A bit of horserace commentary

by Henry on October 10, 2008

So I hear (via a prominent member of the sane Republican faction) that the word on the right side of the street is that the Republican National Committee is about to pull the plug on its joint ads with the McCain campaign, and devote its resources instead to trying to save a couple of the senators who are at serious risk of losing their seats. Now this is gossip, albeit of the high class variety; take it with the requisite pinch of salt. But it points to some real vulnerabilities in the McCain campaign’s finances. McCain’s decision to opt for public funding has meant that he’s had enormous difficulty competing with the Obama money raising machine. He’s been able to partly compensate by co-financing ads with the RNC (this “skirts the limits of the legislation that he himself co-wrote”:http://www.democracy21.org/index.asp?Type=B_PR&SEC=%7BAC81D4FF-0476-4E28-B9B1-7619D271A334%7D&DE=%7B349C2D62-1860-4F9A-8FDB-B6F8F1BB864B%7D but is just about legal). This has kept him competitive in TV advertising, albeit still significantly outgunned. But if the Republicans are as worried as they should be about the impending elections, there will be a _lot_ of calls on that money, and the RNC is going to have to make some tough choices. Should it keep spending money on the presidential campaign in the hope that McCain will win despite the polls, or should it instead try to minimize the damage of a McCain defeat by doing its best to stop the Democrats from making big gains in the Senate? Decisions, decisions …

Making the revolution permanent?

by Henry on October 10, 2008

I suggested a couple of days ago that the partial nationalizations of national banking systems that we’re seeing 1 was likely to be a temporary phenomenon, albeit one with long lasting implications for market actors’ expectations. I’m beginning to have second thoughts; I now suspect for two reasons that bank nationalization may be a lot harder to reverse than I thought.

First is the move towards more or less complete deposit guarantees that many Western states are offering (most explicitly Ireland, less explicitly the UK, Germany and others). This is a move that is going to be hard to undo any time soon without risking a further grave crisis of confidence. But it is also one that exposes taxpayers to risks that are far greater and difficult to quantify than the previous system (where many or most advanced industrialized states guaranteed deposits up to a set figure). The moral hazard problems are obvious, and states will want to have as many tools of control to make sure that they don’t get taken for a ride. Large stakes in the relevant firms are one such means of control.

Second – historical institutionalists in political science (Paul Pierson, Jacob Hacker, Kathleen Thelen etc) talk a lot about the importance of sequencing and timing in explaining institutional change. Their arguments might lead one to break up the responses to the crisis into two phases, one of which is likely to build on the other. The first phase is the current one – trying desperately to stop the entire system from breaking down through a variety of measures including injections of liquidity, interest rate cuts, and, most prominently, taking stakes in banks and other financial institutions. The second phase hasn’t really started yet, but will involve trying to build longer term institutions at the domestic level, and (to the extent that agreement is possible), the international level too to prevent this kind of thing from happening again.

The key point here is that the second phase isn’t going to begin _ex nihilo_; instead, it’s going to begin in a world that has been reshaped by the emergency measures that are being taken at the moment. And these measures will offer a set of possible tools and means of influence for government that will prominently include use of governments’ ownership stakes in large chunks of the financial system. It will be very tempting indeed for governments that want to secure financial stability to take up these tools and make them part of their permanent apparatus. Nor do the free marketeers seem in a very good position to win the ideological fight against this kind of initiative given their current disarray. Although the _Economist_ and other stalwarts are bravely battling on, “as Dani Rodrik notes”:http://rodrik.typepad.com/dani_rodriks_weblog/2008/10/will-globalization-be-reversed.html, Samuel Brittan of all people has “declared himself today”:http://www.ft.com/cms/s/0/a0b384ea-9612-11dd-9dce-000077b07658.html to be a closet Keynesian and is pushing the case for an expansionary fiscal policy.

1 Or, in Iceland’s case, full nationalization; see also “Paul de Grauwe”:http://www.ft.com/cms/s/0/3c29a40a-9617-11dd-9dce-000077b07658.html) in the FT this morning for a more general full nationalization proposal.

