinable.

Wall Street especially has been becoming more and more Libertarian over time, as regulation of the markets (in and of themselves) has been less and less. The SEC’s toleration of Naked Short Selling, the decrease in bank reserves, and other changes are all very Libertarian moves that had an effect.

There are still democrats and non-libertarian republicans out there, but I think in the markets per se, Libertarian thinking dominated.

[The_Second_Stone]

@Blake

Speaking for the peanut gallery, you haven;t made your case at all, and you have presented no proof at all that I can see. You’ve quoted various op-ed pieces that agree with you, but they aren’t evidence, nor do they cite any evidence in their turn.

I will be convinced by evidence when I see some.

Reich cites no evidence?

Greenspan’s greatest legacy stemmed from his commitment to what was knowable and important when the standard economic models suggested otherwise. Based on how the economy had performed in the 1970s and 80s, those models assumed that if it grew faster than 2.5 per cent a year and the rate of unemployment dropped below 6.5 per cent, inflation would result. Prices would rise as workers demanded higher wages and suppliers’ inventories grew depleted. By the spring of 1996 the US economy was growing at an annual rate of 6 per cent and unemployment had dropped to well below 5.5 per cent, suggesting that Greenspan and his colleagues should slow things down. But Greenspan the empiricist saw an economy very different from that of the 1970s and 80s. “Innovations like the Internet and e-mail went from exotic to ubiquitous. Something extraordinary was happening . . .”, he writes:

“The textbook strategy would be to tighten rates, thereby slowing economic growth and nipping inflation in the bud. But what if this wasn’t a normal business cycle? What if the technological revolution had, temporarily at least, increased the economy’s ability to expand? . . . I zeroed in on what I believed to be the primary riddle of the technology boom: the question of productivity . . . . Year in and year out, business had been pouring vast amounts of money into desktop computers, servers, networks, software, and other high-tech gear . . . . This became evident as early as 1993 when new orders for high-tech capital began to accelerate after a protracted period of sluggish growth . . . . Most companies were reporting rising operating profit margins. Yet few had raised prices. That meant that their costs per unit of output were contained or even falling . . . . Productivity was truly accelerating. And if so, then rising inflation would be unlikely.”

Greenspan convinced his colleagues at the Federal Reserve Board not to raise interest rates, and the rest is history. “By not being too quick to raise rates, we helped clear the way for the postwar period’s longest economic boom.” Unemployment eventually dropped to around 4 per cent, and, as demand picked up for unskilled workers, inequality temporarily narrowed. Bill Clinton is usually credited with the 1990s boom, but it was really a product of Greenspan’s willingness to take a fresh look at the high-tech economy that was emerging in America and reject the economic models created in a different era.

In do not think that the word “evidence” means what you think it means. There is plenty of both evidence and argument in that quote. There is more in the article. http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/the_tls/article3073738.ece Remember, Reich, as a first hand witness, is making some of his statements themselves as evidence of what went on. I am very interested in why you think there is no evidence in there and why you think that you are not defending the libertarian position in dismissing Reich’s argument.

@xtisme

What a completely BS answer to give. You essentially make statements by fiat with nothing but bullshit to back it up and then do a handwave about no amount of proof being enough to satisfy me.

Feel free to listen to the echo chamber of clue-less-ness and be smug in your ignorance. Ado…

-XT

I ask you two questions. Did you read the article? If so, what amount of further proof would satisfy you?