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.