Ad hominem worries about global justice

by Chris Bertram on October 10, 2008

In political philosophy you should play the ball rather than kicking the player, right? Well I agree. But then it gets hard to find a legitimate role for the Mandy Rice-Davies argument. And such arguments sometimes seem appropriate. It seems ok to notice that Hegel might have erred in finding that the local socio-political framework was what _Geist_ was aiming at all along, and that this might represent a kind of dull parochialism on his part. And when Kant isn’t willing to admit barbers to citizenship, but has fewer qualms about wig-makers, and thinks that reason supports him, we suspect something has gone wrong. It isn’t hard to multiply the examples …. Aristotle on slavery anyone?

Generally, I think, one should expect the comparatively liberal people in a society to articulate a kind of weaselly compromise between an impartial perspective and whatever the local chauvinisms and prejudices are. Partly this is psychological: it is hard to believe that uncles, aunts, cousins and neighbours are bad people, so one gives some weight to their attachments and beliefs as legitimate. Partly the pressure is political: in a democratic society winning means building a coalition and that means including the median voter. It is hard to build a coalition in bad faith, to secretly believe that your nation is a rapacious imperial power whilst reaching out to others who believe that it is a great country which (despite mistakes) basically does good in the world. And then there’s the fact that intellectuals who do try to detach themselves from local prejudice, from what the person on the bus thinks and cares about, often seem to lack a necessary reality check and end up saying a lot of crazy stuff that then earns them hostility and ridicule, some of it deserved. You don’t want to be like those guys.

So, for example, liberal Serbs kind of acknowledge that Milosevic did some bad stuff, but urge you to see the context, the other side of the picture. Liberal Israelis loathe the settlers and all their works and feel kind of bad about the Nakba and the occupation, but think of the Zionist project as basically legitimate and good. Liberal Russians might bemoan some of Putin’s excesses, but think that something had to be done about Chechnya. Etc. And, again, you can multiply the examples. Moreover (and it complicates the picture) some of these people might actually be right. In their case, the truth really might lie in the middle.

So, leaving the supporting arguments to one side, for a moment, what sort of conclusions about the world would you expect well-paid American liberal intellectuals to reach when they came to think about global justice? I guess I’d expect the following. I’d expect a good deal of hand-wringing about the relationship between patriotism and universal morality, and I’d expect them to discover a legitimate role for patriotism. They’d find out that it is perfectly permissible to have a limited preference for one’s fellow citizens (especially poor and minority ones) over outsiders. They’d therefore agonize about issues such as immigration but accept the right of states to control their borders, reject the notion that justice requires any kind of global redistributive principle but favour some limited doctrine of “assistance” to those suffering desperate poverty overseas. And I’d expect them, being smart people, to come up with some varied and ingenious arguments to support such conclusions. John Rawls, Michael Blake, Samuel Freeman, Richard Miller, Thomas Nagel, Elizabeth Anderson … even (or especially?) Michael Walzer, end up in the same place. Kind of a coincidence huh? What would Mandy say about that?

All socialists now?

by John Quiggin on October 10, 2008

A couple of days ago, I thought my call for full-scale nationalisation of the banking sector would remain beyond the pale of political acceptability for at least a week. I badly underestimated the pace at which events are moving. In today’s paper I read the following assessment:

Inevitably, the US, Britain and Europe are going to end up with nationalised banking systems in one form or another, and with governments guaranteeing not only their deposits but probably all their liabilities. The nationalisation will be a temporary emergency measure. But for some time at least the systemically important banks effectively are going to be public utilities and must be regulated accordingly.

This taxpayer rescue of banking systems opens up a new and potentially very important avenue for unfreezing bank lending and restoring the flow of credit. If governments effectively control the banks, what is to stop them from demanding that they start lending again?

The source is Alan Wood, probably Australia’s most consistently hardline free-market economics commentator, writing in the Murdoch-owned Australian.

To amplify Wood’s point, the time when the situation might have been salvaged by passive capital injections like the acquisition of preferred shares has passed. Only direct public control, combined with a commitment to salvage the financial system as a whole has any chance of success.