Jeb Hensarling, George Orwell

The debate over re-regulation of the financial sector has finally, and irreversibly, turned partisan.  This helps define issues in ways that may be more familiar and thus easier to understand.

In the blue corner we have Treasury Secretary Tim Geithner.  Secretary Geithner’s overall banking policy continues to be problematic, and his broader re-regulation effort is hampered by all the free passes he gave to bank CEOs earlier this year.  But on consumer protection he has the right message and he delivered it forcefully to Congress last week: we need a Consumer Financial Protection Agency (CFPA) and we need it now.

In the red corner, Representative Jeb Hensarling is rapidly emerging as a leader.  A member of the Congressional Oversight Panel and the senior republican on the House Financial Services subcommittee on Financial Institutions and Consumer Credit, he wrote last week in the Washington Timesthat the CFPA is “Orwellian”, because it would strip consumers of their rightful choices.

Mr. Hensarling seems dangerously close to slipping into double think.

He says that the House Republican “regulatory reform plan” will protect consumers.  (This plan was not available for outside review when I enquired last week; if you have a copy that can be shared, please send it to me.)  As far as I can see from his article – confirmed by what I heard before the House Financial Services Committee last week – the only tools they propose are those that have been tried and failed, repeatedly, in the recent past.

The key sentence in his op ed may be, “If we act responsibly, whether the mortgage blows up on us is largely within our control.”  This ignores all the evidence that consumers were duped, misled, or otherwise fooled into financial products that they did not understand and could not afford.

Mr. Hensarling says that financial products are completely different from toasters, which are regulated by the Consumer Product Safety Commission, because “No one wants a toaster that will blow up, and whether it does is largely out of our control.”  But regulation over consumer durables was introduced and tightened over the years precisely because the “free market” produced items that were unsafe (at any speed, or any toaster setting).

Mr. Hensarling claims that consumer protection will be very much against the interest of smaller companies.  There is no evidence to support this assertion – and it seems implausible.  Many smaller businesses have been scammed by Big Finance in the past few years – either directly, through the products they were sold, or indirectly, through the higher tax bill we all face as a result of bailing out the big banks.

And the bad behavior of big banks is closely connected to how the financial sector has been allowed – and is still allowed – to treat consumers.

Yesterday, at last, a major commercial bank CEO broke ranks and articulately made the case against the actions and structure of Big Finance, specifically Goldman Sachs – see Robert Wilmers, head of M &T Bank, writing in the Washington Post.  Hopefully, the finance lobby will more generally follow his lead – both in speaking out against the dangers of the biggest banks (and their “innovations”) gone bad, as well as in favor of protecting valued consumers against outrageous scams. 

If consumers don’t trust financial services – and why should they, given all we’ve seen? – this will be a long and painful recovery.  Given what we know and have learned painfully about how our financial system operates, saying that “the market will provide consumer safety” is essentially the same thing as saying “the market will not provide” – you’re on your own, again.

By Simon Johnson

47 responses to “Jeb Hensarling, George Orwell

  1. The key sentence in his op ed may be, “If we act responsibly, whether the mortgage blows up on us is largely within our control.”

    Sadly, like so many of his freemarket will save the world colleagues, the Congressmen in question forgets that we got into this mess because individual banks/actors in the market acted irresponsibily, both in respect to their own long-term survival, and in terms of the financial sector’s overall condition. Even the wrongly venerated Alan Greenspan, in testimony last year to congress, said he got that wrong.

    I wonder who Mr. Heserling’s donors are?

  2. well …

    maybe he meant that Orwell was a life-long campaigner for socialism …
    (while being at the same time always realistic about how much of it could work in practice due to human nature)

    and do not be harsh on Mr. Hensarling
    – you cannot expect writers to have actually read the writers they quote – all they are after is bragging and seeming more educated than we, their dumb readers urgently in need of being informed by higher developped minds ;-(

    sorry, every bit Orwell has written is precious to me and I get furious whenever somebody misuses him
    ———

    Question:
    why does it have to be a totally new agency? aren’t there existing ones that can be updated/entitled to do the job?

