A Tool, Not a Fetish

National Review, October 20, 2008

In the wake of Sept. 29’s dramatic House vote, the prospects, nature, and chances for success of any revived Paulson plan were, to say the least, uncertain. What remained certain was that some sort of rescue, bailout, pick the euphemism or pejorative of your choice, was still needed, and needed quickly. That this could ever have been a matter of serious debate is remarkable. Even more remarkable is the fact that a good number of those seemingly opposed to the very idea of a plan have come from the GOP. Washington’s Republicans are supposedly the flag bearers, however tatty, torn, and stained their flag, of what little economic literacy there is within the nation’s capital. Witnessing some of their recent pronouncements, not to speak of their votes, has been a depressing exercise.

As a starting point, we need to discard the distinction so often and so misleadingly drawn between Main Street (good) and Wall Street (bad), and its close cousin, the Pollyanna chatter about the “real” economy (healthy) and the financial world (sick). In fact, Wall Street and Main Street are just different points along the same road. Those who operate within the financial markets do so in the pursuit of their own economic interests, and there are occasional, inevitable, and sometimes spectacular speculative excesses; however, those operations generally facilitate the (reasonably) efficient allocation of capital to the rest of America. It shouldn’t be necessary to remind Republican congressmen that capital is the lifeblood of any economy. It’s worth adding that if anyone really thinks the vital principle of moral hazard — the notion that rescuing failing financiers will encourage others to take excessive risks — has been junked, or that the Paulson plan would have meant that Wall Street had “gotten away” with this mess, I can probably find some Lehman stock to sell him.

And that’s why referring to that plan, an initiative designed to defend this system, as (to quote various House and Senate Republicans) “financial socialism,” “un-American,” and an example of the “Leviathan state” at work is absurd. A belief in the effectiveness of free markets is one thing. Market fundamentalism is another.

Free markets are, to steal Winston Churchill’s famous comment about democracy, the worst way of running an economy “except for all those other forms that have been tried from time to time.” Free markets work better than the alternatives because no one person, organization, or government has the smarts to allocate resources more efficiently than can the collective wisdom of the crowd. But the free market should be a tool, not a fetish, and as with all tools, there are instructions for its use. To think that it can operate in Galt’s Gulch isolation is to ignore history and psychology, and to confuse the economics of Hayek with those of Mad Max.

Free markets need a financial, legal, and regulatory structure to provide the element of trust — without which they cannot work very well, as we saw in Boris Yeltsin’s chaotic Russia. And that basic structure, experience shows us, has to come from the state. The only real question is how extensive it should be. As the failures of socialism demonstrate, too much state intervention is counterproductive. But too little can also be disastrous, especially when it comes to preserving the trust that (for example) enables banks to borrow short and lend long, thereby ensuring the free flow of funds on which the economy relies.

A breakdown in trust has been all too evident in recent months, both to those of us in the financial markets (I work in international equities, but should stress that I am writing in a purely personal capacity) and, increasingly, to those working outside them. In the more insular political arena, there seems to have been rather less understanding. When, on Sept. 23, Sen. Richard Shelby (R., Ala.) suggested that the U.S. should make sure it has “exhausted all reasonable alternatives” before proceeding with the Paulson plan, it was impossible to avoid wondering what, at that late stage, he had in mind. And then there was the first House vote.

Whether it’s the slowdown in interbank lending, the drastic contraction in the commercial-paper market, or even the fact that in late September the U.S. Mint ran out of its one-ounce “American Buffalo” gold coins owing to a surge in investor demand, the signs of collapsing trust and mounting panic in the credit markets (gyrations in the stock market matter much less) are unmistakable — and profoundly disturbing.

And when panic takes over, it is indiscriminate. Sound institutions can fail along with those that deserve to. It’s not only exuberance that’s irrational; free markets may rely on the collective wisdom of crowds, but as Charles Mackay (the 19th-century author of Extraordinary Popular Delusions and the Madness of Crowds) reminds us, crowds can go crazy. That’s why on some occasions the Fed has to take away the punchbowl, and on others come to the rescue.

Unfortunately, the problems this time are so great that the Fed’s interventions have not so far done the trick. At this point, government, the only institution with possibly enough resources (financial and otherwise) to halt this particular panic, has to step in with something very drastic indeed. It’s not pretty, or particularly ideologically comfortable for those of us on the right, but, like the free-market system, it’s pragmatic and, as such, thoroughly American. The Japanese delayed doing what they needed to do for years; the consequences are too well-known to need reciting here.

