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The Death of the Facts

Jonathan Chait's review of The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America's Future in The New Republic, demolishes the absurd premise of the book -- that Obama is spearheading an attack on markets and entrepreneurship. Of course, it is this author, American Enterprise Institute President Arthur Books, and his allies like the Chamber of Commerce that have led the attack on the market in a successful attempt to maximize the power of the world's largest companies.

Chait's review does everything one would want a review to do, but I want to add that I don't think Brooks spends much time being disingenuous. I continue to believe that he and others like him are simply deluded. They do not understand the world as it is, and are fooled the tools they have created to spread their message -- talk radio, Fox news, the Wall Street Journal, etc. At one time, these were meant to spread right wing values such as free market principles and less government. But over time, they have come to work for one goal: winning. They have no principle and defend no values, which makes debating them impossible. As we have seen from the recent right wing pile-on around Obama's Asian trip, they will lie about anything.

Ayn Rand Was a Fool

After I studied economics, I learned that most people who talk about the "free market" have no clue what they are talking about. Those who want government to operate exactly as would a business do not understand how the motivations of government are different from business, necessitating different approaches to solving the different problems that these entities are expected to resolve.

After visiting Africa and living briefly in the Middle East, I understood that there is no magical "free market." Markets result from infrastructure (provided by government or some other non profit-maximizing entity) and often anti-trust regulations.

This is background for an important article I highly recommend -- "Wealthcare" by Jonathan Chait in the September 23, 2009 The New Republic magazine... yeah, I meant to write about it last year.

Right wing radio hosts, Fox News, and a variety of other conservatives who grew up in Reagan's revolution have internalized a whole lot of talking points about "free markets" that they parrot at every opportunity - but they have no sense of the many well known problems of deregulation. The problems range from externalities like pollution to the natural monopolies of broadband and cable TV (that I spend so much time working on).

Chait, who is reviewing two books about Ayn Rand, tackles her legacy:

For conservatives, the causal connection between virtue and success is not merely ideological, it is also deeply personal. It forms the basis of their admiration of themselves. If you ask a rich person whether he ascribes his success to good fortune or his own merit, the answer will probably tell you whether that person inhabits the economic left or the economic right. Rand held up her own meteoric rise from penniless immigrant to wealthy author as a case study of the individualist ethos. "No one helped me," she wrote, "nor did I think at any time that it was anyone’s duty to help me."

But this was false. Rand spent her first months in this country subsisting on loans from relatives in Chicago, which she promised to repay lavishly when she struck it rich. (She reneged, never speaking to her Chicago family again.) She also enjoyed the great fortune of breaking into Hollywood at the moment it was exploding in size, and of bumping into DeMille. Many writers equal to her in their talents never got the chance to develop their abilities. That was not because they were bad or delinquent people.

If I were a right winger, I would likely attribute my success in sports photography to all the hard work I put in -- hundreds of hours of practice without being paid, being willing to go weeks without a day off, etc. But I recognize that in reality, many put in that hard work. I got picked up at the U as a shooter because I was incredibly lucky in timing. Without my hard work, the luck would have been worthless, but the luck was still required ... if I didn't run into certain people at a time they just happened to need a certain kind of shooter, I would not be the photographer I am today.

Getting my foot in the door was mostly luck. Keeping my foot in the door required skill and hard work, so I understand why conservatives harp on that. But to deny the luck factor missing a key part of the equation.

It is not socialism to enact policies intended to create equal opportunities for everyone (funding public education, rural electrification and broadbandification). In many ways, these policies improve the efficiency of markets. But talk radio wants us to believe the U.S. is the land of opportunity and left wing policies want to punish the successful. The truth is that decades of conservative reforms have greatly damaged our dreams of poverty-to-riches opportunity in the US:

In reality, as a study earlier this year by the Brookings Institution and Pew Charitable Trusts reported, the United States ranks near the bottom of advanced countries in its economic mobility. The study found that family background exerts a stronger influence on a person’s income than even his education level. And its most striking finding revealed that you are more likely to make your way into the highest-earning one-fifth of the population if you were born into the top fifth and did not attain a college degree than if you were born into the bottom fifth and did. In other words, if you regard a college degree as a rough proxy for intelligence or hard work, then you are economically better off to be born rich, dumb, and lazy than poor, smart, and industrious.

We know this intuitively - perhaps the best example is talk show hosts or pundits who are consistently wrong with most of their predictions and yet remain very influential. Those who pushed the Iraq War lies the hardest continue to get more TV and radio time than the doubters who have been proven right regarding the Iraqi threat.

Is income really a measure of productivity? Of course not. Consider your own profession. Do your colleagues who demonstrate the greatest skill unfailingly earn the most money, and those with the most meager skill the least money? I certainly cannot say that of my profession. Nor do I know anybody who would say that of his own line of work. Most of us perceive a world with its share of overpaid incompetents and underpaid talents. Which is to say, we rightly reject the notion of the market as the perfect gauge of social value.

But it is important to understand why some on the right remain outraged at how much the rich are taxed. They are not incorrect, but the reason they continue paying so much in taxes is that the U.S. has become so incredibly stratified on the basis of income that even as tax rates drop, the rich pay more because their incomes have increased so incredibly much:

The reality of the contemporary United States is that, even as income inequality has exploded, the average tax rate paid by the top 1 percent has fallen by about one-third over the last twenty-five years. Again: it has fallen. The rich have gotten unimaginably richer, and at the same time their tax burden has dropped significantly. And yet conservatives routinely describe this state of affairs as intolerably oppressive to the rich. Since the share of the national income accruing to the rich has grown faster than their average tax rate has shrunk, they have paid an ever-rising share of the federal tax burden. This is the fact that so vexes the right.