    In Germany we have magazines which are subsidized by the state and test toasters and finances – they are ad-free but have to work hard at acquiring subscribers at the same time and thus provide a standard. http://www.test.de/

  3. Hensarling? A leader? A member of COP who took a pass on signing off on the first COP report because – well, we’re not sure what he opposed in the report – he just opposed it…

    (http://wardonwords.blogspot.com/2008/12/cops-on-job-coming-to-rescuesort-ofwe.html)

    Hensarling appears to be afflicted with something called Oppositional Defiant Disorder (ODD), usually co-morbid with ADHD. If he were a student today, he’d be medicated to the max.

    However, he’s today an adult. Thus, he’s instead the leader of the opposition to consumer protection from financial scams.

    However, I agree with one statement in his WT op-ed piece:

    “A government agency, no matter how well-intended, cannot be a complete substitute for personal responsibility.”

    Consumers do need to be aware of their income levels – and use credit accordingly.

    But more importantly, the people who staff the bailed out financial institutions need to also be responsible for their own actions. They need to be held accountable when they engage in deceptive lending practices and they need to be jailed when they engage in outright fraud.

    If there are rules that exist today that will ensure consumer protection, let Hensarling have at them. But somehow, given what I’ve seen since September 2008, the rules exist to protect the fraudulent lenders – and need to be fixed.

  4. If we shouldn’t reward those who make their own mistakes, why do Bear-Stearns, AIG (and by implication, Goldman Sucks), Citigroup, Merrill Lynch, Bank of America, Wachovia and WAMU continue to exist in ANY form?

  5. sorry, every bit Orwell has written is precious to me and I get furious whenever somebody misuses him

    That’s how I feel about Nietzsche, recently slandered in comments here.

    As for doublethink, I’d attribute that more to the Dems than the Reps. I believe the Reps are for the most part clear in their minds about their criminal activities, and their doubletalk is mostly conscious lying.

    It’s Dems like Obama who look all contorted in trying to convince themselves that they really are the party of the people even as, across the board, they pursue a radically corporatist, anti-public interest agenda.

    Geithner in the blue corner? Let’s say bluish-red at best.

  6. If I understand this debate there is some question about whether homeowners did or did not know they were lying about their income when they signed those mortgage apps? Or perhaps whether they did or did not undertand that an ARM would be adjusted if some benchmark interest rate increased? Having watched forty years of securities regulation produce exactly zero benefit to ‘consumers’ of investment products,I am dubious about the benefits surrounding a new federal agency to watch over mortgage products. Every such agency becomes a revolving door through which over educated and otherwise unemployable professionals move seamlessly from a role as overpaid and underworked regulator to role as grossly overpaid subverter of the public interest. Of course, such an agency would help with unemployment, particularly since we will need five or six or ten thousand file clerks to process all the paper which every mortgage originator will have to file in quadruplicate. Given that productive business needs exponentially fewer people in every generation this may be a good thing in itself. But for those who expect financial reform to accomplish anything I say only, what the heck have you guys been smoking?

  7. The proposed Consumer Financial Protection Agency is likely to be ineffective for the same reasons that the existing regulators such as the Federal Reserve were ineffective. There were extensive safeguards, some dating to the Depression, that were scaled back by the regulators. One is likely to end up with token regulations and more of the same problems.

    Breaking up the giant “too big to fail” banks and replacing the regulators who failed in their duties is more likely to be effective. Further the laws and regulations that were unwisely repealed or removed should be restored, notably Glass-Steagall’s separation of investment and commercial banking. We now appear to have the Federal Reserve subsidizing Goldman Sachs, a speculative investment banks somehow redefined as a commercial bank to get access to federal funds, insurance, and so forth.

    On the question of informed consent in dubious financial products, there is an issue of the definition of risk. Risk can mean a risk like flipping a coin, that is unavoidable. No matter how skilled, hard working, careful, and so forth someone is the risk cannot be eliminated. Americans often use “risk” to mean not this but “difficult” or “challenging”, often without consciously realizing the difference. So a high risk investment to some means a “difficult” investment that if they are careful, work hard, watch carefully, study the financial news, and so forth, they can make money on.

    Thus, warning people that something is “risky” or even giving specific numerical measures like the dubious VaR models, e.g. there is a 30% chance of losing all your money in 5 years, is not effective.

