Robert Scheer: Payback at the Polls

In this live chat session, Robert Scheer responded to readers’ questions and comments about his latest column, “Payback at the Polls,” dealing with the 2010 midterm election.
TruthDig



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Anderson: The first question is from Bob from Fulton, Mo.: With the president already on record more or less intending to govern as a moderate Republican, what should progressives do in the next two years to influence the conversation?

Scheer: Well, a moderate Republican in the mode of Dwight Eisenhower, who was far better than any of the presidents who came after him, would be welcome. You know, even Richard Nixon favored a guaranteed annual income. What I’m worried about is Obama may do what Clinton did, which was move to the right—to the right of Richard Nixon, to the right of Dwight Eisenhower. And it was Bill Clinton, in response to his reversal in the ’94 election, who ushered in the disastrous radical financial deregulation that caused this whole problem. And Obama, in his extreme stupidity—and I use those words advisedly—turned to the same fools that created this mess under Clinton, to Lawrence Summers and Timothy Geithner, the protégés of that raging genius, Robert Rubin, and gave us this stupidity that said that Wall Street did not need any brakes on the system, any road rules, any rules of engagement.

And as a result, we have 50 million Americans that have either lost their homes or have their mortgages underwater and are thinking of walking away from their homes. We have 44 million Americans living under the official poverty line. We have a disaster going on here, and the people who call themselves progressives, that have sold their soul to the Democratic Party, seem to have an inability to recognize this. They’re yapping cheerleaders. Even Jon Stewart, who I’ve respected in the past, would have Obama on just before the election, and accept this nonsense that, oh, “Summers did a heckuva job.” He only quibbled about the word? This is a disaster that we’ve had. And as a result, the right wing, which can be very dangerous—if they start blaming immigrants, if they cut back needed social programs, yeah, they’re a real danger. And if we don’t do what we have to do to get out of this mess, it’s a really big problem.

Anderson: [Question from Truthdig member chacaboy]: There’s a preamble here. It says, “If Obama had not shown so much deference to Wall Street and the military and such eagerness for an exorbitantly expensive occupation of Afghanistan and excessive military budget, I could have sympathy. But as it is, I cannot distinguish Obama from most Republicans, including George W. Bush.” So now he says: “I would like to ask if there is any truth to the idea that we have something to lose by our critique?” I guess progressives critiquing Obama is the context there. “Is there anything to the argument (i.e. columnist Ruth Marcus) that Obama passed a stimulus package, he got health care done, and he passed financial regulations, and to withdraw support from him now would be to lose more ground by throwing the baby out with the bathwater?”

Scheer: Well, you know, we live in a democracy, and the key to democracy is that we not surrender our common sense or our ability to think. And what she [Marcus] said in that article was just gibberish. I mean, what are we talking about? First of all, the American people have rejected health care. At least half of them find it terrible, and the other half seem to be quite tepid about it. I’m tepid about it. You know, yeah, there are some good things in the health care thing, but there’s no cost control. It forces people to buy health insurance from insurance companies that are not going to do us any favors. This administration gave us something called health reform which is really, at best, mild, and at worst quite costly and disastrous. It certainly is not the thing they should have moved on when they had a banking meltdown, when we had a disaster in the economy. It was a feint. It was an attempt to find some win-win thing which didn’t work out. Health care should not have been the big item on the agenda; it was done for opportunistic reasons, you know, because they didn’t want to confront Wall Street. And instead of spending his capital on making the Wall Street system correct and putting sensible regulations in, he settled for very mild regulations on Wall Street and a very weak consumer agency; he couldn’t even push through Elizabeth Warren as a confirmed appointee with some real power. And as a result, you know, health care basically did not help him, and it’s been mostly a distraction. And the right wing has used it—you know, “socialized medicine” and all that garbage; of course, it’s nothing of the sort.

And so the real problem is that Obama has not only failed to deal with our meltdown; he’s exacerbated it. The stimulus was not effective. An enormous amount of money has been spent making the banks whole. I don’t know why these columnists can’t look at the numbers—the apologists for Obama—why don’t they talk about the over $2 trillion that were spent to take toxic assets off the books of the banks, but not a penny—not a penny really being spent to make people whole who are hurting. Where is the mortgage forgiveness, where is the moratorium on mortgage foreclosures? We don’t even know who owns these homes, 65 million homes, thanks to a system that Bill Clinton helped put in place, with the great liberals at Fannie Mae and Freddie Mac cooperating with the swindlers at Countrywide Mortgage, put in place this Mortgage Electronic Registration Systems so 65 million American homes are owned by a computer bank in Reston, Va., owned by the banks, and we don’t even know who owns these homes.

