Inviting a dictator

New York Times columnist David Brooks writes about the defeat of the $700 billion bailout plan–

And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
[…]
I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
[…]
What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up.

Last week, he wrote–

The government will be much more active in economic management (pleasing a certain sort of establishment Democrat). Government activism will provide support to corporations, banks and business and will be used to shore up the stable conditions they need to thrive (pleasing a certain sort of establishment Republican). Tax revenues from business activities will pay for progressive but business-friendly causes — investments in green technology, health care reform, infrastructure spending, education reform and scientific research.

If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism. We’re not entering a phase in which government stands back and lets the chips fall. We’re not entering an era when the government pounds the powerful on behalf of the people. We’re entering an era of the educated establishment, in which government acts to create a stable — and often oligarchic — framework for capitalist endeavor.

While the average American is mistaken about the causes of the credit crisis – putting the entire blame on “greedy” Wall Street bankers, for example – he is right when he feels uncomfortable about the bailout, and hence voices his opposition to it. The “momentarily popular thing” – a sentiment that those Congressmen who voted “no” were aware of, is the right “thing”. But Brooks cannot tolerate such opposition to the bailout. He calls the nay-sayers nihilists because they voted against “the collected expertise of the Treasury and Fed”. Yes, I have never seen such a brilliant display of expertise in my life – the free market could never have managed such a costly exhibition of crash-and-burn; the socialists, however, manage to surpass themselves each time. Further, if Brooks would have bothered to look up socialism in one of his dictionaries or even on Wikipedia, he would have realized that the bailout _is_ socialism, and that socialism _is_ “the biggest threat”, bigger in fact than terrorism. When he says – “What we need in this situation is authority” – he is asking people to trust an increasingly paternalistic government that has repeatedly shown that it does not tolerate dissent. And when he says – “There’s no time to find a brand-new package” – it means he has no time to think of one (and probably something more).

[Here’s my suggestion. Let the private banks come together and transfer all their “toxic debt” to a couple of private SPVs – with the banks holding shares in these vehicles to the extent of the “book value” of the debts they transfer. As the debts are realized or paid back, the banks will start receiving their money. Losses will be inevitable, but they can be spread over some years. The firewalling would have been complete, and that alone should reduce the uneasiness in the market. The arbitrary rules already in place would have to be tweaked a bit for this to work, but that’s way better than pumping in $700 billion (its $1.8 trillion if we start counting from late 2007). The only aspect this does not address is the question of shortage of actual cash within the system. And if such a problem exists, the Fed can solve it by reducing its reserve requirements by a percentage point or two. I know I am commenting without knowing the “exact” details of the problem. But its surely something that can be considered.]

Commentators like Brooks (there are lots of them) are blissfully unaware of the connections between socialism and authoritarianism, of which Nazi Germany was a prime example. There is no such thing as controlled freedom. Socialism will always end up in authoritarianism, and “intellectuals” will time and again tell people that they don’t know what is good for them or their money and that the “experts” should decide for them. As far as history goes, socialism has been kept in check by the few capitalist forces that were allowed to remain active, and, in the American context, by the public’s uneasiness with the whole idea of a control economy. But the times are changing. The whole bailout and the controversy surrounding it is like the fable of the king who appointed a monkey as his bodyguard/ fly swatter, and armed it with a sword. When a fly perched itself on the king’s nose, all the monkey saw was the fly. In trying to save the economy with a plan that was cooked up overnight, the larger picture is being forgotten. The bailout will change the balance of power in favor of socialism because, after advising the whole world about the benefits of free markets, America chose to not practice what it preached. Once governments accept the idea that there is nothing wrong in assuming control of the economy as and when they want to, total control is just across the road. And it would make it just that much easier for the next Hitler or Stalin to come and whip up sentiments against some unknown enemy – the will of the people and their belief in themselves would have been eroded by a continuous assault on them. The faux-capitalists (“pragmatists”, “realists”, “thought leaders” and so on) would have won. Along with the economy, they would have delivered freedom on a platter to the next dictator.

Barring a few notable exceptions, while the blogosphere is full of opinions that are nothing more than drivel, the same is unfortunately true of newspapers. When it comes to the internet, you could ignore it because not every opinion has an audience of a few million, some of whom might be opinion “shapers” in their own right. But newspapers and their writers are different. Sometimes they get more attention than they deserve. And that is what makes them a dangerous breed.