Freiheit personified

This article originally appeared in the May/June 2009 issue of This magazine.

On November 9, 1989, the embattled communist government of East Germany announced that, for the first time in three decades, its citizens were free to visit West Germany. That night, millions of people the world over watched on TV as jubilant young Germans tore down the Berlin Wall with hammers and shovels and bare hands. It was the moment the Cold War ended.

In January, less than two decades after the collapse of the Soviet bloc, the citizens of Eastern Europe took to the streets once again, this time in reaction to a tanking economy. Anti-government protests turned violent in Riga, Latvia, on January 13; the following night, riots broke out in the Bulgarian capital of Sofia; and two nights after that, protesters tried to storm the Lithuanian parliament building in Vilnius. In all cases, the protesters demanded the resignation of the government. But in reality, the protests were aimed at something bigger than any given government; they were a loud, violent expression of discontent with the results, 20 years in the making, of that economic and political freedom.

There is a growing sense these days in Eastern Europe that the public was misled by the euphoria of post-communist freedom. But it is not only Eastern Europeans who are beginning to question free-market dogma, because it was not only Eastern Europeans who were led astray. Western civilization as a whole was led down the garden path by the collapse of communism.

Eastern Europe’s democratic revolutions were so unanimous, and the economic and political disintegration of the Soviet Union that followed was so rapid and so complete, that it was hard not to see its significance in exaggerated terms. To Westerners, whether they admitted it or not, the collapse of the Soviet Union tainted all ideas from the political left, and legitimized all ideas from the right. Two decades later, it’s becoming clear that that simplistic philosophy has led us to the brink of economic ruin.

History tends to have a reductive effect on our understanding of the world. We simplify things in order to make them easier to digest. In the case of the Cold War, the zeitgeist that formed after the fall of the Berlin Wall presumed that what the West had when it prevailed over Soviet communism was a purely capitalist economy. It didn’t. To see what the West actually had when it won the Cold War, we need to look a little further into the past - to the early decades of the twentieth century, when communism’s mild-mannered cousin, socialism, was a potent force in Western politics.

Back then, the basic tenets of socialist political parties were a laundry list of policy positions: Laws against child labor; workplace safety standards; a forty-hour work-week; mandated vacation times and weekends; a minimum wage; retirement pension plans; and universal health care. If none of that strikes you as particularly radical or left-wing, it’s because nearly all of these basic tenets of socialism have now come to be accepted in Western, free-market countries.

The sort of economy that had developed in the West by the time of the fall of the Berlin Wall is what economists call a “modified free enterprise” system (a term rarely mentioned these days) — essentially, a free market economy tempered by some sound and popular socialist principles. The elected governments of Western Europe and North America had to respond to popular opinion, and over years and decades, they brought in numerous socialist ideas to temper the vagaries of free market economics.

Meanwhile, in the totalitarian Soviet Union, there was no pressure to alter the economic system in favor of popular opinion. The deeply flawed communist economy muddled along for decades, until its senseless contradictions eventually bankrupted the country, and the USSR ceased to exist.

So when the West won the Cold War, it wasn’t the victory of capitalism over communism; it was the victory of moderation over extremism. And that is the lesson we lost in the years after the Berlin Wall fell.

The undisputed conventional wisdom became that capitalism works, and that it works in all circumstances. The colorful and sometimes tragi-comic history of market economics – from the South Sea Bubble of the eighteenth century, to the Long Depression of the 1870s, to the Great Depression – was swept out of the Western consciousness, and replaced with a naive, narrow-sighted faith in free market economics.

Thus, banks were deregulated; crucial public utilities were privatized; public pension plans were invested in questionable assets; and regulatory bodies were reduced to rubber-stamping whatever businesses wanted. But perhaps worst of all, the West’s long-running left-versus-right debate over economic policy was stifled. In the new era of free-market orthodoxy, the West became like the USSR: A place where questioning the economic dogma was tantamount to heresy. The balance between free market economics and market-tempering policies was disrupted. By allowing the unbridled free reign of market forces, the West shifted from economic moderation to economic extremism.