    Sincerely,

    John

  8. Question: I regards to finacial services, the argument from republicans is that we cannot regulate because this would deprive consumers of choice and this is a bad thing. In health care, we cannot have a public option because this “choice” might harm the profits of the insurance industry. The republicans are twisting themselves in knots trying to justify their arguments. So in one context choice is important and necessary to protecting the wealth of the individuals but in the other the prospect of choice (albeit a government choice) would harm health. Seriously, when did the party of William F Buckley become the party of Sarah Palin? The Democrats may be slimy, but atleast their arguments contain a wiff of logic.

  9. Simon,

    I would like to see you comment on the PBS Bernanke Town Hall in KC. Bernanke I think comes across as one of the more sympathetic characters in this whole thing. Still, though. How can he say that it sickened him to rescue these institutions when it’s basically been his theory going back thirty years that you have to rescue these institutions. Did he think that all of that Depression scholarship that he worked on at Princeton had been rendered obsolete by monetarism? And that regulation had been rendered obsolete too?

    Anyway though more importantly from the KC forum: I think it demonstrates that the masses have a greater sense of the unfairness of the American economy than many Washington insiders think they have. And it seemed to me that Bernanke was quite clear: too big to fail is untenable. Isn’t this a statement that is clearly to the left of Congress and the Administration (i.e. Summers)?

  10. Personally, I prefer the right to *choose* a toaster that blows up from the widest variety of exploding toasters that can be crammed onto a Super Wal-Mart’s home appliances isle(s), and regulation be damned. With all due respect Dr. Johnson, one of the many things that you’re failing to consider here is that United States of Americans are endowed by Lady Liberty with the right to choose in a toaster any explosion we want to. It’s called Manifest Destiny. And the last thing we need is our government coming into our homes telling us we have to blow up our toasters the elitist way President Obama wants us to. I think we can blow up our toasters on our own just fine, thank you.

  11. Grey Economics

    You wrote:

    “If consumers don’t trust financial services – and why should they, given all we’ve seen? – this will be a long and painful recovery. Given what we know and have learned painfully about how our financial system operates, saying that “the market will provide consumer safety” is essentially the same thing as saying “the market will not provide” – you’re on your own, again.”

    I seriously doubt the Republicans are really saying that the markets should provide consumer safety: they haven’t the balls to do so. The Markets wouldn’t want anything like that either.

    Just imagine if the Republicans held a press conference and said (with a straight face),

    “Our plan is that all the banks will take down those little brown signs which say stuff about the government insuring your deposits, and we’ll let the banks convince you that they are safe to put money into.

    “We’re doing this because we doubt our ability to police these guys. They’re smart guys, and we’d rather see their cleverness expended in securing your trust, than in getting around whatever new rule we thrown at them.

    “Also, we know that these guys love to talk in their own language and confuse the hell out of most of us. We’re pretty sure that they did this because they were greedy and so they lied in clever ways to get more money.

    “But, we are willing to give them the benefit of the doubt. We’ll give the financial markets a year to search their soul and make things right with everyone they may have “accidentally” lied to and cheated. After that year is over, the any group that tries to pull the wool over peoples eyes will have to eat every bad loan they screwed people over with. And the board of the company will have to literally eat the paperwork of every bad loan. Thanks, and God Bless America.”

    Cheers.

  12. Pablo
    would you please tell me how you want to compensate/take revenge for your blown up toaster and the possible collateral damage from it (scar in the face, burnt kitchen, burnt house, injured children etc etc you name it)?

    a) do you want to turn the other cheek and forgive the fraudster like only a true Christian would?

    b) do you want to go via tort law (private or public)

    c) do you want to take your gun and take care of the matter in the direct, honest and only way suitable for a true he-man with full disregard that the fraudster probably has a whole group of gun-men at his command to take care of you?

    If it is c) then I congratulate you on being the last living real MAN alive and if I were still in my prime years I would serenade you day and night until you’d say be quiet woman and carry me to your cave …

  13. Grey Economics
    wonderful procedure
    but I propose one more thing to be implemented

    we tell the public (and ourselves) never to trust anybody whom we do not understand instead of telling them and us that it is our lack of education which makes us unable to follow their higher wisdom – i.e. inducing in people the courage to keep asking ever new questions even after the expert has ridiculed them repeatedly for their inability to understand the most simple and obvious things.