None of this is to claim that the original Paulson plan was perfect. It was very far from that (I’d have preferred a scheme with more direct equity investment in the troubled institutions). Equally, it must be acknowledged that the congressional Republicans’ criticisms improved the package’s terms prior to the first vote, if insufficiently to convince enough of them to vote yes. The problem is that, in the course of a panic on this scale, time is of the essence (this is not some bogus emergency on the usual Washington model). There is limited room for fine-tuning, with the markets waiting for a move.

As Rep. Henry Steagall (yes, that Steagall, and yes, he was a Democrat) wrote in 1932 about a fix proposed for an economic crisis:

Of course, it involves a departure from established policies and ideals, but we cannot stand by when a house is on fire to engage in lengthy debates over the methods to be employed in extinguishing the fire. In such a situation we instinctively seize upon and utilize whatever method is most available and offers assurance of speediest success.

No bailout, however deftly structured, offers any “assurance” of success. The situation is too treacherous for that. A bailout is a gamble, but not a stupid or extravagant one (banking crises never come cheap), and the stakes are too high to avoid it. To do little or nothing, or to rely on the free market alone, would be to display reckless optimism of the type that got us into this trouble in the first place.

The free market simply cannot do its job in a climate of rising and highly infectious financial panic, hysteria, and risk aversion. A bailout offers a chance of restoring the confidence needed for its normal operation, and with this the semblance of a normal economic cycle.

The alternative could well be systemic collapse, and it is that, not Hank Paulson, that will pave the way for Leviathan.

Cultural Suicide

Ian Buruma: Murder in Amsterdam: The Death of Theo van Gogh and the limits of Tolerance

National Review, December 4, 2006

It’s far too soon to know if the 2004 murder of Dutch filmmaker Theo van Gogh by a Muslim fanatic will turn out to be a warning heeded in time, or if it will prove to be just another episode in the decline of a country wrecked by the mixing of multiculturalism with mass immigration. Judging by the nature of the debate ahead of Holland’s upcoming elections, judging by the departure of parliamentarian Ayaan Hirsi Ali to the safer, more welcoming haven of America, and judging by this perceptive, misguided, depressing, and (sometimes unconsciously) revealing book, it will be the latter. If Murder in Amsterdam is a grim read, it’s not only because of the events its author recounts, but also because of the way he recounts them. Born in 1951, a child of the Dutch upper-middle class (“blazers and pearls and Hermès scarves”), and now a professor at Bard College, Ian Buruma is a distinguished man of letters, a gifted cultural historian, a skilled writer of impeccably refined sensibility: It’s no surprise to see his byline occasionally popping up in The New Yorker. This background makes him both one of the best possible guides to van Gogh’s murder and one of the worst.

Buruma’s Dutch upbringing and well-traveled later years have left him nicely placed to help us understand a small, clubby country that can be tricky to penetrate and even more difficult to decode. With his help, we mingle with intellectuals, with politicians, and with Muslims, young and not so young, pious and not so pious. We meet Hirsi Ali herself, and we visit van Gogh’s parents, still mourning the brilliant provocateur that was their wild, loutish, infuriating, and endearing son.

When it comes to describing the two protagonists in this terrible drama, Buruma rarely misses a trick. His vividly drawn portrait of Theo is made painful, not only by our knowledge of the slaughter to come, but also by the hideous irony that a man astute enough to realize that the old easygoing Holland was under lethal assault was too careless, too stubborn, and too confident to realize that he too was in danger. Nobody would harm him, said blithe, foolish Theo: He was just “the village idiot.” But that familiar comfortable village had been torn down, replaced by a multicultural shantytown, yet another miserable utopia in which there would be no room for rowdy jesters, rude pranksters, or free spirits of any kind.

As for van Gogh’s murderer, Mohammed Bouyeri, Buruma tracks his descent from minor misfit to holy warrior step by deluded step until that murderous November morning comes to seem inevitable, ordained, as logical as the carnage that concludes a Shakespearean tragedy. But if the how is made grippingly clear, Buruma leaves the why something of a mystery. Worse still, when it comes to suggesting how such horrors can be avoided in future, the best he can come up with is a bit more appeasement (he wouldn’t use the word, of course), yet more “tolerance” and acceptance of the fact that “Islam is a European religion,” a grand-sounding observation that is as obvious as it is unhelpful.

