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The Economist: anti Greenspan, but pro-Bush

by Jerome a Paris Tue Jan 17th, 2006 at 10:20:47 AM EST

This week's edition of the Economist, a newsmagazine widely touted as "the establsihment's bible" is fairly typical of the current ideological position of the paper, which has switched from its traditional liberalism (in the English sense, i.e. pro free trade, free markets and deregulation, but socially liberal) to a nasty form of partial neo-conservatism.

On the one hand it has a pretty vicious article on Greenspan (Danger time for America) with the accompanying front page cover:

On the other hand, it publishes a highly favorable article on Alito (The brainbox and the blowhards) under the guise of "news".


DESPITE his rather appealing personal humility, the tributes lavished upon Alan Greenspan, the chairman of the Federal Reserve, become more exuberant by the day. Ahead of his retirement on January 31st, he has been widely and extravagantly acclaimed by economic commentators, politicians and investors. (...)

In his final days of glory, it may therefore seem churlish to question his record. However, Mr Greenspan's departure could well mark a high point for America's economy, with a period of sluggish growth ahead. This is not so much because he is leaving, but because of what he is leaving behind: the biggest economic imbalances in American history.

That's their editorial, and it goes staight to the point: Growth in the USA has been artificially boosted by an extravagant accumulation of debt, allowed by cheap money, and compounded by rising asset prices. This idea is familiar to those that read my diaries, or Stirling Newberry's, or bonddad's, and, to their creidt, they have been pushing it for some time now with consistency. And this week, they publish a longer summary on the same:

Monetary myopia - The accolades bestowed upon Alan Greenspan ahead of his retirement on January 31st have a strong whiff of irrational exuberance

On Mr Greenspan's watch, America has also experienced the biggest stockmarket and housing bubbles in history. Presiding over one bubble could be seen as bad luck; presiding over two smacks of carelessness. The Greenspan era will not end on January 31st. Instead, his legacy will linger in the shape of the biggest economic imbalances in American history: a negative household saving rate and a record current-account deficit (see chart 1). Until these imbalances unwind--a process that could prove painful--it is too soon to applaud Mr Greenspan's record.


The Economist's long-running quarrel with Mr Greenspan is that he chose not to restrain the stockmarket bubble in the late 1990s or to curb today's housing bubble.


Asset-price inflation can be as harmful as conventional inflation. A sudden collapse in share or house prices can trigger a deep downturn. And surging asset prices also distort price signals and cause a misallocation of resources--by encouraging too little saving, or too much investment in housing, so reducing future growth. This is why central banks need to pay closer attention to asset prices.


The deepest flaw in Mr Greenspan's policy towards asset prices is its asymmetry. If the Fed always cuts interest rates when asset prices tumble, but never raises them when they soar, then investors will be encouraged to take bigger risks. That makes bubbles more likely. The Fed was right to ease when the stockmarket bubble burst, to avoid repeating the Bank of Japan's mistake in the 1990s. But such "mopping up" should be a last resort, not a concerted strategy that cushions the bursting of one bubble by inflating another--since 2002, in housing.


Mr Greenspan would certainly not be so popular today if he had spoken out and leant more firmly against the stockmarket and housing bubbles.

Indeed, as the farewell tributes to Mr Greenspan reach fever pitch, ironically it is perhaps his extraordinary popularity and perceived wizardry that best explain the problems he will leave behind. Investors' exaggerated faith in his ability to protect them has undoubtedly encouraged them to take ever bigger risks and pushed share and house prices higher. In turn, American consumer spending has become dangerously dependent on unsustainable increases in asset prices and debt.

Greenspan has not done his job as a central banker (which is to "take away the punch bowl as the party gets going"), and has set a monetary policy which acts as a giant safety net for the rich: take all the risks you want, and earn what you can, and if it goes sour, I'll bail you out by flooding the markets with cheap money. The trickle down effects are marginal, as we see that incomes and employment have been mostly stagnant in recent years, but the downside risks are massive as the prices of houses and of most financial assets are unreasonably inflated. The rich may be saved by a new injection of funds, but the middle classes will pay in full the coming bursting (or deflation) of the bubble.

