After Arnold Kling coined the term civil societarian, I took it upon myself to create a wiki outlining the basic philosophy. I haven’t seen the wiki in a while so I googled the term. Now I see the catholic social thinker Pierpaolo Donati has used my wiki for the Proceedings of THE PONTIFICAL ACADEMY OF SOCIAL SCIENCES, XIV Plenary Session, 2-6 May 2008.
Hey, from one padre to another, Donati, no citations for Kling and my former alias?
Surowiecki wants to score points against libertarian political economy by pointing out that the stock market is currently recommending one thing (Keynsian surge) while libertarian economists like Arnold Kling are plugging for another (market correction). In his post, he says we ought to read the stock market’s prices–and by this he means the collective wisdom embodied by stock prices–as an endorsement of Obama’s stimulus package. When Obama hints at the future glory, the financial markets seem to maintain their altitude. Thus he concludes,
…it isn’t just some group of pointy-headed Keynesians saying that a big stimulus package will be good for the economy: the collective wisdom of the market is saying the same thing.
But what is Surowieki’s evidence? He says the stock market tanked when the vestiges of fiscal conservatism made a show by rejecting TARP the first time around. He also adds that the market didn’t show signs of life until Obama introduced his economic think-tank and unveiled his Keynsian buffet menu. And as an aside, Surowiecki mentions that the S&P is up 25 percent since Nov. 20th. It is telling that he doesn’t say it’s down over 35 percent in the last year, despite the gains since its low point in November. (In other words, Surowiecki’s theory of collective wisdom places greater emphasis on cherry-picked short term valuations over those evident in longer time frames. He gives no explanation as to why.)
The Surowiecki nut: Post hoc ergo propter hoc, baby.
But how he believes his first data point–the stock market’s decline coincident with a rejection of Paulson’s plan–is evidence of market support for Obama’s economic foreplay is beyond me. Afterall, it’s safe to say a consensus has emerged on the effects of Paulson’s plan: in a word, it sucked. Besides, that should be a data point in support of the wisdom of Paulson’s plan, not for that of Keynsian wisdom. We’re talking about two different rent-seeking glory holes here.
As for the markets’ (short term) reactions to Obama’s stimulus, I return to an old piece of false tribal wisdom–namely, that what’s good for GM is good for the country. The patent falsehood of this statement is so obvious to me that it amazes me it passed the laugh test. Imagine this. For no intelligible reason, the government decides to give hundreds of billions to GM as a gift. Obviously, this is good for GM. We shouldn’t be surprised if GM’s stock increased accordingly. But how foolish would it be to conclude that this rise in the stock price evinced the relative merits of taxing the many to support the already well-off few? Would this increase demonstrate the wisdom behind so profligate a gift?
The point is that the stock price of many unproductive companies ought to go down. These companies ought to fail and in time, the fortunes of their more productive replacements will rise. Surowiecki says nothing about how stock prices track the creative destruction so fundamental to capitalism. Instead, he falls for the false tribal wisdom. Subsidies offered through a stimulus package may maintain the status quo, but only a daft journalist would think the interests of those reigning in the status quo aligns with the interests of the commonweal.
Today, the Wall Street Journal reports that Treasury Sec Paulson will name an old disciple from Goldman Sachs, Neel Kashkari, to manage the $700 billion bailout to buy distressed assets from financial institutions. Mr. Kashkari will get to tell his friends he’s the head of the Office Ministry of Financial Stability. Though Kashkari has an MBA from Wharton, not Harvard, I’m going to say this supports Arnold Kling’s ominous prediction:
Big Finance and Big Government have much in common. Both are coveted by Harvard graduates. Both are characterized by an arrogant sense of entitlement and importance.
Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people’s money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from “Goldman Sachs” to “U.S. Treasury,” and everything else continues as it was. It’s just that it becomes a lot more difficult for ordinary people to opt out of using the elite’s money management services.