    I remember reading a lot of how wonderful Greenspan (the one before Bernanke) managed to sound like the oracle from Delphi (who was drugged by the way when pronouncing) but that didn’t stop the admirers and eulogizers of his “deep” utterances to rhapsody him no end. I can see no virtue in admiring somebody who talks in riddles deliberately (people who try to be understood sound totally different from the pronouncers from on high and pronouncing from on high is a very common sales strategy)

  14. Thank you for that link. Ignore the summary by the shill from the Atlantic.

    It does nothing to regulation of the shadow banking system but alter existing bankrupcty proceedings. Nothing about capital reserves or leverage.

    It obliterates Fed independence when it is needed most.

    ‘Nuf said.

  15. Grey Economics

    Thanks – hopefully it’s obvious that I’m being only somewhat tongue-in-cheeky.

    Mr. Johnson, I understand that your concern is that the Republicans are playing politics, and that the collateral damage is likely to be all the people that the Financials swindled.

    But if the government says explicitly or implicitly that they will back the financial system and their bets as long as they play by certain rules, we will continue to have systemic crises after systemic crises. The government is well intentioned in trying to play the middle man here, but the only people they are helping are (suprise!) all the usual suspects.

    They really need to cut the apron strings off and let the lenders grow up.

  16. If successful, the opponents of credible, comprehensive and paradigm shifting financial services reform will ultimately reap a whirlwind that they are simply incapable of understanding. And well intentioned but ineffective reformers will be swept aside, replaced by something altogether new and different.

    In terms of the attitudes and behaviors of the American financial and political elites, Professor Johnson has done a wonderful job of bringing into the light of day the convergence of the rules, norms and outcomes of the American economy and those of the economy of a middle-class Third World Country. But we are at the very beginning of seeing the shift in attitudes and behaviors in the general public. People stopping mortgage payments, stopping credit card payments. . . It could get interesting.

    I’ve always thought the folks who wanted to live ‘off the grid’ in a self-sufficient survivalist mode were a kooky fringe. Still do. But there is nothing in the least bit kooky about deciding to rent, not buy, to avoid all consumer debt and to live without the financial services of anything more sophisticated than a community bank or a credit union.

  17. Silke: “why does it have to be a totally new agency? aren’t there existing ones that can be updated/entitled to do the job?”

    Here are two considerations. First, budget. If financial consumer protection falls under an umbrella agency, there is no guarantee that it will get the funding it deserves. (There is no guarantee if it has its own agency, but the decision to underfund it cannot be hidden as easily.) Second, it currently falls under the Federal Reserve. That yields a conflict of interest, since the Fed is an organization of banks, not really a gov’t agency. Second, the history of the Fed shows that it has not done a good job at consumer protection so far. Why do we think that it will do a good job in the future?

  18. apachecadillac: “If successful, the opponents of credible, comprehensive and paradigm shifting financial services reform will ultimately reap a whirlwind that they are simply incapable of understanding. And well intentioned but ineffective reformers will be swept aside, replaced by something altogether new and different.”

    Billy the Kid was a Regulator. They don’t make them like they used to. ;)

  19. Min
    this is wow !
    – I (German) have been told by journalists almost all my life long that the Superman of consumer protection is an American by the name of Ralph Nader who does everything better like everybody else as Americans of course generally do and now you are telling me that his legacy does not even include an independent agency to which a finance branch could be added or whose finance branch could be upgraded
    really I wonder whether a better title for at least our journalists would be fantasists and how much of the presumed bad image of the US abroad is not only due to getting maligned but also to getting presented as larger and better than life by all these scribblers

  20. Min
    Billy the Kid was a Regulator. They don’t make them like they used to. ;)

    Oh yes they do – look at Pablo who obviously is all in favour of exploding toasters
    that’s what I call the right kind of tough guy for this century ;-)

  21. E. Barandiaran

    Simon,
    You conclude your post with this paragraph:
    “If consumers don’t trust financial services – and why should they, given all we’ve seen? – this will be a long and painful recovery. Given what we know and have learned painfully about how our financial system operates, saying that “the market will provide consumer safety” is essentially the same thing as saying “the market will not provide” – you’re on your own, again.”
    Indeed your conclusion does not follow from your post. So I can support my idea of a Consumer Protection Agency for Political Product by stating:
    “If consumers don’t trust political products — and why should they, given all we’ve seen? — this will be a long and painful recovery. Given what we know and have learned painfully about how our political system operates, saying that “government will provide consumer safety” is essentially the same thing as saying “the government will not provide — you’re on your own, as you have always been”.

