Monthly Archives: April 2010

Standard and Poor’s downgraded Greece’s debt yesterday. This reflected–and added to–perceptions that Europe’s debt difficulties are worsening. Portugal, Spain and Ireland are now in deeper trouble as a result.

First, one notes that the European Union has made an unbelievable hash of managing this crisis, making the problem worse as much as helping to solve it.

The latest proposal, a 45 billion euro package by Europe and the I.M.F., has done little to calm the markets, and Germany’s statement this week that it must first see more deficit reduction from Greece before fulfilling its pledge has only increased concerns that Europe is not united behind Greece.

Kenneth Rogoff, a former economist for the I.M.F. who has studied sovereign defaults, calls the latest assistance package puzzling. “They put their wad on the table, but they could have gone further,” he said of the international plan. “I never thought Europe could take the lead on this.”

No indeed. But the role of the ratings agencies also needs to be looked at. Given the decisive part they played in the subprime mortgage debacle, how have they managed to escape reprisals from politicians and regulators? Now they are at it again, propagating a follow-on crisis in Europe. The question is not so much whether their new lower ratings on the PIGS’ debts are justified, but whether, supposing they are, their earlier high ratings of the same debt conveyed useful information in the first place–or actually did the opposite, providing false assurance to the markets. No information is better than bad information. Creating a regulatory requirement for action based on this bad information, which is current policy, is doubly perverse.

Barack Obama has a spring in his step. His administration has passed a comprehensive healthcare reform, a goal that eluded Democrats for decades. The momentum is with them on financial regulation, another far-reaching reform. The economy is stabilised, recovery has begun and critics of the administration’s interventions are in retreat. Everything is going Mr Obama’s way – everything except voters.

Continue reading “Obama’s triumph leaves voters cold”

In recent columns, George Will and Robert Samuelson both attack the idea of a value-added tax. Will:

A VAT will be rationalized as necessary to restore fiscal equilibrium. But without ending the income tax, a VAT would be just a gargantuan instrument for further subjugating Americans to government.

Samuelson:

Almost every pro-VAT argument is exaggerated, misleading, incomplete or wrong. The VAT is being merchandised as an almost-painless way to avoid deep spending cuts. The implicit, though often unstated, message is that a VAT could raise so much money it could eliminate future deficits by itself. This reasoning, if embraced, would create staggering tax burdens and exempt us from a debate we desperately need.

In a new column for National Journal, I respond to their arguments. Nobody wants to pay more tax, I agree, but consider the alternatives. Long-term spending cuts on the scale required to bring the deficit back under control are going to be even less popular. So far as I know, nobody is arguing that a VAT would be painless. On the other hand, there is something odd about criticising the VAT, as both men do, partly on the grounds that it is such a good tax.

I’ll concede this much to Samuelson and Will: The superior efficiency of a VAT is a mixed blessing. Increasing a VAT, once you have it, is less damaging to the economy than raising the same amount of revenue from an unreformed income tax. So one result of a VAT might be less political resistance to higher taxes and bigger government.

Europe’s experience seems to support this view. If blocking the growth of the state is your overriding priority, you might oppose a VAT precisely because, as taxes go, it is a good one. By the same logic, of course, you should strive to make the income tax even worse. The rule would be, collect revenue in the most damaging ways possible. That will raise the price of Big Government and tie the liberals’ hands.

An interesting theory. While we debate it, the deficit sits there. Big Government is no longer a prospect to ward off. That choice has been made. One might regret it — but not as much as the consequences of refusing to pay for it.

Democrats haunted by corporate ties. Jonathan Allen and Eamon Javers, Politico. “The Democratic Party is closer to corporate America — and to Wall Street in particular — than many Democrats would care to admit.”

Is the SEC more at fault than Goldman? Sebastian Mallaby, Washington Post. Don’t blame Goldman, blame ACA for being so dumb.

Cleggmania. Philip Stephens, FT. The UK election: more change than anyone expected.

Chaplinmania. Soutik Biswas, BBC. India’s Charlie Chaplin impersonators.

Sam Tanenhaus, Jacob Heilbrunn, and Grover Norquist came to the offices of The National Interest yesterday to discuss the future of conservatism. I thought Norquist got the better of the exchange. ( I don’t see a link to video as yet on the website, though there is an interview of Tanenhaus by Justine Rosenthal.)

Tanenhaus was lucid and remarkably knowledgeable as always on the history of US conservatism, but had little to offer about where it goes next next. “I am not a prognosticator,” he said. What about his book, “The Death of Conservatism“? Was that not a prediction, or indeed an announcement? No, he explained, he had been misunderstood. He mentioned Daniel Dombey’s review (which I thought very good) in the FT last year. What that review and most others had missed, apparently, was that Tanenhaus was talking about conservatism as a set of ideas rather than as a political force. And in any case, read the title carefully. It is not declarative. He never said that conservatism was actually dead. (See also this earlier piece of his in The New Republic, entitled “Conservatism is Dead“.)

Heilbrunn’s main point, and Tanenhaus seemed to agree, was that conservatives cannot succeed simply by being against things. They have to be for something. I’d like to believe this, and have said something similar myself:

This shift [in Republican support] is remarkable not just for its speed but also for how little the party has done to deserve it. In the longer run, this surge may even hurt the Republicans, because it is rewarding them for having almost nothing to say.

Still, I wonder. At the moment they are only against things, and are doing well. If the things they are against–Obama’s transformational ambitions–stay unpopular, who is to say that will not be enough?