And so last month we had the highest number of foreclosures, people are in great pain, and progressives still blindly support the president out of some idea that he’s the lesser evil. That’s a betrayal of democracy. We’ve got to call it the way we see it. And the best thing you can do for Obama is to have sharp criticism from the progressive side, and he hasn’t been getting it. He was able to roll over the progressives, he was able to take them for granted, and unfortunately some of those very same progressives were the victims of this folly, like [Sen.] Russ Feingold in Wisconsin. My God, I mean the poor guy was one of the few people who stood against this, and he got overwhelmed by this rage out there. So I really have no sympathy at all for this position. We keep going this way, and it’s going to be a real, a bigger Republican sweep in two years.

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Roman Frydman and Michael D. Goldberg: Market Mysticism

Market mysticism
Roman Frydman and Michael D. Goldberg
Eurozine

Faith in the "efficient markets hypothesis" is largely to blame for the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable. Two economists excoriate the ideology of self-regulating markets and its pseudo-scientific foundations.

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What is worse, the false concept of rationality on which mainstream economic theory is based, also underpins mistaken conclusions about the proper extent of market regulation. As a result, contemporary economic models produce two extreme positions: exclusion of any active role for the state or radical state interventionism.

As Michel Foucault convincingly showed, language is power. Aware of this, the neo-classical economists carried out a real coup d'état. They created a para-scientific jargon that helped them to direct social choices in a very dangerous and unproductive direction. The premises that form the basis of their models became in great part inscrutable to anyone lacking a PhD in economics, and debate was infused with terms that mean one thing to the uninitiated and quite another to economists.

The concept of rationality forms the foundation of this discourse. In everyday language, rationality means common sense or reasonableness. By contrast, for economists, a "rational individual" is not merely reasonable; he or she is someone who behaves in accord with a mathematical model of individual decision-making that economists have agreed to call "rational". The centrepiece of this standard of rationality, the so-called "Rational Expectations Hypothesis" (REH), presumes that economists can exactly model how rational individuals comprehend the future. The unreasonableness of this standard helps explain why macroeconomists and finance theorists find it so hard to account for large swings in market outcomes.

Indeed, economists' incoherent premises have led them to embrace absurd conclusions – for example, that unfettered financial markets set asset prices nearly perfectly at their "true" fundamental value. If so, the state should drastically curtail its supervision of the financial system. Unfortunately, many officials worldwide came to believe this claim, known as the "efficient markets hypothesis," resulting in the massive deregulation of the late 1990s and early 2000s that made the crisis more likely, if not inevitable.

In recent years, another school of thought, behavioural economics, has uncovered mountains of evidence that market participants do not act as conventional economists would predict "rational individuals" to behave. But, instead of jettisoning the bogus standard of rationality underlying those predictions, they interpret their empirical findings to mean that many market participants are irrational, prone to emotion, or ignore economic fundamentals for other reasons.

The behavioural view suggests that large swings in asset prices serve no useful social function. If the state could somehow eliminate them through massive intervention, or ban irrational players by imposing strict regulatory measures, the "rational" players could reassert their control and markets would return to their normal state of setting prices at their "true" values.

This is implausible, because an exact model of rational decision-making is beyond the capacity of economists – or anyone else – to formulate. Once economists recognize that they cannot explain exactly how reasonable individuals make decisions and how market outcomes unfold over time, we will no longer be stuck with two polar extremes concerning the relative roles of the market and the state.

An alternative theory of markets is needed, and its basis should be the fact that participants must cope with ever-imperfect knowledge about the fundamentals of economic change. This obvious feature of capitalism is completely ignored by the dominant market models, though it is the main explanation for asset-price fluctuations in market-based economies.

Such an alternative approach also leads to a new way of thinking about the respective roles of the state and financial markets. So long as price fluctuations remain within reasonable bounds, the state should limit its involvement to ensuring transparency, curbing monopolistic behaviour, and eliminating market failures. But when price fluctuations become excessive, as they did in the run-up to the recent crisis, the state can implement measures to limit their amplitude (though it always has a greater problem coping with imperfect knowledge than the market does).

A combination of passive and active roles for the state along these lines would leave markets to allocate capital while holding out the possibility of reducing the social costs that arise when asset-price swings continue for too long and then end, as they inevitably do, in sharp reversals.

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