Today, with the collapse of the financial sector spilling over into massive job losses, the consequences of that extremism are becoming abundantly clear. The good news is that the economic crisis means that for the first time in decades, economists and politicians are daring to suggest that free markets aren’t always a good thing. But now, as we cast around for a new economic vision, we run the risk of repeating the same mistake — abandoning one simplistic dogma for another.

This is the pitfall we need to avoid. Running from one extreme position to another guarantees only a different kind of catastrophe. If we want to regain the balance that made us prosperous in the first place, we need a broader, more inclusive political debate on economic policy. With the fall of the Berlin Wall in ‘89 and the Great Recession of ‘09, the one-dimensional myths known as “capitalism” and “communism” have finally been blown up.

If only he had tried performance-based bonuses

I recently watched, for the one-billionth time, a Star Wars movie marathon on Spike, and what caught my attention this time around was Darth Vader’s rather alarming habit of strangling, via the Force, his most senior commanders anytime anything went wrong.

He did this on at least one occasion in both A New Hope and Empire Strikes Back, leading me to believe that this behavior wasn’t an outlier, but rather pretty much the metal-masked guy’s modus operandi.

The real question here is what sort of effect did this kind of management have on the overall functioning of the Imperial Forces. My theory is that it can’t have been very good.

Now there are some out there, like Dick Cheney, who would argue that this is an effective management technique, that it keeps people motivated to do their jobs and keeps them in line. I don’t buy this argument, because as Vader showed repeatedly, senior commanders were punished not for incompetence or insubordination, but for bad luck. Anyone working directly for the Darth knew that their life was a crapshoot, and if some punk-ass kid managed to get away in a spaceship, that life was forfeit.

So pretty soon what you had was a demoralization of the crew, followed quickly by a noticeable shift in the career ambitions of junior officers. Since working for Vader was a death sentence, most of the better talent would simply leave for jobs with private security contractors before reaching the rank of, say, major or colonel.

But equally importantly, as Vader killed his senior-most people, they needed to be instantly replaced — and inevitably their replacement would be behind the learning curve on their new job, and possibly not experienced enough to carry it out properly. This pushed the Imperial Command into an inextricable vicious circle. As the command grew increasingly incompetent, Vader found himself having to strangle his subordinates more frequently. As the strangulations quickened, incompetent people would be promoted even faster, and so on, and so forth.

Expand that over a long enough timeline, and what do you get? An organization that grows increasingly useless with time. An organization that is falling apart, literally incapable of carrying out the most basic tasks.This helps to explain, for example, why the plans for the Death Star included a two-meter open hole that led directly to the station’s power source, creating a glaring opportunity for the Rebel Alliance.

This also helps to explain why Vader’s massive galactic cruiser was unable to shoot down the Millennium Falcon when it escaped from the ice planet Hoth in Empire Strikes Back. Take a look at that scene some time. The galactic cruiser’s lasers go everywhere except in the direction of the Falcon. When the galaxy’s most powerful military spacecraft can’t take down an aging cargo ship, you have a problem. There are only two possible explanations:

1) The cruiser’s laser cannons were manned by inexperienced, untrained and possibly myopic gunners, or

2) George Lucas’s special effects guy was having an off day.

Setting aside option two and assuming that the scene was constructed as planned, we can only conclude that, by the time of the raid on Hoth, the Imperial Government had been reduced to a house of cards, an imposing but ultimately brittle little thing that could be knocked over by a slight breeze, like, for instance, the second Death Star being blown up, or Emperor Palpatine being thrown down a mineshaft.

This lesson has many applications outside of the Star Wars realm. We can see this same effect at play in Stalinist Russia, where anyone with the ability to think independently was summarily executed. Were the decades of incompetent communist government that followed Stalin’s reign just a coincidence?

And certainly Donald “You’re Fired” Trump may want to reflect on the cautionary tale of Darth Vader as he contemplates what happened to his real estate empire.

But what’s interesting to me is that this theory of management is already being applied … by the US military, no less, in Afghanistan and Pakistan.

The recent killing of the Taliban leader in Pakistan has many wondering, What’s the point? They’ll just appoint a new leader. True, but if Predator drones keep killing Taliban leaders, eventually they’ll have to scrape the bottom of the barrel for leadership, and without an inspiring, intelligent leader, the organization will begin to lose its efficacy.

