No, 2008 Wasn't A Failure Of Socialism

In the Financial Post today, we have Terence Corcoran yammering on trying to claim that the 2008 Subprime Mortgage Crisis was the result of the evils of "socialism".

That the collapse of Lehman Brothers was the final explosive device that rocked the world financial system is beyond dispute. But why and how Lehman Brothers was allowed to fail is another story told with new insight in the latest book, The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster, by Johns Hopkins University economist Laurence Ball. In Ball’s view, Lehman did not have to fail and was instead executed by agencies of the U.S. government.

While intervention by US regulatory authorities was no doubt the key moment when the entire house of cards that had built up around the 'housing bubble' began to collapse.  Any rational person who had looked at the kind of loan terms that were being offered under the rubric of "subprime mortgage" could see how predatory they really were. There was no expectation that these loans would be paid back, and banks were expecting to repossess the property itself in lieu of payment - making their money on the ever escalating property values.  The emergence of so-called "NINJA Loans" (No Income, No Job or Assets) which were solely predicated on the idea that unpaid loan amount would be recouped via the escalating property value is pretty much prima facie proof that the banks making such loans had shed any semblance of ethical business practices for naked greed.

Massive national institutional resources — government and private — were ultimately corralled and coerced into government-mandated programs that were ultimately designed to provide mortgages to people who had no money to make down payments and insufficient income to carry a mortgage. Between 1995 and 2007, trillions of dollars flowed into housing people could not afford.

The error in Corcoran's logic here is that he supposes the entire failure is a result of government regulation intervening in the market.  I disagree.  First, Mr. Corcoran misunderstands the idea of socialism, confusing it with regulation.  While I realize that many in the more "libertarian" wings of the political right believe that the "invisible hand" will correct the excesses that unregulated markets a prone to, the objective evidence is far clearer: without regulation, unregulated markets inevitably collapse to the detriment of all.  Whether that is the Stock Market Crash of 1929, the Enron Collapse, or the Subprime Mortgage Crisis, all of them point to situations where weaknesses in the markets were being exploited for greater gain by the most avaricious.

Where the US government erred was in failing to have in place an appropriate regulatory regime for the housing market in the first place.  A lack of clear standards on who qualified for a mortgage, what the criteria for mortgage terms would be, and a host of other factors created an environment where it became possible to turn what used to be a "second mortgage" or a "line of credit" secured against a home suddenly being structured into what would become a "subprime" mortgage.  At the time, the ethos in the US government was very much "don't intervene in the markets".  Canada's comparatively successful weathering of the 2008 recession is clear evidence that appropriate regulation of the markets is in fact an important aspect of ensuring that our own financial institutions weathered the storm.  By the time the US government intervened in an overheated housing market, they were trying to stop the bleeding, rather than cure the problem - free market fundamentalists in Congress would have screamed blue murder had the government taken the correct actions of intervening in the market before a "natural correction" collapsed everything.

The crisis of 2008 was not a product of capitalism or markets or the inherent greed of bankers. It grew out of populist political posturing and manipulation of the market economy to attain social objectives. It was a colossal failure of socialism for the poor.

In his conclusions, Mr. Corcoran returns to what appears to be an almost libertarian perspective.  More or less, "if you aren't among the hallowed wealthy, screw you".  To be honest, the analysis in Mr. Corcoran's article is so flimsy and devoid of context, that it leaves one wondering why he wrote it.  The assumptions he makes are so transparently libertarian in their tone that I wonder if he is positioning himself to become a cheerleader for Maxime Bernier.

 

Conservatives in the Social Sciences

This was inspired by some of my own thoughts while listening to a CBC Ideas program on the lack of "conservative" academics in the Social Sciences.  For the purposes of this discussion, I am going to stick to the broader, "small-c" conservative, "small-l" liberal concepts rather than the very specific partisan conceptualizations that dominate political discourse these days.

The general gist of the article was that a lack of "conservative" voices is detrimental to the general form of discourse in the domain of the Social Sciences. My first thought on this is that proper discourse is not about coming at it from a "conservative", "liberal" or "libertarian" perspective but rather from a perspective of critical analysis.

For example, one doesn't have to approach Littman's paper from any particular perspective to identify the methodological problems that exist in that paper.  A little bit of critical analysis identifies a number of flaws which more than call into question the validity of the conclusions derived from it.

The problem that many "conservative" thinkers face is twofold.  First, within the disciplines generally held under the label of "Social Sciences", the body of evidence tends fly in the face of a lot of conservative thought. As that body of evidence started to flourish in the 1980s, it became increasingly difficult for many traditionally conservative lines of reasoning to be sustainable. For example, analysis of the systems which exist around poverty has been shown to sustain the state of poverty in multiple ways, quite effectively dismantling the often-held "you just aren't working hard enough" argument.