The entire article is well worth reading.

Is Health Insurance Itself Socialism? Perhaps.

The economics of insurance are poorly understood by most people -- especially politicians the media folks. Although, some politicians almost certainly understand it well, but play on the misunderstandings of others for political gain. Jonathan Chait has an insightful piece in a recent TNR article that looks at the differences between how Republicans have approached health care and how Democrats have.

Though I come down squarely on the philosophical approach of the Dems -- one of fairness and equal opportunity -- I like that Chait explains pretty fairly how Republicans approach it -- they prefer not to take from the winners to compensate the "losers."

Health insurance, if you think about it, is a redistribution scheme. It transfers money from the winners (people who don’t need much medical care) to the losers (people who do). It differs from other redistribution schemes because, unlike programs that redistribute from rich to poor, the winners and losers can’t be sure in advance which category they’ll be in. That’s why people enter into it voluntarily--today I might be healthy, tomorrow I may contract some horrible disease.

If you want to have a better idea of why Republicans are freaking out at an almost entirely private sector solution to a problem that would be better solved by greater public sector involvement (says me), read this article.

The Stock Market: What is it Good For?

Have you noticed when pundits try to read the market to gauge political opinion? For instance, some right-wingers claimed that the stock market's dive on Obama's inauguration represented Wall Street disapproving of his policies. Leave it to Jonathan Chait in The New Republic to debunk the Obama-killed-the-market myth with style.

After election day, the stock market dropped. After the stimulus bill was signed, the market tanked. It must have been because Wall Street hates progressive policies.

Sure, unless you realize that those events just might have been priced into the market already. Obama, in case you forgot, was considered a lock before Election Day. (On election eve, Intrade had given Obama a 92 percent chance of winning.) Likewise, the vote that made the stimulus bill a fait accompli took place several days before the bill's signing. The real market-driving news came even earlier, when Obama unveiled his plan. Contemporaneous reports on the market reaction-The New York Times, December 9: "WALL STREET SURGES ON STIMULUS HOPES"-dug up little evidence of fears about socialism.

Continuing with more humor:

It's true! "The Dow fell 332.13 points on inauguration day," noted Barnes, holding this up as evidence that "The market's view is that an Obamanomics-driven economy looks grim." I'm trying to figure out the operating theory here. One possibility is that, before January 20, investors thought Obama would get cold feet, or that maybe President Bush would surround the White House with tanks and stay forever. Alternatively, the markets did know Obama would assume the presidency that day, but got really depressed when it actually happened. Neither of these possibilities speak well of the stock market as a rational gauge of the country's economic future.

But this is the reason it is worth reading: educating people on what the market means! Much like the religion-pushing political right-wingers who cannot recite the Ten Commandments, most of the right-wing pundits who talk about the "market" have no understanding of economics.

Start interlude:

In a recent conversation, I was explaining my theory of why Reaganism and conservatives are so out of touch with reality. It goes something like this:

From the start of this country to the Great Depression, we suffered a difficult econonimc boom and bust cycle where every 10-15 years or so, a whole lot of banks would fail. Enter FDR and his supposedly socialist policies. American capitalism never had it so good. For 40-50 years, the economy hummed along with a whole bunch of regulation from the government.

During this time, an entire generation of people is raised in a time of relative abundance and market-driven prosperity. These people, by and large, have no understanding of the previous boom-and-bust cycles. They just see markets working pretty damn well and start to think about ways of getting the stupid and stodgy government out of the way.

They start repealing some laws in the late 70's and lo - Savings and Loans go boom. This could not have been a market failure, right? Markets don't fail! Markets haven't failed us in decades! Time to remove more regulation.

This is all paired with an unprecedented rise in right-wing media from loosening of the laws governing radio (the Fairness Doctrine), as well as increasing media consolidation and a rise of pundits (who talk a lot more than they think). With Reagan in power, conservative ideology on the march, conservatives increasingly rely on talking points rather than actual knowledge, theory, and research (remember, they created a whole lot of think tanks to create all this theory originally).

Turn to today - many of these people honestly believe the government cannot do anything right because they cannot name anything the government does well (regulating banks to prevent a massive recession is not something you can easily sum up, and even if you could, it would be boring).

End interlude.

Now that we know why most of the pundits have no freaking clue what the "market" is, Chait will explain what the stock market is:

The larger fallacy here is to assume that the stock market is a proxy for the entire economy. Many people realize that the stock market is an imperfect gauge. But it's not just an imperfect gauge of the economy-it doesn't even attempt to measure the economy. Stock prices represent the market's guess at the profitability of corporations. While that's related to the health of the overall economy, it's not the same thing, and sometimes the two diverge sharply. During the Bush administration, for instance, corporate profits soared while wages for most families flatlined.

One clear instance where Obama hurt the stock market came when Tim Geithner announced the administration's financial rescue plan. Stocks dropped that day. Was this a fair indictment of the plan? Or a reaction to the possibility that the government might wipe out shareholders? In other words, was the market drop a signal that Obama's plan was bad for the economy as a whole or just bad for bank stocks? The two propositions mean very different things.

Markets are great things, and when used appropriately can benefit everyone. On the other hand, without regulations, you get shitty markets. Witness Somalia.

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