  22. If a reporter were to come to his editor with a proposed article titled, “President Obama is gay,” the editor would demand supporting evidence, before that article ever saw print.
    However, if the same reporter submitted an article titled, “Federal deficit is too high,” history says the editor would ask for no supporting evidence, nor would the article contain any. The media merely assume as a matter of faith that revenue neutrality is more prudent than deficits.
    Economics is rare, perhaps unique, among sciences, most of which demand evidence for their hypotheses. Only in economics can intuition, faith and popular wisdom obviate facts or even the desire for facts. Thus, I have had editors, columnists and reporters tell me it is obvious that large deficits are unsustainable, lead to recessions, depressions, inflations and hyper-inflations. When I ask for evidence to support these views, I seldom hear from them again, probably because they feel scientific evidence is unnecessary in a science, but more importantly, they don’t have any.
    Even the Concord Coalition, an organization that for seventeen years, has collected vast amounts of money to preach for federal deficit reduction, unashamedly offers no evidence to support its views. Check its website, http://www.concordcoalition.org, or write to them and you will see.
    Because our leaders parrot the economic beliefs promoted by the media, lack of evidence has contributed heavily to government actions that yield repeated recessions. Until the media learn to ask, “What is your evidence?” we will continue to suffer periodic, economic traumas. These traumas may seem inevitable and unavoidable, but in reality they are caused by beliefs lacking evidence.

    Rodger Malcolm Mitchell
    rmmadvertising@yahoo.com
    http://www.rodgermitchell.com

  23. TonyForesta

    The gop’s forked tongued rhetoric imagines that industries and corporations are managed by altruist honestplayers who love thebabyjesus, and would never break or bend the law, or manipulate markets or systems for their own singular profit and gain. Obviously the gop is wildly delusional, or intentionally deceptive.

    Industries and corporations continually and repeatedly walk the line between outright criminality, (predator lending practices, derivative PONZI scheme’s, CDS’s that fail to account for risk, speculative manipulation of market’s by oligarchs, and on and on through out history going back to working children to death for 15 hours a day in unsafe slavelabor manufacturing plants.) Government MUST regulate and police corporations and industries to protect consumers and workers from wanton abuse and ruthless violations, – or corporations and industries would quickly resort to slavelabor, corporate housing and currencies, shoddy manufacturing processes, intentionallly deceptive financial products and services, environmentally destructive practices, and every imaginable abuse and criminal conduct for profit. Greed is the god of the gop, and corporations and industry. Government must constrain, curb, regulate, police, and prohibit unadulterated greed and subsequent criminal behaviors and practices from dominating the business practices of corporations and industry.

    In short, corporations and industry cannot be trusted to operate in goodfaith, or goodwill, and history proves corporations and industry will repeatedly resort to wantonly abusive, ruthlessly deceptive criminal conduct and practices for PROFIT unless constrained by forcefull application of laws and consumer and labor protections by government.

    Tragically, there is no seperation now between government and corporations. Insiders work in government to award openended nobid noaccounting contracts to cronies and oligarchs and gut regulatory laws, and prevent any disruption of the status quo, and operate in BADFAITH and ILLWILL to promote the best interests of industry and corporations exclusively, – to the extreme disatvantage and deleterious impact on the people. These same government operators then are immediately appointed to boards and high managment positions in the very corporations and industries they favored, protected, defended, and advanced in government.

    This is the way of the predatorclass who dominates and owns and controls Amerika today.

    The peoples only hope for fairness in business practices, the rule of law, and consumer and labor rights and protection is to strike out at our oppressors, and deliver to their boardrooms and doorsteps a taste of the pain, suffering and injustices we are subjected to on a daily basis.