So the Economist is on the right side of this fact (although obviously they do not present it in class terms like I just have), which makes their blind support for Bush and his clique all the more exasperating.

A few weeks back, they had a cover on "Why America must stay" (in Iraq):

They have written about the "mullahs of MovOn.org" and the teenage rants of DailyKos. They have no kind words for the Democrats, and very few critical words for Bush (basically, it's a problem of execution, not of strategy). Last week, they repeated the lie that Abramoff gave money to the Democrats. And this week, they publish a glowing review of Alito:

TED KENNEDY is deeply troubled by the ethics of the Supreme Court nominee. Between 2001 and 2006, Samuel Alito, who is currently an appeals court judge, accepted $7,684,423 in "donations" from special interests who perhaps wanted the law tweaked in their favour. That included $28,000 from defence contractors, $42,200 from drug firms and a whopping $745,373 from lawyers and law firms.

No, wait. Those are Senator Kennedy's conflicts of interest--or, rather, a brief excerpt from a long list compiled by the Centre for Responsive Politics. The lapse for which the senator berated Mr Alito was considerably less clear-cut.

These are the first two paragraphs of the article - straight form the Republican playbook: accuse the other of what you are yourself guilty. But it doesn't stop:

Judge Alito cannot match the polish of Chief Justice Roberts, who spent most of his career as an advocate before the Supreme Court, and is therefore practised at swaying the powerful. Judge Alito seems shy and bookish--his wife, a former law librarian, says it took him 13 months to ask her out. When he first appeared before the Senate, he was so nervous he was briefly struck dumb. But he soon found his stride, because he clearly knows more about the law than his inquisitors do.

Even a cursory look at his record shows that the sound-bite charges against Judge Alito--that he doesn't think machineguns should be regulated, that he never sides with blacks alleging discrimination--are simply untrue. His record on the bench is one of cautious rulings and scrupulous deference to precedent.

I certainly won't claim to be any specialist on this topic, but this sounds pretty different from what I read daily on the front page of DailyKos. But right, we are all extremists here.

A vote is scheduled for January 20th. With Republicans holding 55 of the Senate's 100 seats, Judge Alito will be confirmed unless the Democrats opt to filibuster. That would be politically unwise. There is little evidence voters buy the idea that Mr Alito is an extremist. And on the basis of the hearings so far they are right.

If all of this sounds tediously familiar, that's because it is, as it is pretty standard Republican talking points. The problem is that the Economist does more to shape the views of global elites across the planet and has a reputation for good reporting: i.e. its opinions are usually clearly indicated as such, and come in addition of the reporting, which is supposed to be partial. What the above shows is that for its US coverage, facts and opinion are getting hopelessly mixed, and they show the image of an hopelessly incompetent, extreme and/or clueless Democratic party (and of course, just about as corrupt as the Republicans).

In that context, it is worth noting that the coverage of Greenspan's legacy does not include any comments about his role in the Bush tax cuts, nor in the "reform" of Social Security (of which they were a cheerleader last year); i.e. it remains coherent with their longstanding macro-economic line while studiously avoiding the political repercussions of their conclusions.

Which all means that the Economist is acting as a de facto cheerleader of the Bush administration, and should be tagged as such.

Good to see I'm not alone in this realization!  ;-)  

I've been a subscriber since 1974 and a magazine that used to be witty, informative, and interesting is now merely a yet-another fount of Neo-con propaganda.  

The final decision was made last week when they printed 'Lexington's' intellectually incoherent defence of unrestricted wiretapping.  So much for their vaunted belief in civil liberties.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Jan 17th, 2006 at 11:16:04 AM EST
It's become increasingly annoying to read them, as they are also (I suppose it goes together) increasingly euroskeptical and anti-French. But their bias in the US coverage is getting worse, and less and less hidden. The tone of that article on Alito was pretty typical.