In fact, I would go so far as to say: Screw the ground war. Bring the troops home, and leave behind a contingent of local informants, incognito intelligence agents, sociopathic mercenaries — and a fleet of Predator drones manned by the best video game players the Pentagon can get its hands on.

After some time, and with any luck, we may find ourselves facing a Taliban insurgency that can be knocked over by, say, a whiny sixteen-year-old kid with a penchant for shooting womp rats.

I recently came across the very interesting text of a speech given by Bob Hoye, the chief financial strategist of Institutional Advisers, to the Committee for Monetary Research & Education.

Hoye went over the history in modern times of market collapses that led to prolonged economic downturns. Turns out, there’ve been six of them, including last year’s, in the past 300 years.

There was the South Sea Bubble of 1720; the market collapse of 1772; the market collapse of 1825; the housing bubble of 1873; and then the stock market panic of 1929. Most recently, of course, was the bank collapses of last year.

Hoye goes over the causes and effects of these crashes, and there is very definitely a pattern here that — if we were to learn from it — we could avoid in the future.

But what struck me in particular is the spacing of these events. Until the most recent one, each bubble happened more or less 50 years after the last one. It’s 52 years from 1720 to 1772; 53 years from 1772 to 1825; 48 years from 1825 to 1873; and 57 years from 1873 to 1929.

Notice that the interval was longer in that last one. The most recent interval was even longer–79 years from 1929 to 2008.

So why is the interval growing longer? Because people are living longer. And stock market collapses happen when the people who remember the last one leave the business world. The moment a generation that doesn’t remember the previous collapse takes over the business world, we get the same bullshit again.

Yes, that’s how stupid the human race is. God forbid we should take our grandparents’ advice on anything.

What’s the youngest you could be in order to remember the Great Depression? You probably would have to have been born in 1934 at the latest, which would have made you five years old when World War II ended the depression.

A person born in 1934 would have retired in 1999. By no coincidence at all, 1999 is also the year that the US banks, with the help of their bought-and-paid-for allies in Congress, hammered the last nail into the US economy’s coffin, virtually guaranteeing the economic crisis of 2008.

That year, Congress and the Clinton White House repealed major parts of the Glass-Steagall Act, a Depression-era law designed to prevent future market bubbles by separating investment banking from commercial banking.

The Glass-Steagall Act worked very well. So well, in fact, that no one noticed it was working at all, and everyone decided that it must be useless — nothing more than an unnecessary intrusion into free market by government regulators.

So, the year that the last people who remembered the Great Depression left their jobs at the major banks and on Wall Street, Glass-Steagall was repealed.

From that point on, the line between investment banks and commercial banks was blurred. Suddenly major Wall Street banks were buying packages of home loans from street-front banks in middle America.

Until that point, these banks were careful as to who they gave mortgages to, because those mortgages were income for those banks for decades to come. But once they started selling their mortgages to huge Wall Street banks that understood nothing about them, the risk was taken off the little lenders. They could lend money to anyone, repackage those loans and sell them on to gullible Wall Street apparatchiks who stupidly believed that real estate — any real estate, anywhere, anytime — is always a good investment.

I don’t think I need to tell you how that story ended.

What’s interesting is that, according to Hoye’s speech, it’s been like this all along. Take this passage, for example:

“Has this happened before? I’m glad I asked the question. With the financial violence of the South Sea Company in 1720, the House of Commons passed the ‘Anti-Bubble’ Act, which was taken off the books in 1771–-just in time for the full expression of the 1772 bubble. As with the climax of the 1720 bubble the Great Depression ran for some twenty years. This was also the case for the bubbles that blew out in 1825, 1873, and 1929.”

Interestingly, the bubble that most closely resembles our own is not the 1929 stock market bubble, but rather the 1873 housing bubble.

In a way, that’s worse. Here’s what Hoye had to say about that one (emphasis mine):

“An index of farm land value in England fell almost every year from 1873 to 1895. Of course, academic economists were fascinated and for a couple of decades wondered how such a dislocation could have happened, or even worse, discussed how it could have been prevented. Ironically, this debate continued until as late as 1939 when another Great Depression was belatedly discovered.”