    In a world where there are no laws, – there are no laws for anyone predatorclass biiiaaatches!

  24. d) buy the warranty, return the toaster pieces, upgrade to an even-larger toaster, foment an even-larger explosion, and then repeat until the explosion is sufficient to blow up toaster factories somewhere abroad that’s way far away from any Burger Kings and Freedom haters don’t even speak American. And as for the good-for-nothin’ scumbag fraudster…Hell Yeah I’ll be payin’ him a visit! Ain’t no man alive gonna blow up my toast prior to my buttering it up with real American grape jelly. No ma’am. It’s like it says in the Bill of Rights: Don’t Tread On Me

  25. There’s no Mr. Johnson writing this blog. It’s Dr. Johnson or Simon Johnson, PhD.

  26. A most excellent question.

    Seems that accountability exists only for the “too small to support” kind of people in this world….

  27. some guy in a cube

    You would think by now, with its pathetic track record, that this thumb-sucking faith in “free markets” would be completed discredited, if not outright laughable.

    But with a formidable propaganda machine at its call (Fox News, Washington Times, WSJ, etc), backed by ossified structural concerns (the self-interests of the aristocracy), the myth will not go quietly, so long as it continues to serve the status quo, in spite of the facts, and in the face of the randomness that rules all our lives.

  28. The gains and pains of capitalism, except we’ve witnessed the steady evolution towards huge financial institutions (eg, the new Bank of America on steroids) that operate as transnational companies. Financial regulation in the U.S., once it’s gone through the Congress sausage factory, will emerge as some unrecognizable diluted beast, ineffectual in the end. While Canada (where I live) was lucky to escape most of the financial meltdown, due to its more diligent regulatory financial system (though replete with its own weaknesses), innovation in banking is dampened because of its oligopolistic, concentrated structure.

  29. Of all the various proposals that have come forward to regulate in the aftermath/middle of this meltdown one would think that the Consumer Financial Protection Agency would be a no-brainer for both parties. SJ does a good job of pointing out the doublethink, doublespeak, or intentional falsehoods of Jeb Hensarling. It is also significant, as SJ points out, that Robert Wilmers, CEO of M&T Bank, has stepped forward in taking the WS investment banks to task and telling it like it is. We need more CEO’s like Robert Wilmer to step forward and explain to Congress that the CFPA is in everyone’s best interests – primarily because the investment bankers are fundamentally dishonest. In his first sentence: “Over the past three decades, there has been a sea change in the way that credit is extended in America, creating the problems — and the need for reforms — that we face today.”, Wilmer places the beginnings of this problem just about 30 years ago. 30 years ago also coincides with the significant employment of doublethink, doublespeak, intentional falsehoods, and Greenspan riddles. This is not to say administrations, parties, or corporations prior to 1979 told us the truth, but that doublethink, doublespeak, and/or intentional falsehoods increased significantly about that time. As the Reagan people found out in 1980 there was essentially no penalty for misinforming or outright lying to the public. And so this misinforming, doublethink, doublespeak, and not telling the truth has become part of our culture. Although both parties engage in this, the Republicans, by and large, win the prize on this one. So it has taken 30 (or 40? or 50?) years for us (i.e. our politicians, government, and corporations) to develop this level of doublethink, doublespeak, and intentional falsehoods. How many years is it going to take for us to undo this? Do we have 30 years to undo it? How do we go about doing this? Well the first thing we can do is pass the CFPA legislation. Yes, free enterprise is a wonderful system, but it is dependent on truthful transactions.

  30. The regulations we have are not enforced.

    It’s also very questionable if either party can be trusted to write responsible and effective regulations to reform the current situation.

    That said, it’s clear the current financial regulatory system has been ripped to shreds by numerous parties and it is not up to addressing our current pressing problems.

    It’s almost like the investing public needs to turn it’s collective back on Wall Street and look to invest elsewhere before Wall Street will allow the desperately needed reform. It’s a bloody mess, and it’s going to get worse before it gets better.