As always seems to be the case, some of the killer’s squalid why can be explained by personal inadequacies and, almost certainly, severe psychological problems, but to dismiss Bouyeri as Lee Harvey Oswald on a prayer mat is to miss the point. Buruma knows this perfectly well. He chooses to stress the unhappiness of the “immigrant” (Bouyeri is Dutch-born) marooned in a country where he will always be considered an alien. Fair enough, but it’s only part of the story.

Buruma has far less to say about the extent to which the Dutch themselves (or, more precisely, the Dutch elite) dug van Gogh’s grave. After all, these were the people who as a result of political correctness, indifference, and complacency did nothing to combat Islamic extremism. Not only that, but they went out of their way to vilify those who were prepared to do so (check out how Pim Fortuyn and van Gogh were described both before and after their murders). These people have spent decades denigrating their own history, their own culture, and their own traditions; to them, nationalism was among the gravest of sins. No wonder Bouyeri was unimpressed.

Buruma is too smart, and too honest, an observer to ignore these issues altogether, but his reluctance to spend much time on them shows that he has not moved as far from the attitudes of bien-pensant Holland as he would like us to think. Readers will look in vain for much sympathy for the ethnic Dutch, citizens of a state turned upside down with little discussion and less consent (raising these issues was “racist,” “Islamophobic,” choose your bogeyword) — omissions that go some way toward explaining why integration has been such a failure.

It’s also pretty clear that the author of Murder in Amsterdam, like so many other secular Europeans, has little idea of quite how dangerous truly fundamentalist religion can be. It’s telling that Buruma can find time to grumble that “conservatives” have appropriated the idea of the Enlightenment as a last redoubt from which they can defend their (presumably reprehensible) values. That’s a shot that’s not only cheap but also aimed at the wrong target. Standing up for reason is too important a task to be regarded as something reserved only for Europe’s Left or, for that matter, its Right. It’s going to be hard work and, yes, it may be a little uncomfortable at times: Café debates, ecumenical babble, and generous welfare payments won’t be enough to do the trick. Voltaire would have understood this. So, I’m sure, does Buruma; he just can’t face admitting it.

Holland’s establishment consensus is so stifling that it ought to be no surprise that the most prominent dissidents have emerged from outside the mainstream: the immigrant, Ayaan Hirsi Ali (now in exile); the homosexual, Pim Fortuyn (murdered); and the clown, Theo van Gogh (murdered). It ought to be no surprise, but maybe to Buruma it is. To read his descriptions of all three is to detect a certain distancing, a touch of disapproval, and perhaps even a little distaste. They rocked the boat, you see, in a way that was not very Dutch, no, not at all.

Euro Scare?

Claire Berlinski: Menace in Europe: Why the Continent’s Crisis Is America’s, Too

National Review, May 8, 2006

There’s a bright, shining, merciful moment, right towards the end of this infuriating, odd, but occasionally perceptive polemic, when its author, Claire Berlinski, says what needs saying about the rancid and rabid anti-Americanism now disgracing Europe’s public discourse:

“[It] is a cultist system of faith, rather than a set of rational beliefs, and as such is impervious to revision upon confrontation with facts, logic, evidence, gestures of good will, public relations campaigns, or attempts on the part of the American secretary of state to be a better, more sensitive listener.”

Accurate enough, but her observation that there is nothing Americans can do to change this, “short of dying politely en masse,” suggests that Ms. Berlinski, a lively writer always happy to hype up the snark and the spark of her prose, is taking her readers not to France, or Germany, but to Planet Coulter. When, in another all-too-typical passage, Europe’s past is described as “one of nearly uninterrupted war and savagery,” it’s impossible to avoid thinking that while American anti-Europeanism is comparatively rare, given reason to flower — I note without further comment that Ms. Berlinski studied French literature at the Sorbonne — it can be just as irrational as the hatred for America stewing in the cafés of the Left Bank.

Oh, and while we’re on the topic, it may be quite true that Europe’s history is scarred by slaughter, but it’s quite false to suggest that this is something specific to that part of the world. Mass murder, butchery, invasion, and conquest are what humans do. All races. All cultures. Always have done. Always will do. Europe stands out only because of the extraordinary achievement that is the best of its civilization. It is not the corpses that surprise, but the contrasts: the juxtaposition of the charnel house and the cathedral, the victims trudging to the ovens to the sounds of an orchestra.