A 22-year-long housing market decline? Sounds outlandish, doesn’t it. Couldn’t happen today, right? Except it happened in Japan over the past 20 years. Japan’s real estate market collapsed in 1990, and the country went through a series of recessions, basically a see-saw economy, for 15 years, almost until this economic crisis hit.

We could be in for more of the same. The IMF is saying the world is coming out of recession, but where is the job growth going to come from? Capital investment is in the pits, at least in Western countries, Europe is over-employed and needs to shed jobs, high-skilled job growth seems to be concentrated in Asia, and we have a consumer economy, which means if people are out of work, the economy can’t recover.

My guess is that we’ll be hearing declarations that we’ve “fallen back into recession” no later than next year. Of course, we could have avoided it all, if we’d listened to all those “curmudgeons” and “old-timers” and “naysayers” and “hysterical crazies” who were telling us all along that our economy is nothing more than a very attractive plank hanging out over shark-infested waters.

We could have listened to our grandparents.

Found engraved on stone slabs in caves at La Marche, France. More here.

Someone just punked Michael Ignatieff. Members of the parliamentary press gallery received manila envelopes, falsely claiming to be from the BBC in London, containing, without explanation, color copies of a 2005 article about Ignatieff at the New Humanist, one painting him as a liberal who betrayed his small-l liberal ideals and became an apologist for neoconservatives. I wish I had found this article long ago, because it basically says what I’ve been saying for ages about the guy:

Gearty’s concern was to show the process by which a number of well-meaning liberal intellectuals and human rights lawyers had handed Donald Rumsfeld ‘the intellectual tools with which to justify his government’s expansionism.’ He was particularly exercised by the manner in which such people had created a climate in which even torture could be condoned. One of the well-meaning liberals cited by Gearty in this context was Michael Ignatieff.

Ignatieff’s response was as violent as it was unexpected. The harm done to his reputation by the article, he insisted, was so great that it could not even be remedied by the chance to rebut. He had no alternative but to resign immediately from the editorial and advisory board of the magazine and request that any syndication of Gearty’s piece be withheld. This was “an issue of principle”.What was the background to this outburst? Why exactly was Ignatieff so offended by an academic article? What does his response say about his present standing within the human rights movement?”

My sentiments exactly. Just where does Ignatieff stand on human rights these days? Or any other issue, for that matter? No wonder he’s polling as badly as Dion.

Then there’s the question of who did this. The Globe speculates it had to have been seomeone with a fairly deep budget, and cautiously points the finger at the Conservatives.

Yes, it’s underhanded enough to be the Conservatives, but no, the reasoning doesn’t make much sense. Hey look, Ignatieff sucks, he’s … just like us?

I’d sooner point the finger at the NDP, if I believed they had an ounce of guile between the lot of them.

William Grigg explains how the US military’s method of interacting with the local population in Afghanistan looks exactly the same as Soviet propaganda of the days of old…

Forget the Great in Britain, says Newsweek:

History has been closing in on Britain for some time. The rise of giant emerging economies like China and India always meant that Britain would have a smaller seat at the increasingly crowded top table of nations. It also meant that the United States would recalibrate the so-called special relationship as it sought new partners and alliances, inevitably shrinking the disproportionate role Britain has long played in world affairs.

Brown’s predecessor, Tony Blair, made a final stab at greatness with what amounted to a 51st-state strategy: by locking Britain into America’s wars—on terror, in Afghanistan, and in Iraq—London achieved an importance it hadn’t had since Churchill and the war. But whatever advantage Britain gained in the short term was wiped out by the political damage Blair’s strategy caused at home. Ordinary Britons and even members of the British establishment grew increasingly critical of what they saw as London’s subservient relationship with Washington.

Blair’s authority was diminished, his political agenda at home suffered as a result, and it became clear that Britain’s geopolitical default setting would no longer be to automatically follow America’s lead. In fact, Blair may merely have postponed the inevitable: a lesser Britain is a consequence of world events, not unlike the slow relative decline of the United States, which finds itself today where Britain was at its apogee.