  31. Wilmers hits the nail on the head. His Washington Post op-ed deserves wide circulation.

  32. Anybody who’s tuned into the various reform efforts (i.e. energy, health, finance) can never be surprised when Republicans offer irrational arguments against logical solutions. Follow the money, the constituancy (although in Hensarling’s case I find it hard to believe that anyone at home is anxious to see the big banks keep all their power), and the party line. AND, following these debates, it is very easy to see just how far removed from everyday life the Congressional elite(ists) actually are. They actually don’t give a whit about the average citizen, and not amount of rhetoric will convince me otherwise. My apologies to the tiny minority that cares!!

  33. Grey Economics

    Whoops. Knew that, my bad.

  34. doublespeak = twisted logic

  35. In the July 29, 2009 Wall Street Journal one will find an editorial titled, “The Politics of Speculation” complaining that politicians, having no evidence whatsoever, blame evil speculators and significant speculation for unsatisfactory oil prices. Right you are. The fundamental purpose of speculation is to have investors assume the risk that business and the public does not want. That’s why the commodities futures exchanges exist, and quite valuable they are. Without speculators, oil prices would gyrate far more than they do.
    On the same page of the Journal, one will find another editorial titled, “The Customer is Right,” in which, having no evidence whatsoever, the editor decries significant federal deficits. The editorial says, “These deficits must eventually be paid for (by) taxpayers . . . or with inflation. . . “ Oh really?
    Historically, there has been no relationship between tax rates and deficits. Tax rates are related to political expediencies and popular wisdom, not to the federal government’s need for money. Taxpayers do not pay for deficits, which is why the debt continues to rise while tax rates decline.
    The relationship between deficits and inflation has been scant, if any. In the past 50 years, the two largest deficits came around 1975 (when deficits rose 17%) and 1983 (when deficits rose 22%). Immediately following the 1975 deficit high, inflation fell from 12% to below 5%, only to begin to rise as deficit growth declined – an inverse relationship..
    The gigantic Reagan1983 deficits created reduced inflation that mostly has remained below 5%. Today, during the greatest deficits since WWII, inflation is below 2% and the Fed worries about deflation (which Germany already experiences). Contrary to popular wisdom, inflation has been far more related to special events, like war and oil prices, than to money supply.
    Blaming speculators for oil prices is equivalent to blaming deficits for taxes and inflation. Both are popularly believed. Both lack supporting evidence. And both lead to damaging government actions.

    Rodger Malcolm Mitchell
    921 Pontiac, Wilmette, IL 60091
    847-256-6141
    rmmadvertising@yahoo.com
    http://www.rodgermitchell.com

  36. Double think is a perennial contemporary.
    1984 by George Orwell

    http://www.liferesearchuniversal.com/orwell.html

    According to Aldous Huxley, we can be educated for freedom.

    http://www.huxley.net/bnw-revisited/index.html

  37. Rene
    I take Orwell over Huxley always and everywhere

    Orwell is neverending strive for the humane life with the certainty that perfection is forever elusive – and very very enlightening on the differences between a gentleman and a lower class human and never stopping to be furious about them

    Huxley at least in danger of believing something could be possible to better “them” and more on the elevating side than one for solidarity

  38. I admire both writers Silke. Unfortunately, Eric Blair passed away rather early. Aldous Huxley had a bit more time too experiment, above all, he befriended himself with Jiddu Krishnamurti.

    The World Crisis

    According to Krishnamurti, many problems in the world such as poverty, war, the nuclear threat, and other unfortunate circumstances, have their roots in our thinking. In his view, as we live and behave according to our thinking so wars and governments are also a result of our thinking. We each have our own particular beliefs, conclusions, and experiences, to which we cling, thereby isolating ourselves from others. Self centered activity is expressed outwardly as nationalism and religious intolerance, creating a world divided, in which we are willing to kill for the sake of belief. Understanding our relationship with the world crisis is necessary to understand ourselves.[114] Some excerpts:

    “If you are not at all concerned with the world but only with your personal salvation, following certain beliefs and superstitions, following gurus, then I am afraid it will be impossible for you and the speaker to communicate with each other. We are not concerned at all with private personal salvation but we are concerned, earnestly, seriously, with what the human mind has become, what humanity is facing. We are concerned at looking at this world and what a human being living in this world has to do, what is his role?”[115]

