Live-blogging E.J. Dionne’s WaPo column

E.J. Dionne

Scanning through the mainstream media this morning (and pounding far too much coffee to keep myself awake as a result), I came across a gem of a headline. Today’s Washington Post published a column by E.J. Dionne entitled, “Don’t buy the spin. Government works.

Provocative, ain’t it? Let’s see if he makes a convincing case.

Government shutdown follies feed an ideologically loaded narrative that government is hopelessly incompetent and can never be counted on to do much that is useful.

I don’t know how I would put it to E.J., but it’s a little bit more than a mere narrative.

After looking back just the past sixteen years, what other conclusion should I come up with? Among other things:

  • The US’s foreign policy comprises nothing but failed wars in Iraq and Afghanistan; massive waves of Middle East migrants due to attacks in Syria, Iraq, and Libya; and insistently provoking Russia, China, and Iran for reasons only neocons can articulate;
  • The national debt that has grown from under $6 trillion to over $20 trillion;
  • The Federal Reserve’s balance sheet has exploded from over $700 billion in 2003 to over $4.4 trillion today;
  • A regulatory state has grown so vast so quickly it has throttled America’s entrepreneurial spirit; and
  • Obamacare has single-handedly contributed to the near-collapse of America’s health-care industry.

However, such facts rarely interfere with a liberal’s desire to see government as some benevolent force in society.

President Trump and Republicans should bear the burden for Washington’s disarray because it was Trump’s erratic and uninformed negotiating style (along with his repeated flip-flopping) that made a rational deal impossible.

While I am the last person to defend Trump, he and Democrats are separated from an issue that is central to both of their bases: how to treat illegal immigrants who entered the country through Obama’s executive orders relating to DACA. Therefore, I’m not terribly interested in a partisan’s take on who is to blame on the impasse.

But even if he and his party are held responsible, episodes of this sort have the long-run effect of bolstering the standard conservative view of government as a lumbering beast whose “meddling” only fouls things up. The private sector is cast as virtuously efficient and best left alone.

Ah, one can practically see the straw being gathered up to create the construct that will ultimately be torn down. “The private sector is cast as virtuously efficient” puts a moral veneer to an economic argument. Under that argument, voluntary transactions are preferable to forced transactions, or transactions with conditions that outsiders impose. That’s because people engaged in voluntary transactions are more satisfied with their outcomes than if an outside party imposed conditions neither party had agreed to. Otherwise, they wouldn’t have entered into the deal in the first place. Such transactions are not virtuous so much as forced transactions cannot be virtuous.

The power of this anti-government bias is enhanced by our failure to revisit government’s successes. We don’t often call out those who wrongly predict that activist politicians and bureaucrats will bring on nothing but catastrophe.

What a bunch of malarkey.

The left’s constant criticism of Fox News and other conservative outlets includes chastising them for their predicting bad outcomes of proposed government policies.

Additionally, while it may be unreasonable to expect Dionne to have a long memory, there is a relatively famous (at least in Austrian economics circles) blog post by Keynesian economist Brad DeLong, in which he lambasted Robert Murphy’s expectation that quantitative easing would lead to significant price inflation, which did not occur (and Murphy later acknowledged as a mistake).

After all, if there is anything that can be relied upon, it is the left’s insatiable desire to use any opportunity to find rhetorical high ground so as to castigate non-leftists for their presumably immoral views.

To characterize leftists as not finding sufficient opportunities to confront anti-government bias is ridiculous.

This is why conservatives would like to lock the government rescues of General Motors and Chrysler under President Barack Obama in a memory hole. In the end, taxpayers invested some $80 billion in the effort and recouped all but approximately $10 billion of that. And that does not take into account the taxes paid by workers who might otherwise have been unemployed.

That’s certainly an interesting perspective.

If only it were true.

Notwithstanding Dionne’s characterization of recouping seven-eighths of the bailout as a success, his indignation fails to address:

  • Why taxpayer money should be used to bail out failed businesses at all;
  • TARP, through which hundreds of billions of taxpayer money was used to “rescue” banks, brokers, and mortgage financing companies that made over-sized bets on residential mortgages;
  • Whether protectionist policies incentivized American car companies to continue poor management practices; and
  • Why auto workers, let alone anyone else, should be forced to finance all of these bailouts through the taxes they paid.

The only way Dionne could make the auto bailout look effective is to ignore all of the above. And even that didn’t work, because the government still spent more than it received. Which is, you know, inefficient.

Remember that when this was debated, critics insisted the federal government could not possibly understand a complicated business, and that it would turn the auto companies into some kind of patronage dumping ground.

If the bailout happened, Mitt Romney famously wrote, “you can kiss the American automotive industry goodbye.” Rush Limbaugh accused Obama of trying to “take over” the American auto companies in order to turn them into “another industry doing his bidding.” Then-Sen. Jon Kyl (R-Ariz.) said the bailout would amount to throwing good money after bad. “Just giving them $25 billion doesn’t change anything,” he said in November 2008, citing the estimated upfront cost of saving the companies. “It just puts off for six months or so the day of reckoning.”