But this is not the sort of analysis you’ll find in Menace in Europe (lurid title, lurid book), a work dedicated to the wider, wilder, and highly marketable thesis of a possibly doomed, probably desperate, and certainly dangerous continent drifting into a gathering storm of economic failure, demographic crisis, and ethno-religious strife. Now, while Europe is undoubtedly facing (or, more accurately, failing to face) some very profound problems, it’s way too soon to be writing its obituaries. Claire Berlinski is careful to hedge her hints of apocalypse with caveats (“I do not prophesy the imminent demise of European democratic institutions, nor do I predict imminent catastrophe on European soil”), but there’s a clear sense that she, for one, is preparing for the funeral (“I don’t rule out these possibilities. . . . It is possible and reasonable to imagine a very ugly outcome”).

And, as has been the case with a number of other recent books on the Old World’s predicament (George Weigel’s The Cube and the Cathedral is a striking example), the logic of Berlinski’s thesis leads her to exaggeration. It has to, because the facts alone will not do the trick. So, for instance, it’s not enough for her to insinuate (with appropriate disclaimers) that the nastier ghosts of Europe’s past may be slouching towards rebirth, she also has to throw in the claim that “Europeans . . . sense in their lives a cultural, spiritual, and ideological void.” Good heavens (or not).

Certainly Europeans generally, and for excellent reasons, tend to be less optimistic than their counterparts across the Atlantic, but there’s no particular reason to think that (at least outside the more neurasthenic sections of the intelligentsia) they are wandering around their cities enveloped in black mists of angst, ennui, and existential despair. Quite how you measure a continent’s contentment, I do not know, but for what it’s worth, one recent (2004) Eurobarometer poll revealed that 85 percent of EU citizens were either fairly (54 percent) or very (31 percent) satisfied with their lives. Existence in a cultural, spiritual, and ideological void is not, it seems, quite as dreadful as some commentators appear to believe.

Far too often, Berlinski’s need to stick to her Chicken Little line forces her narrative in a direction that it should not take. A brutally effective demolition of French “peasant” leader José Bové (the clown who trashed a McDonald’s) dissipates into a discussion of the holy fools, cranks, fanatics, and zealots who have been bothering the continent for generations. It makes for some interesting history, but it’s irrelevant, and, if it is designed to demonstrate that susceptibility to psychopaths, charlatans, and madmen is (like war, genocide, and the rest of the rap sheet) a particularly European vice, it’s thoroughly misleading.

Similarly, the author passes over the opportunity to look at the (admittedly slim) prospects of a much-needed patriotic revival within Europe’s nations in favor of a lengthy and rather overwrought examination of the meaning of Rammstein, a popular German heavy-metal band that combines the style of Spinal Tap with the aesthetics of Albert Speer. Yes, this makes for good, alarming copy, and it’s a convenient device to bring up yet again the subject of that miserable Reich, but, in the end, Claire Berlinski’s horrified descriptions of leather, sleaze, bombast, and kitsch do little more than remind us that German rock is, like German cuisine, usually best avoided.

There are times too when she appears to have drunk too deeply of her own Kool-Aid. Suitably enough, given the doom and gloom that permeates this book, some of its strongest, and most convincing, sections relate to an area where some panic is indeed called for: Europe’s failure to integrate its growing Muslim minorities. It’s a problem that will only be made worse by additional inflows from the Islamic world, yet Berlinski’s overblown fears about the viability of an aging society mean that that mass immigration is, apparently, an “economic necessity.” (It’s anything but.) Equally, while she understands that the EU is no more than “a marriage of convenience” (a gross oversimplification, actually, but it will do), her nightmare vision of a feeble and feral continent leads her to describe this ill-starred union as “politically and economically imperative.” It is neither: It is, rather, both a symptom and a cause of Europe’s current impasse.

What makes Menace in Europe all the more frustrating is that, amidst the shouts of alarm, cries of disaster, and howls of invective, there are some very valuable insights, and, particularly in a sharp analysis of how Marseilles manages its multicultural population, some excellent reporting. In the end, however, they only compound the impression that this book is an opportunity missed.

How very European.