    “The present crisis is different because we are dealing not with money, not with tangible things but with ideas. The crisis is in the field of thought, of ideas, of intellect. Before, evil was recognized as evil, murder was recognized as murder, but now murder is a means to achieve a noble result. You justify the wrong means through the intellect. When intellect has the upper hand in human life, it brings an unprecedented crisis. The other cause of this unprecedented crisis is the extraordinary importance man is giving to sensate values – to property, to name, to caste, to country.”[116][117]

    http://en.wikipedia.org/wiki/Jiddu_Krishnamurti

    http://www.jkrishnamurti.org/

  39. thank you Rene
    but I love Orwell/Blair unconditionally all his shortcomings included and I find Huxley very interesting and stimulating and a must read.
    as to Orwell I love him with regard to the present context especially for his telling that a girl in Wigan Pier would rather go hungry than not get a nice pair of shoes because her dignity was more important to her than her stomach – it is quite a convoluted but nevertheless to me fully convincing argument which he makes after having noted painstakingly everything they do with their dole and compared it to what they should do and taking for granted that they have good reasons for their “harmful” decisions comes up with the above explanation. I think it is in the Notes to Wigan Pier not in the Road itself and I remember it as a prime example of how a human being should think and write about others.

    As to Krishnamurti and all those other wise men/women – of course in a lot of situations we can change things by our thinking and of course the girl in Orwell’s Wigan Pier would be better nourished and therefore have a better chance to find a job somewhere where she able to disregard the need to uphold her dignity by protesting her situation by buying those shoes. or just give in, do what she is supposed to do and live as “they” prescribe it for her. and maybe that would be better for her, her family and the world but my heart belongs to her the way Orwell describes her and the others.

  40. So the takeaway:

    1. True innovation, for a company or a sector, has a brief window. (Nobody stays legitimately innovative forever.)

    2. Then competition catches up, the market matures, profit regresses to a low mean.

    3. Unless lobbying/bribery/capture/rent-seeking/monopoly/corporatism has intervened.

    Given the evidence of history, we can add

    4. Everyone, upon running out of real innovative energy (end of (1)), seeing stagnation and competitive equilibrium loom (2), turns to lobbying, lawsuits, bribery and other anti-competitive behavior to try to acocmplish (3).

  41. Whoops, wrong thread. Cf. “Problem with profits” above. How mortifying. :)

  42. To be honest, I don’t really know. But I do like the fact that you have read some work from the writers/thinkers mentioned above.

  43. Wow. That’s quiet an accurate and succint description of our current situation. My compliments.

  44. Pablo,
    for a long time after WW2 everything Americans did was wonderful to my mind (and a lot has kept its luster), they were so fresh so different just everything so ahhh finally …

    Most refreshing was for example their habit of ridiculing Germans for always making sure any applicable title appeared next to a name – now it seems you are more strict and keen about it than we ever were albeit without the Austrian “küss die Hand …” decadent charm

    Also admirable was the American refusal to correct another one’s spoken language. Even when we Germans asked, begged and implored them and they promised to behave like any Frenchman would eagerly they just couldn’t. In their eyes such behaviour was so impolite they were incapable of it. We had to go after the few English in town who went to work at it eagerly and with hauteur.

    And now?
    What you just did in your post seems to be widely spread? Why? Do you all of a sudden think the ways of old Europe are desirable? Will you next introduce dukes and earls?

  45. I seldom respond to your often excellent articles. But I feel that I must clarify that the issue is a through-going lack of trust between just about everybody and the Obama administration, particularly Tim G. As the economy continues its downward plunge and the gov’t propaganda becomes obvious lies, expect this distrust to evolve into hatred.

  46. MarvInPoetry

    TonyForesta,

    I can agree with you that the God of the GoP is greed, but I would suggest that the God of the Dems is control/power. I’m more understanding of greed, however find both abhorrent. Both parties have left themsleves beholding to corporations. I believe most elected officials could be convicted of misuse of Public Office and think the appropriate sentence should be Public Execution.

    The two-party system is broken but most citizens refuse to vote for anything except the lesser of two evils. We need a third, forth or fifth party.