Jim Leach's Pragmatic Warfare Expert Economy
The inside-the-Beltway newspaper Politico featured back-to-back interviews today with Rep. Ron Paul and Jim Leach, a former Republican chairman of the House Banking Committee. Both men were asked about their "worst case scenario" for the economy and what could be done to avoid it. Paul was his usual crystal-clear self:
Q: Are we too averse to even minor recessions? Doesn't that create an unnatural comfort level in taking on new debt?
A: Nobody wants a recession, but I compare it in medicine to getting somebody off drugs. You get to a point where maybe the patient's going to die if you don't get off drugs. People like to be praised for doing something -- now they're doing it wholesale. It has nothing to do with fixing the problem.
We have the Nancy Pelosis of the world being best friends with Henry Paulson and George W. Bush. They're not capable of managing the system. You can't price-fix money; you can't price-fix interest rates. We've been fixing interest rates for decades. Now we're trying to fix the price of worthless assets. When wage and price controls were imposed in 1971, the markets shut down and the economy tanked. As soon as you fix prices, you cause things to freeze up. They don't understand markets.
In contrast, Mr. Leach argued that the best solution to the looming depression is to elect Barack Obama president, because Mr. Obama is, um, surrounded by experts and lacks any fixed beliefs about economics:
What you're dealing with is a totally unprecedented circumstance. ... So, at issue is personal capacity, which with Barack is enormous. And then instinct for dealing with the right set of people, and Barack has a combination of exceptionally talented young economists in the country, such as Austan Goolsbee from the University of Chicago, to the experienced hands, from Paul Volcker to Bob Rubin, and in the business community, Warren Buffett. I'm very confident that Barack has a sense for the importance of quality of advisers.
Barack, while obviously more liberal than Sen. [John] McCain, is nonetheless very much in the American tradition of pragmatism. He's not tied to ideological groupings.
When asked to clarify what he means by pragmatism, Mr. Leach said it's just like warfare:
The best analogy is to military strategy -- and that is that every generation of military leaders has someone who stands for the notion of overwhelming force. In recent years, we've come to call it the Powell Doctrine. What has to be done in this particular crisis is overwhelming financial capacity, and that's very much an issue today, and it's one that defies ideology.
Of course, the Powell Doctrine actually requires leaders to develop a clear plan with an exit strategy and everything. Mr. Leach immediately abandons that idea and insists that real leaders don't need plans:
There can be judgment calls on how best to allocate resources. But the only thing worse than this general approach would be to do nothing. What's interesting to me, and I am very respectful of this, that within several weeks of the passage of the bill, there's been a redesign in how it's going to be allocated. And that, to me, shows proper flexibility in an unprecedented circumstance.
Plan or no plan, we definitely have the right general in Fed Chairman Ben Bernake, whom Mr. Leach praises as "one of the world's greatest students of the Great Depression." Well, sure, having now caused a depression himself, Mr. Bernake is in the best position to get us out of it.
Finally, Mr. Leach -- who, incidentally, is a professor at Princeton -- offers this reassurance about the Fed's pragmatic-military-enlightened leadership:
I have this longtime prejudice that I've written about for more than a decade that, in regulation, you need both right-side-of-the-brainers and left-side-of-the-brainers, ... those that are mathematically literate as well as word literate.
Most regulation in Washington is lawyer-driven. ... Only the Fed has a reservoir of substantial economic talent, and just as important, extraordinary access to academia and financial centers. And for that reason, my own sense is that the Fed has to be front and center.
Ron Paul, of course, is under the deluded notion that the Fed and its "expertise" is the problem rather than the solution:
Q: Did leaders, both in Congress and former Federal Reserve Chairman Alan Greenspan, encourage excessive lending and borrowing by lowering financial standards for obtaining mortgages many people couldn't afford?
A: Greenspan, presidents of both parties and members of Congress bear some of the blame. He was there pumping money like crazy when it wasn't backed by anything. The ideology has been around a long time, and he was responsible for pushing it along. This contradicted his basic free-market beliefs. He himself has warned about stealing value. But he still orchestrated this effort. He became chairman in 1987, and we saw the stock market crash almost immediately. He was steering the economy through money policy during that time. But the system's been around a long time, and he was working within the system.
But, Mr. Paul, how can the Fed be a slave to ideology when it's a math-and-literature driven expert institution? This is all very unsettling.
Comments (11)
Jeffrey Tucker
This is a tip-top post, fun to read and hilariously informative of the kind of nonsense that the D.C establishment lives on. Great stuff. Thank you.
Published: October 21, 2008 4:22 PM
BrentR
I wish I could, along with Mr. Tucker call this "fun" and "hillarious." I find it really quite frightening.
"Only the Fed has a reservoir of substantial economic talent"
Someone please explain economic talent? I'll refer any and all respondes to Mr. Hartnett's article from earlier today.
Are we not doomed?
Published: October 21, 2008 5:10 PM
Ian
As someone who works inside the beltway I am not surprised at all. When I have mentioned fascism I have been called unamerican. When I have mentioned the Federal Reserve I get the," What do you suggest, GOLD???" As they laugh and ridicule me.
The topper is when I mentioned cutting programs. My coworkers act like I am some kind of anti-capitalist. These are Ivy League people I am talking about. I am a combat vet (the only one I work with) and state university taught dude and these supposed genius child's are the most foolish bunch I have ever been around. They want more invasions, more interventions, and a whole bunch more government. Be afraid, be very afraid because these are the people directing things for the future.
Published: October 21, 2008 6:20 PM
N. Joseph Potts
Where Leach goes irretrievably wrong is obvious in his remarks: this is NOT unprecedented. If it were, Bernanke's much-limned (IN Leach's remarks) study of the Great Depression (now World Depression I) would be irrelevant.
