Kicking Around Palin

I have been reading Nixonland: The Rise of a President and the Fracturing of America by Rick Perlstein and I was struck by how completely the political pundits wrote Nixon off after he lost the California’s gubernatorial race in 1962 and announced “You won’t have Nixon to kick around anymore.” Is the current certitude that Sarah Palin has ruined her chances for higher office similar wishful thinking? Pat Buchanan seems to think so, and he should know. He helped Nixon exploit the same working class white resentment that Palin feeds off.

The most important difference between Nixon and Palin is that Nixon was a genius—an evil and paranoid genius but a genius all the same—while Palin is a nitwit. Nixon understood the populist appeal of railing against elitism, but he wasn’t a one-trick pony. He understood economics and foreign policy and how to make himself palatable to whatever constituency’s support he was seeking. It is difficult for me to believe that Palin will ever be able to broaden her appeal simply because she would rather have narrow adulation than broad respect.

Peggy Noonan wrote a devastating critique of Palin in the Wall Street Journal over the weekend.

“In television interviews she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She couldn't say what she read because she didn't read anything. She was utterly unconcerned by all this and seemed in fact rather proud of it: It was evidence of her authenticity. She experienced criticism as both partisan and cruel because she could see no truth in any of it. She wasn't thoughtful enough to know she wasn't thoughtful enough. Her presentation up to the end has been scattered, illogical, manipulative and self-referential to the point of self-reverence. "I'm not wired that way," "I'm not a quitter," "I'm standing up for our values." I'm, I'm, I'm.

In another age it might not have been terrible, but here and now it was actually rather horrifying.

Noonan is of course being vilified by the Palinists, but as a former speech writer for Ronald Reagan, her conservative credentials seem pretty solid.

Reagan of course was also a master at exploiting white working class resentment. I have always thought it pretty “horrifying” that he launched his 1980 presidential campaign with a speech supporting “state’s rights” in Philadelphia, Mississippi, but I guess that didn’t bother Noonan. Reagan was never particularly well known for his command of the facts either, but he was capable of speaking in complete sentences. He also surrounded himself with advisors who knew things about the areas in which he was ignorant.

Explaining Away the Failure of Markets

Yesterday, I ran across a research paper published by The Federal Reserve Bank of New York that struck me as rather bizarre:

This article argues that the current housing crisis stemmed in large measure from a change in economic fundamentals and was only exacerbated by credit market conditions. Indeed, what appear in retrospect to be relatively lax credit conditions in the early part of this decade may have emerged in part because of then-justifiable, although ultimately misplaced, optimism about income growth. The subsequent credit crunch can be traced at least in part to a productivity slowdown that began in 2004 but was likely not recognized until 2007. With the slowdown in productivity came slowdown in the growth and expected future growth of income, which helped to stifle the housing boom and jeopardize mortgages and other investments predicated on ongoing growth. Thus, the U.S. housing sector served as the proverbial “canary in the mineshaft,” providing the earliest indication of a deterioration in underlying economic conditions.

Productivity Swings and Housing Prices, by Professor James A. Kahn of Yeshiva University, in Current Issues in Economics and Finance, Vol. 15, No. 3.

Here is what Professor Kahn seems to be saying: the mortgage brokers that sold zero down payment liar ARM’s weren’t relying on their ability to resell the loans to some investment bank, and the bank wasn’t relying on its ability to repackage the loans and sell them as mortgage backed securities to fixed income investors who were desperate for yield in the low rate environment being artificially maintained by Alan Greenspan, and the investors weren’t relying on the naïve belief that housing prices never go down to compensate for complete ignorance about the content of those securities, and the original borrowers were not counting on both permanent low rates and rising prices to allow them to refinance when the teaser rate ran out. IN FACT, according to Kahn, they were all relying on continued productivity gains leading to income gains that would justify the prices being paid for the houses. Unfortunately, they were relying on faulty productivity data.