But they still have cool graphs, and good coverage of a number of topics. And, if you read them regularly, you know how to untangle their biases, open or hidden.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jan 17th, 2006 at 11:21:55 AM EST
[ Parent ]
I fully concur, yet will maintain my subscription (which I've had since 95) as the local daily and weekly press is such crap  in France that reading foreign magazines is the only chance we have left to remain informed. Once you know a medium is biased, you can cross the statements with other sources and get a fair picture by yourself.

Personally I have experienced an interesting shift : le Figaro, which used to be a heavily prejudiced, right-leaning daily, now posts increasingly worthwile articles, whereas I have long stopped reading Le Monde, which has been constantly disappointing me over the last years.

When through hell, just keep going. W. Churchill

by Agnes a Paris on Tue Jan 17th, 2006 at 03:47:45 PM EST
[ Parent ]
Any link between that and the Fed's decision to stop calculating M3 figures?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Tue Jan 17th, 2006 at 11:19:41 AM EST
I don't really know. Some responses here, if you do'nt mind the orange glow...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jan 17th, 2006 at 11:39:03 AM EST
[ Parent ]
Asset inflation is a result of a loose monetary policy.  Increasing the amount of currency chasing the same amount of goods (simplifying!) results in more of that currency needing to be exchanged for those goods.  

By not publishing the M3 figures the Fed removes their intellectual authority from the calculation.  The numbers will still be available from other parties but the Fed can sow confusion as to the reliablity of those 3rd party calculations.  I have no idea if that was part of the decision but it fits the Bush administration's operational pattern.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Jan 17th, 2006 at 01:24:53 PM EST
[ Parent ]
You see, I have not seen anything on this M3 issue to discourage me from getting all conspiratorial... Bring out the tinfoil!

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Tue Jan 17th, 2006 at 03:57:08 PM EST
[ Parent ]
Wikipedia: Scope of the money supply
M3: M2 + all other [>$100,000] CDs, deposits of eurodollars and repurchase agreements.

Eurodollars are deposits denominated in United States dollar at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Subsequently, such deposits are regulated much less than similar deposits within the United States, allowing for higher margins.

Repurchase agreement
The more accurate and descriptive term is Sale and Repurchase Agreement, since what transpires is sale of securities now for cash by party A (the cash borrower) to party B (the cash lender), with the promise made by A to B of repurchasing those securities later (with A paying the requisite implicit interest to B at the time of repurchase - the implicit interest rate is known as the repo rate).
What is the size of the repo market?
The US Federal Reserve and the European Repo Council (a body of the International Securities Market Association) both try to estimate the size of their respective repo markets. At the end of 2004, the US repo market reached USD 5 trillion and the European one passed EUR 5 trillion in outstandings. Both are growing at two-digit pace.
Note that the GDP of both the EU and US is of the order of 10 trillion (EUR or USD, respectively).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Tue Jan 17th, 2006 at 06:05:11 PM EST
[ Parent ]
An interesting side question (which I am not in a good position to answer as I am not a regular reader) is why the relatively sudden drift? What has hitched them to the socially less liberal cause?

My guess is that they feel they are losing ground amongst the new US elite by not being supportive enough of the current US administration. Still, I would have thought that their audience is not that skewed to the US.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Jan 17th, 2006 at 03:01:52 PM EST
Any other insights from our friends in the UK?
Or is The Ecomomist regarded as, somehow, not British anymore? Just curious...
by Bernard (bernard) on Tue Jan 17th, 2006 at 04:39:23 PM EST
[ Parent ]
About half their readership is in the US, and presumably mostly in the managerial/rich classes, so they may be betting that following the Republican line is safe.

