The most exasperating experience of my day so far? Seeing Ezra Klein demonstrate the truth of Megan McArdle’s First Law of Crisisblogging:
The liberals were right. Not the Democrats. The liberals. They were right that deregulation had gone too far. They were right when they spent the last few years offering unpopular predictions that the Housing Bubble would pop. They were right that a liquidity problem had become a solvency problem. They were right that government intervention on a massive scale was needed to stabilize the capitalist system. They were so right, in fact, that Hank Paulson and George W. Bush couldn’t hold the line, and will now sign into law the most profoundly socialist measure this country has seen since the 1930s.
Break me an effing give. For one thing, it’s certainly not as if Paul Krugman and Jamie Galbraith were the only economists who thought that the original version of the Paulson plan wasn’t the right one: here’s a list that includes a whole bunch of others, many of them decidedly not liberals and all of them saying that recapitalization was the way to go. (And of course there were other dissenters who argued that it wasn’t.) Secondly, as Alex Tabarrok also points out in that post, it’s simply not the case that nationalization was the only way to recapitalize: that that is the route that Paulson & Co. chose to go doesn’t show that they “needed” to do it, and of course there’s still plenty of room for concern about whether the strategy they chose will … you know … work. I’m not sure what the Latin would be for “We needed to do something massive; this is something massive; therefore we needed to do this”, but it’s every bit as much of a fallacy as the assumption that since the GOP didn’t propose a serious alternative, it follows that conservatives and libertarians had nothing worthwhile to say.
Finally, and following up on that last point, it’s worth pointing out that there are plenty of conservatives who have every bit as much of a claim to prescience in predicting the financial meltdown as Ezra’s merry band of prophetic liberals. For example, here is Ron Paul calling for the repeal of special privileges from the GSEs back in 2002, and here he is warning of the threat of worldwide economic collapse more than six months ago. Does the fact that his predictions turned out to be correct show that the hard money conservatives were right, too? Or is that too many warm blankets of Schadenfreude for one October morning?
Filed under: conservatism, economics, government/law, libertarianism
This is shadowboxing, no? Ron Paul is talking about long-term national debt, not a solvency crisis in the financial markets. So there’s no obvious prescience there. And I guess if I were a libertarian, I’d have also wanted a first law of crisis blogging saying that no one could use a massive regulatory failure as evidence for their political opinions.
Some of the pieces in the AmCon were, as you say prescient (though mostly on questions of the strength of the dollar and overconsumption, not on financial deregulation). But that’s sort of coming at this from the fourth dimension of political time/space. The Republican government and Republicans in Congress have had a rather different take on this over the years, and that’s what other solutions are going to be judged in contrast to. I think a good case could be made that that party would be better off with more of your opinions and fewer of Mitch McConnell’s opinions, and I encourage you to make the case!
Hi Ezra,
I take it that Ron Paul thinks the solvency crisis is linked to the devaluation of the dollar (see e.g. the post I link here), and the national debt is a part of that, no? And I agree that it’s unreasonable to insist that better regulations wouldn’t have helped (the TAC cover story this week argues just that), though I remain skeptical as to whether, given that the banks will probably be the ones who end up writing the damn things, whatever regulations we end up with will actually work.
As to your final point: yeah. But you were also making a distinction between “liberals” and “Democrats”, so obviously non-mainstream conservatives and libertarians are free to do the same sort of thing – perhaps this just shows that there’s plenty of credit to go around, though I think it would be more sensible to say that what we know right know underdetermines the answer to the question of who, if anyone, really got things right from the beginning. I’m glad, of course, that we can agree on Mitch McConnell.
And the mainstream right was equally as correct that “affirmative action” mortgage lending was a really, really bad idea. And the paleocon right was correct that borrowing endless sums of money to plow under valuable farmland to erect cheap suburban tract housing was a really, really bad idea. And the Left was right that repealing Glass/Steagall was a really, really bad idea.
If everyone was so correct, how, exactly did we end up in this mess?
Because the Center never listens.
John-
With all due respect I think Klein may have been talking about the issues in general, and NOT JUST the Paulson plan as evidenced by this line in the same post:
“The liberal understanding of the economy and its problems has been, in recent months and years, superior to the conservative understanding of the country and its problems.”
Please notice that he says in recent months AND years. Some of us liberals have been talking about the issue of deregulation in the markets for years and the need to reverse that trend.
And this for Adam (please note he does not think that the “affirmative action mortgage” issue is very viable. In fact he thinks that argument laughable.):
“And this has only sharpened in recent weeks, as the Republican Party has spun off into the Gamma Quadrant with laughable theories about ACORN and Fannie Mae and Freddie Mac and the Community Reinvestment Act of 1977. Their argument isn’t wrong in the sense that it’s a serious engagement with the situation that happens to be less empirically sound than competing theories. It’s just nonsense.”
Those policies were not the downfall of the market, it’s just that the Market wanted a piece of the pie in regards to CRA mortgages and decided to offer the ARM loans as an alternative. No one mandated that they expand into this type of loan. They got greedy and thought the market would sustain this stuff. Stricter regulations and oversight would have put a decent check on that greed. At least from this liberals perspective.
John-
Sorry, I do see you mention folks like Paul who saw these issues earlier, but it might be hard to find other “conservatives” who held those same types of views any earlier than last week. At least not in any position of power to do anything about it.
Thanks for tolerating me, as I said before, I enjoy the dialouge here. As the Hittchins story illustrates, Conservatives don’t have much respect for differing opinions or the toleration of such on their blogs. Thanks for taking the high road on that.
Well for one thing, it’s by no means uncontroversial that more regulation would have solved/averted the financial crisis, though I’ll happily admit that it probably would have. Also, the point that a lot of conservatives have been making about the CRA, the FMs, and the like is that even when they did argue for tighter regulations, those proposals were shot down – often, though not solely, by liberals – on the basis of the need to expand homeownership, etc. So there is lots of fault to go around, and no one gets off clean.
My bigger point, and perhaps I didn’t make it that clearly, was just that the implication Ezra was drawing is too simple: the need (or “need”, depending on how you look at it) for massive federal intervention certainly shows that there was a serious financial collapse, but the fact that Paulson ended up going with the sort of proposal that had been pushed by liberal economists doesn’t show that those economists were right all along. Maybe they were, and I’m happy to discuss that question. But the move to nationalization doesn’t prove it.