Yes it IS 1932 all over again, with Obama about to inherit a mess you wouldn't think he could make worse (think again - and McCain could, too). And Bernanke's famous study of the Depression WOULD be totally pertinent except for the misfortune that his conclusions, oddly, seem to favor a continuing predominant role for government power, unlike Ron Paul's.
Politely, one could say Bernanke has misunderstood WD I. Impolitely, one could say he has misunderstood it (self-) advantageously. More less the way Bush misunderstands the reduction of terrorism. It's advantageous for their politican friends, too. AND enemies.
Published: October 21, 2008 6:21 PM
Bruce Koerber
And this is from one of Iowa's best! And now he is in academia! How bizarre! Leach the leech!
This is how it used to work (with the world under the yoke of the ego-driven interventionists) until the Mises Institute began to educate the people of the world. Now the silly and the sleazy have to earnestly scratch each others' backs as they draw closer and closer to the economic whirlpool that is equilibrium itself.
So powerful is the economic equilibrium forces that the trillions and trillions of fiat dollars are like the ticker tape confetti falling on this parade of economic terrorists and their accomplices. To these criminals and economic imbeciles the parade seems to be a celebration - like a big interventionist love fest!
Reality check! Soon the members of the unConstitutional coup will be sought after as traitors and economic terrorists, not only by Americans who have lost every dime but by all the people of the world who have been victimized by their warmongering.
Published: October 21, 2008 9:03 PM
Ohhh Henry
I was struck by a similar incongruity last week when listening to Bloomberg radio which played back-to-back interviews with Henry Paulson and Stephen Roach of Morgan Stanley Asia.
Paulson's words were extremely vague and his sentences were full of non-sequiturs. There was no logic or sense in anything he said. Even someone who knew nothing of economics but who listened critically would be able to tell you that the Secretary was saying 1 trillion dollars' worth of absolutely nothing.
Roach was utterly clear and concise, didn't mince words, and left the listener with no doubt about what he was saying. He was full of venom for Ben Bernanke - I think his words were, "Even an idiot could have seen that there was a housing bubble." It's too bad they didn't have him comment on the Paulson interview but I think they were taped at different times and probably by different reporters. Or, perhaps Bloomberg wants to maintain friendly relations with Emperor Paulson and would never expose His Imperial Majesty to harsh and outspoken criticism of his intelligence and morals.
"Impolitely, one could say [Bernanke] has misunderstood it (self-) advantageously. More less the way Bush misunderstands the reduction of terrorism. It's advantageous for their politican friends, too."
Precisely.
I was listening to an audiobook version of I Claudius recently and I wondered why the members of the imperial family and the senate would waste so much time on the superstitious nonsense of constantly making sacrifices to various gods and never making any major policy move until the oracles had been consulted. It's such an illogical and wrong-headed approach to performing any action and they were the most educated, urbane and cynical people in the entire country. But like Joseph says above, it is advantageous nonsense.
People like Bernanke and Kristol are the high priests of deities such as Lord Keynes and Saint Lincoln. "Yes Sire, the gods are saying that it is a propitious time to bail out General Chariots with five quintillion sesterces from the public treasury." Or, "Indeed Dear Senators, the Sainted Abraham himself has blessed the invasion of Persia to prevent their acquisition of advanced catapults."
It is utter bilge, but it keeps the dialogue near the level which the ignorant masses can understand, it prevents any arguments or backtalk, and it is soooo lucrative.
Published: October 21, 2008 9:33 PM
Friedrich
Well sure only the Fed has experts. We can see how well that works. Paulson and Bernanke, simply do not get it. I have wrote against this stuff up and down. But hey what are we just "stupid" liberals.
Published: October 22, 2008 12:11 AM
Todd
Your Paulson/Roach back-to-back interviews reminds me of a segment on CNBC a week or so ago with Jim Rogers. The talking heads were asking about his view of the crises and what his investing ideas for the future are. He answered so clearly and directly that anyone with a rudimentary understanding of economics or investing would understand. His point was that the bailout is adding to the money supply, so there will be rampant inflation, so he is moving into gold, foreign currency, and agricultural commodities. The CNBC crew acted like he was speaking a different language. They were saying, "but a recession is a deflationary event" and repeating the tired party line that "we need a liquidity injection to loosen credit markets." Rogers continued to explain that if the Fed did nothing, strong companies would survive, buy up the bad ones, and we would have a stronger economy as a result. The taking heads would have none of it, repeating over and over the mantra that "the worst thing we can do is nothing..."
Published: October 22, 2008 12:30 AM
Horst Muhlmann
Todd,
CNBC is owned by General Electric, who was on the No Short List. Also, they issued special preferred stock to Warren Buffet, with terms only Buffett could get.
It wouldn't surprise me to find that Buffett bought the preferred shares with proceeds from the $850,000,000,000 bailout.
Published: October 22, 2008 8:38 AM
Don Mynack
Since this election has comes down to illuminating the very small differences between the presidental candidates, and we eventually have to make choice, I think the only sensible one is this: Stop McCain now, then stop Obama later. John McCain has to be eviscerated as a national political figure - he's far too illiterate when it comes to economic issues (even W was better than him in 2000). Obama seems to have it in the bag - perhaps, despite his many harebrained ideas, we might find he is someone whom "we can do business with", so to speak. I admit I am an optimist in this regard.
That being said, I'm wasting my vote on Bob Barr. I do actually get to vote for Ron Paul since I live in his district and he's running unopposed.
Published: October 22, 2008 9:32 AM
newson
to joseph n. potts:
in all fairness to fdr, it's fairer to equate today with 1929. hoover was a disaster, and fdr was hoover writ large.
Published: October 22, 2008 10:45 AM