I may have misunderstood Professor Kahn's point (since I did not think his paper made any sense), but this strikes me as little more than an attempt at misdirection. Rather than recognizing the current crisis as a massive systemic failure occasioned by three decades of a laissez-faire regulatory philosophy predicated on blind faith in the magic of the markets, Professor Kahn would have us believe that this was simply the normal functioning of the economic cycles exacerbated by a glitch in the economic data. Hey, shit happens!

The thing that makes me particularly skeptical about Kahn’s thesis is the fact that he takes for granted the connection between productivity growth and income growth. I don’t claim to be up on all the literature in the field, but I am pretty sure that this is a controversial issue among economists. Take a look for example at Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income which argued that only the top 10% of the income distribution that actually enjoyed the benefits of increased productivity. It seems like a bit of a stretch to suggest that the housing bubble was actually a rational market response to a econometric relationship that might not even have existed in the first place.

As regulatory reform is debated, I have a feeling that we will see more papers mining the data in the hopes of finding some way to shift the blame for the economic crisis away from Wall Street and the regulators who went along for the ride.

Larry Kudlow: CNBC Jerk of the Day 7/7/09

For the biggest jerk on CNBC today, I have to go with Larry Kudlow for his mindless response to the possibility that the Obama administration might consider enforcing our nation's antitrust laws for the first time in thirty years. Kudlow went on a rant in a conversation with CNBC political analyst John Harwood. "I've got to ask you: front page, Wall Street Journal, a new antitrust jihad against businesses. Look its businesses that create jobs. I assume all the smart people in the White House know that. Phone companies, drug companies, Google, airlines, multinational firms, plus a hike in the minimum wage. John, without business, you can't have a new job. Why are they waging jihads against business?"

Not surprisingly, Kudlow was speechless when Harwood calmly explained the logic behind antitrust enforcement. "I think their argument Larry is that moving on antitrust issues creates competition which in the long run will reduce costs even if its uncomfortable for those existing businesses." Co-host Melissa Francis also seemed to be amazed by Harwood's response. "John, I loved your answer on the fly there."

Later in the day, Michelle Cabruso-Cabrera was similarly taken aback when Harold Feld pointed out that fostering competition by enforcing antitrust laws might help the economy. "Christine Varney [of the Department of Justice Antitrust Division] said it best: 'antitrust is the best stimulus. If you want to see venture capitalists putting money in the market. If you want to create jobs. You've got to give new entrants a chance. For that, you need strong antitrust.'" "Wow!" responded Cabruso-Cabrera, "I'm very impressed Harold. We're going to have to have you back."

What frustrates me most about so many of the idiots on CNBC is that they don't think they need to have any command of the issues. All they figure they have to do is repeat their mantra "Government bad, business good. Government bad, business good. Government bad, business good." Given all the problems that have been created by businesses that are "too big to fail," you would think that the notion of enforcing antitrust laws would not be so astounding to the on-air personalities at the leading business network.

Reagan's Evolution

The man who saw big business as an unalloyed evil and government as the savior of the people could believe the complete opposite a few years later without ever entertaining the possibility that the truth might lie somewhere in the middle.

The Man Who Sold the World: Ronald Reagan and the Betrayal of Main Street America by Michael Kleinknecht

Palin Thinking in Tongues

When I was in college, I had a physics professor from Korea whose language skills left something to be desired. Periodically he would stop speaking in the middle of a sentence and the class would be left hanging. I always assumed that he was thinking in Korean and translating it into English as he went along, but would stop when he had finished a thought in Korean even if it didn't make a complete sentence in English.

I got a similar feeling listening to Sarah Palin explain her reasons for resigning today. It seems like she isn't thinking in the same language that she's speaking in.

Not a Great First Step

In an interview with The Associated Press this week, Sanford said a woman he visited last month in Argentina is his soul mate, but he is trying to fall back in love with his wife.

I'm no marriage counselor, but I can't help but think that your chances of salvaging your marriage are a lot better if you describe your mistress as a "foolish mistake" or a "mid-life crisis" rather than a "soul mate."