In fact, in the most capitalist of terms, the initiative worked spectacularly well. Auto sales rose for seven straight years beginning in 2010, before finally taking a small dip in 2017. On May 29, 2009, GM stock cratered to 75 cents a share — yes, 75 cents. The restructured company went public again in 2010 at $33 a share, and it was trading at around $43 a share on Friday. Fiat Chrysler, the merged company that came out of the government-led restructuring, debuted on the New York Stock Exchange at $9 a share in October 2014 and is now trading at around $24 a share.

Careful readers may notice that the first word in “Fiat Chrysler” is an Italian company. So the American government helped to subsidize the sale of an American car company to a foreign one.

Funny, I don’t see Dionne pointing this out.

As far as auto sales going up, that aspect of the business cycle would have occurred whether the car companies were bailed out or not. All that changed is who sold the cars.

Add in the spectacularly awful “Cash for Clunkers“, the government wasted an enormous amount of other people’s money to solve a problem that can only be resolved through the marketplace.

Although Obama organized the details of the rescue and took the heat for it, former President George W. Bush deserves some credit here. While he was initially reluctant to do so, Bush responded to Obama’s desire to keep the companies open. He eventually fronted GM and Chrysler some $25 billion from the funds that had been set aside for bank bailouts after the economic implosion.

Bush said in December 2008, “If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy.” For such a staunch capitalist, it was a candid — one might say courageous — admission that the market, operating on its own, would create chaos.

This just goes to show that the welfare state is not the purview of one particular party: Republicans know how to play the welfare game as much as the other one. The fact that Dionne is deferring to Bush on how the marketplace works shows that neither Dionne nor Bush understand economics.

And this bedlam would have taken a severe human and social toll, as the job losses from that “disorderly bankruptcy” would have hit not only the auto companies themselves but also their suppliers and other enterprises, large and small, that served them.

Dionne is confusing the symptoms of the bust as a cause. Because he has no understanding of economics, let alone the business cycle, he can’t see that even if the car companies and their suppliers had to go into bankruptcy, their assets would be re-allocated in a far more efficient and effective manner than what had been accumulated during the boom. There is no question that such a bust would be painful, but the result would be far more sustainable than what happened through the bailouts, which is kick the can down the road.

Instead, Michigan, along with other parts of the region, has staged an impressive comeback. The state’s seasonally adjusted unemployment rate peaked at 14.9 percent in June 2009, fell to 5.1 percent by December 2016 and has continued to drop, to 4.6 percent last November. In Detroit itself, unemployment declined from 28.4 percent in June 2009 to 7.8 percent in November 2017.

If Michigan is doing as well as Dionne makes it out to be, why did the state vote for Trump during the last election? Granted, the margin of victory was incredibly small. However, people don’t vote for a maverick like Trump unless they are deeply unsatisfied with the state of things.

Besides, even if the entire drop in unemployment is attributable to the auto bailouts, which I doubt, what was cost of that drop in terms of employment that could have been retained in other parts of the country?

Dionne cannot even contemplate such a question, let alone address it.

Wages, it should be said, have not fully recovered from the Great Recession. The real median household income in Michigan stood at $57,910 in 2006, sank through 2010, when it hit $50,943, and was at $57,091 in 2016. So there’s still work to do. But imagine what the trends would look like if government had made the irreversible choice of letting GM and Chrysler go under.

I love the dramatic rhetoric closing this paragraph. Imagine the pain and suffering if those Republicans just let those companies die! Only evil people – EVIL!!!!! – would let such catastrophe to occur!

The primary problem behind the rhetoric is that all government does, at best, is redistribute the pain of a bust. After it had become clear that the enormous debts that had been incurred through residential mortgages could not be paid, people responded accordingly. Companies laid off workers, who, in turn, couldn’t buy cars.

American car companies couldn’t survive the downturn because of their high debt levels, high wages, and enormous pension obligations. All the bailouts did was prevent people from re-allocating resources to more productive purposes. The losses incurred by those companies were socialized through the supposed benevolence of politicians, with a little help from the American taxpayer.

This is indicative of the broader socialization of losses that occurred through the bailout of the banking industry. The taxpayer took on the losses, and executives kept their bonuses. Yet Dionne addresses none of this.

The last paragraph of his column is so atrocious, I need to focus on each sentence.

The price of our collective amnesia about the moments when public action kept capitalism from flying off the rails is very high.

Each transaction consists of exchanging money for a good or service. The money supply is directly affected by Federal Reserve policy, primarily through setting short-term interest rates. Regardless, if one-half of each transaction is impacted by a central planning agency, it does not make any sense to blame capitalism on the bust.

Once a crisis is over, extreme forms of deregulation return to fashion, and our political discourse falls lazily into cheap government bashing.

The Obama years saw an extensive expansion of regulation, particularly in the financial services sector. Must he be reminded about Dodd-Frank, let alone Obamacare? There was nothing deregulatory about those years. I can also assure him that any government bashing can be well-substantiated. In many ways, this is a throwaway sentence.

Speaking of throwaway sentences, Dionne closes his essay with this one.

That Trump and Congress make this easy is no excuse for forgetting why government is there.

Dionne’s essay is a cheap rehashing of tired liberal rhetoric extolling the virtues of some magical entity that can come out of nowhere and solve problems no one else can.

It ignores the simple fact that for government to spend money, it has to take it out of someone else’s pocket. It is inherently parasitical.

In other words, government doesn’t work.

That is why the best government for a well-ordered society is no government at all.

 

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