Norquist had a different response. He said that conservatives are for something: liberty. A fair point. It was a shame that Tanenhaus and Heilbrunn failed to respond. What might be their answer? They might say it’s too vague. In fact, they could turn another of Norquist’s points against him. He emphasises the difference between views on “vote-moving issues” and mere preferences.  Politicians who concentrate on what polls tell them about preferences get misled. Intensity is what counts. A coalition of narrow but intense interests will beat a broad mild preference every time. On Norquist’s own analysis, liberty is surely a broad mild interest rather than a vote-moving issue. But perhaps conservatism is a coalition of intense narrow interests wrapped in a broad, mild, and highly marketable preference?

Whatever. So far, it seems to be working.

I came away wondering, was Margaret Thatcher for things or against them? I’d say mostly against. It did not seem to hold her back.

How public-sector unions broke California. Steven Malanga, City Journal.

Skilcraft pens. Ylan Qui Mui, WashPo. A public option for ballpoint pens. (They sound all right.)

Polarized parties play parliament. Bill Schneider, National Journal.

American politics is becoming more parliamentary. British politics is becoming more presidential. Oddly, though, the countries are moving further apart, not closer. In the United States, the major parties are shifting toward greater polarization. In Britain, where an election has been called for May 6, all signs point toward a more centrist government.

Nick Clegg to win the general election? Has the country gone mad? Boris Johnson, Daily Telegraph.

[The Lib Dems] are a bunch of euro-loving road-hump fetishists who are attempting like some defective vacuum cleaner to suck and blow at the same time; and the worst of it is that if you do vote Lib Dem in the demented belief that there could ever be such a thing as a Lib Dem government, you won’t get Prime Minister Clegg. You’ll get Prime Minister Gordon Brown, for five more holepunch-hurling years…

The FT’s Francesco Guerrera reports on Goldman’s defence against the SEC’s fraud charge. It was all a matter of buyer beware, says the bank in submissions to the regulator, and there was nothing underhand.

In Goldman’s view, it “defies credulity” that ACA, the independent manager of the CDO that also invested in the security, would have taken Paulson’s suggestions on the loans if it had any concerns…

“There was nothing unusual or remarkable about the transaction or the portfolio of assets it referenced,” Goldman writes. “There is no basis to suggest that the portfolio would have performed any differently or that the economic outcome for the participants would have changed in the least had Paulson’s role and interest been more transparent.”

Here are the documents in question.

Look out, Wall Street, the lawyers are coming, says Frank Partnoy in an excellent column. The implications of the case are far-reaching. Litigators can go where regulators fear to tread.

[T]he case demonstrates a more effective way to police bankers, because Wall Street cannot outrun a judge. That simple point has been part of Anglo-American common law jurisprudence for centuries. The US judge Oliver Wendell Holmes advised that the law was a prediction about what a judge would do. If bankers consider only whether they are complying with specific legal rules, they will create “alegal” transactions – deals that fit the letter of the law but violate its spirit. But they cannot be certain about how a judge might assess their conduct. That worry, not a rule, is what will make bankers tell clients about the presence of a fox.

Republicans accuse Barack Obama, the US president, of trying to turn the US into Europe. The accusation stings, because the US likes to think of itself as exceptional, and because the charge is not baseless. Comprehensive healthcare reform was indisputably a move in Europe’s direction. Though shy about saying so, many Democrats do want the US to draw closer to the European norm.

Continue reading “America and Europe meet midway”

Greg Mankiw points to an interesting, if slightly dyspeptic, essay on the puzzle of academic bias to the left. Thomas Reeves says it is mostly due to envy, aggravated by (relative) financial distress.Times are hard for scholars.

Serious economic problems face the glowing, self-confident scholar with little money. How, for example, is he able to find adequate housing? Even US$300,000, well beyond the reach of most young and many senior professors, won’t buy much in Boston, New York, Los Angeles, New Orleans, Atlanta or Chicago, not to mention Madison, Sarasota, Ann Arbor, Palo Alto or Santa Barbara. The affluent suburbs, where the successful in other fields gather, are out of the question, of course. And so many of us move into older, deteriorating, often dangerous areas, telling all who listen that we made the choice deliberately and that we, being humanists, have a natural desire to live among the poor and oppressed. In my experience, some English and anthropology professors actually believe this nonsense, and enjoy dressing as factory workers and displaying furniture obviously purchased at a rummage sale.

In this talk from 1998, Robert Nozick put it down to a subtly different cause: a sense of frustrated entitlement. Intellectuals are trained to believe that the market has overthrown the proper allocation of reward according to merit. Note the difference: envy is wrong; insisting on reward by merit (however Utopian) is right.

The intellectual wants the whole society to be a school writ large, to be like the environment where he did so well and was so well appreciated. By incorporating standards of reward that are different from the wider society, the schools guarantee that some will experience downward mobility later. Those at the top of the school’s hierarchy will feel entitled to a top position, not only in that micro-society but in the wider one, a society whose system they will resent when it fails to treat them according to their self-prescribed wants and entitlements. The school system thereby produces anti-capitalist feeling among intellectuals.

Of course, the two causes are not mutually exclusive.

Obama is no socialist. Norman Ornstein, Washington Post. A splendid attack on the administration’s overheated critics. (The AEI, where Ornstein works, is supposed to frown on this sort of thing. I hope Norm’s job is safe.)

Three Supreme Court myths. Stuart Taylor, National Journal.

First, it simply won’t make much difference in the next five or so years — if ever — whom Obama picks from the lists of moderately liberal, extremely liberal, and just plain liberal candidates leaked by the White House…

The essential task of stabilising fiscal policy. Ben Bernanke, testimony to the Joint Economic Committee.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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