But I remember reading an article a few years back (I think it was in the New Yorker), when they had their last change in editor, which told the tale of the inside in-fighting for the job, with the ideological wing (the free marketeers) finally winning over the "internationalist" wing. That new editor brought most of the changes that we see now.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jan 17th, 2006 at 06:28:57 PM EST
[ Parent ]
Sounds like what happened at the WSJ in the '60s.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 18th, 2006 at 05:54:05 PM EST
[ Parent ]
Genuine economic interest is a non-factor. They just stealthily became a part of the neo-con ideological machine. The ideology is not Marxistic, but the method is a perfect form of the communistic "From-everyone-according-to-the-abilities-to-everyone-according-to-needs". Here "abilities" is any abus of position, wealth or reputation, "needs" are mostly political.  
by das monde on Wed Jan 18th, 2006 at 01:16:08 AM EST
[ Parent ]
It's been a slow but steady shift that I date back to the mid nineties. I've been reading The Economist for about twenty years now.  I used to do so religiously, but I've found myself less and less inclined to do so over the past few years as I've grown increasingly annoyed by the rise in the proportion of right wing propaganda to good analysis and facts, turning it into a more news/business oriented mirror  image of something like Le Monde Diplo. Some of that may be me - my views on economic issues have shifted to the left over the past decade. For example ten fifteen years ago neoliberal policies in the third world seemed like a plausible suggestion given the problems with statist ones that had preceded them - now that the results of neoliberalism have turned out even worse, not so much. But The Economist has also turned much more partisan on the US and US related matters - it has gone from being hardline right on the economy and center-center/left on everything else and non partisan within that context to Dem bashing on everything, while soft pedalling Republican qua Republican faults. Not that it doesn't criticize specific Republican policies or politicians, it does, however, those are never placed in the context of a broader attack on the Republicans. On the other hand attacks on specific Democrat policy ideas and politicians always are extended to the Dems as a whole.

Take for example its coverage of the torture/Guantanomo issue vs. that of the war on Iraq. It opposes the Republicans on the first, the anti-war Dems on the second. However, criticisms of the torture policy are always just that, criticisms of anti-war Dems are always the occasion for snide 'analyses' of the weak on foreign policy (in their view) Democrat Party. A decade ago they strongly supported the forcing out of Clinton from office over perjury in a civil case unrelated to his actions as president.('Just Go' was the cover story). It would be utterly inconceivable for them to do the same to Bush over torture, the NSA scandal or, I suspect, any other gross violation of the law by the Republican president as president.

There still is interesting stuff, but much less than before. It's too bad, it was a great paper.

by MarekNYC on Tue Jan 17th, 2006 at 05:12:50 PM EST
Yes, this mirrors my own experience (with the additional move on the EU, to which the Economist has also become increasingly hostile, when the FT did the opposite movement).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jan 17th, 2006 at 06:25:55 PM EST
[ Parent ]
Interesting. I have only really read the Economist since about 2000, so the changes you and Jerome note are not obvious to me. My sense is that they take much more partisan positions vis-a-vis the United States, and to a slightly lesser degree, Britain, than they do to the rest of the world. Still, I agree with your description of how they cover US politics.

One interesting thing I would note is that there coverage of Bush's policies in the Middle East and in Iraq specifically have become subtly more critical during the last year. I could be wrong, because I don't subscribe to the magazine and only read it on occasion (although I probably at least look at most issues on the newstand): still, I think they are less impressed with Bush's foreign policy than they were. Still, in terms of domestic US politics, there bias is obvious. I'd also say that they have a strong bias against the Liberal Democratic Party in Britain. Bagehot and Lexington are probably the two worst parts of the magazine.

by Ben P (wbp@u.washington.edu) on Tue Jan 17th, 2006 at 07:20:37 PM EST
[ Parent ]
I've never been a subscriber to the magazine.  The one half-decent article I read -- all of about five paragraphs long -- was on resurrecting the IS-LM model, but I'm a sucker for pro-Keynes views.  I thought about subscribing a long time ago, but couldn't afford it.  As I said, with regard to the WSJ, it's better to just read the Financial Times.  Better analysis, actual news, and without the right-wing propaganda.  (I think the FT actually endorsed Labour in '97, which came as quite a shock, and represented a sort of nail in the coffin, to the Tories.  Not sure where it stands today.)  It's just kind of a bitch, because I get it in the mail, instead of the morning hand delivery.  The nearest printing office is in Orlando -- nice that the state's capitol city doesn't get it, but that glorified, Mickey-Mouse trailor park of a city gets it -- which is about four hours away.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 18th, 2006 at 05:52:17 PM EST

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