"Capitalist Fools"

In "Capitalist Fools," which appears in the January, 2009 issue of Vanity Fair as well as in its online version, Nobel economics laureate Joseph Stiglitz presents what he feels are the "five key mistakes... and one national delusion" that, taken together, are responsible for the still-evolving economic crisis.

When considering Dr. Stiglitz's "Dirty Half-Dozen" it must be remembered that he is, first and foremost; yesterday, today, and tomorrow; in this world and the next, an admitted George H.W. and George W. Bush hater as well as a True Believer in the doctrines of increased federal regulation of the private sector and the use of the federal tax code to promote social goals.

But I'm sure that he didn't let his personal views cloud his objectivity.

No. 1: Firing of Federal Reserve Chairman Paul Volker (1987).

In 1987 the Reagan administration declined to reappoint Paul Volcker as chairman of the Federal Reserve Board and then appointed Alan Greenspan as his replacement. Dr. Stiglitz defends by stating that "Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment."

I must call attention to the fact that Dr. Stiglitz fails to mention that Volker had been appointed as Fed Chairman in 1979, by Jimmy Carter, and that Volker's policies were largely responsible for the 11 percent inflation of the early 1980s. Furthermore he also seems to have forgotten that the process of bringing down that inflation resulted in a recession in the U.S. economy, including the highest unemployment levels since the Great Depression, and that Volcker's tenure at the Fed also elicited the strongest political protests in the history of the Federal Reserve due to the effects of the high interest rates on the construction and farming sectors of the economy.

No. 2: Repealing the Glass-Steagall Act (1999).

"In November 1999, Congress repealed the Glass-Steagall Act-the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm [the Glass-Steagall Act was replaced by the Gramm-Leach-Bliley Act]. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest."

I'll agree with Dr. Stiglitz on this one: repealing the Glass-Steagall Act was a really stupid move. Now, let's see: if the Glass-Steagall Act was repealed in 1999, then the President that should have vetoed this really stupid move was ... Bill Clinton!

I guess it would really be stretching it too far for Dr. Stiglitz to blame George W. for something that happened before he took office.

No. 3: The Bush Tax Cuts of 2001 and 2003.

"Then along came the Bush tax cuts, enacted first on June 7, 2001, with a follow-on installment two years later. The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease-the modern-day equivalent of leeches."

Of course, Dr. Stiglitz! Perfectly logical! The Bush Administration is evil. Therefore, anything done by the Bush Administration is also evil!

No. 4: Passing the Sarbanes-Oxley Act (2002)

"Meanwhile, on July 30, 2002, in the wake of a series of major scandals-notably the collapse of WorldCom and Enron-Congress passed the Sarbanes-Oxley Act. The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system."

This is one of those situations where Dr. Stiglitz contradicts himself. It seems that, in his desire to blame everything from the extinction of the dinosaurs to the extinction of the housing market on the Bush Administration, he criticizes a law that would assign personal responsibility for fair accounting and business reporting to corporate officers.

Dr. Stiglitz's reason for identifying Sarbanes-Oxley as a mistake is that the Act didn't change the way businesses had to treat stock options issued to their executives and employees. In that lofty world inhabited by Nobel laureates it seems that condemning both baby and bathwater is acceptable.

No. 5: The Financial Bailout Package (2008).

"The final turning point came with the passage of a bailout package on October 3, 2008-that is, with the administration's response to the crisis itself...

"The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence. But it didn't address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction."

I'll have to agree with the learned gentleman on this one. As I've written previously, the only bigger idiot than Hank Paulson is the one that appointed him to be Secretary of the Treasury.

No. 6: "...and one national delusion..."

"The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal... The embrace by America-and much of the rest of the world-of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today."

Given the fact that both Joseph Stiglitz and Paul Volker are advising President-elect Obama on the "proper" economic policies that the new administration should follow, I'm sure that this blind acceptance of a "flawed economic philosophy" is one national delusion that will soon be shattered.