A second dimension is that many conservatives argue that they don't like constructs such as social justice or intersectionality. However, besides objecting to these frameworks on general principles, we don't see anyone actually providing reasons that these frameworks are invalid. Uncomfortable, or difficult for various reasons, but beyond expressing their dislike for the construct, conservatives haven't presented a meaningful alternative or evidence that supports their contention that it's invalid.

There seems to be a mentality among conservatives that everything is "open for debate" (or should be), and yet instead of identifying new and meaningful, they merely complain about "emerging orthodoxy" (ignoring that over time, science itself tends form "orthodoxy" in the form of dominant theories and known facts. Moaning about the emergence of dominant approaches in a discipline is just showing that the discipline is maturing. We don't question fundamentals in science like the heliocentric solar system ... because they work and there is no compelling evidence which contradicts them.

What isn't helpful for conservatives is the fact that people who have adopted the conservative banner have become people like Jordan Peterson.  People like him create an enormous problem for conservative thinkers because much of the time the positions they put forth are mostly nonsense and trivially disproven (e.g.  Peterson's theory on social hierarchies).  The second problem is that these same people attract neo-nazis and other people who manipulate those positions to justify their own awful (and destructive) beliefs.

For conservative thinkers in the Social Sciences domains, the challenge is to develop some evidence-based constructs to support their positions.  Show your peers why the constructs being used are flawed, and provide alternatives.  That's a long road at this point. Being conservative shouldn't mean being what my grandmother used to call a "stick in the mud" about things - it should be thoughtful and intelligent.

Whither NAFTA Negotiations Now?

After yesterday's revelation that Trump is not negotiating with Canada in good faith, where do NAFTA negotiations go from here?

Up to this point, I have chosen to be quiet about the NAFTA negotiations because I really don't believe they will go anywhere.  If an agreement is reached, Trump's track record in business strongly suggests it won't be honoured; and far more likely is that Trump will sabotage any negotiations to suit his own ends.

I will start off by saying that I think Trudeau and Freeland have done an excellent job of managing what amounts to a no-win situation. Trump has engaged in a lot of goading, attempting to get an emotional response out of Trudeau only to find that met with nothing.  This isn't a bad thing.  It speaks to Trudeau being more than capable of recognizing what Trump is doing, and not dignifying it with a response. Give a guy like Trump the emotional response he's looking for (anger, impulsive "hitting back", etc.), and he sees "a win" - a situation where he can manipulate more because he's got the other party reacting emotionally to his provocations.

Reaching back to my experiences in grade school, the first comment I have is that you never give a bully what they want - EVER.  In this regard, Canada's government has (so far) done the most appropriate things it can.

Right now, the NAFTA talks have turned into a game of "chicken".  Trump is hoping that Canada will blink and sign whatever this deal with Mexico is before Mexico's government changes over in September.  Canada continues to approach this as normal negotiations.  This isn't a bad thing at all, as it both moves Canada's interests forward, while not granting Trump the emotional reaction he's looking for.

From Canada's point of view, if NAFTA is going to die, forcing Trump to kill it is advantageous.  If Canada walks away, then Trump (and Canada's conservatives) will be able to blame the Trudeau government for not "being able to negotiate".  If Canada persists (and we're good at that) in negotiating until Trump loses patience and kills the talks off, then Trudeau can legitimately say "we did all we could, and the other side wasn't willing to play ball".

There are a couple of angles on this discussion that I think need further consideration.  First is the sudden rush with Mexico. From the G&M article above (possibly behind a paywall):

Cesar Rojas, global economist, Citigroup: 

“The current Mexican administration remains hopeful that Canada will join the agreement, but some officials have stated that Mexico would move forward with a bilateral deal if Canada does not join. We note, however, that the incoming Mexican administration highlighted that Canada is key for the NAFTA renegotiation … If the final negotiations extend further and the agreement is to be signed by the incoming Mexican administration, then there is a risk that an agreement is delayed as the new Mexican negotiation team (which has been an observer over the last few weeks) could review other issues.”

This is important.  The current Mexican government is on its way out after an election in June.  From Canada's point of view, this points to potential weaknesses in the deal that a new administration in Mexico may not be willing to support.  Things could get very sticky if the Mexican government suddenly becomes unwilling to ratify the proposed bilateral agreement.  The current Mexican government may well have negotiated an agreement for future political advantage for their allies rather than the nation's interests. (Note:  this is entirely speculative, as I have little to no familiarity with the currents of Mexican politics)

David Rosenberg, chief economist at Gluskin Sheff + Associates: 

“My hope is that Canada does not cave in to a bully with a gun against our head (the threat of 25-per-cent auto tariffs) and realizes that nothing is going to get approved in Congress without the ‘true north strong and free’ being involved. This seems to be an area where the legislative branch is starting to show some backbone, at least verbally, and I do sense that the president has underestimated where most of Congress stands on this issue of Canada being excluded from any agreement.”

JPMorgan Chase analysts: 

“The U.S. Congress could be a major hurdle, as it could disapprove of the administration trying to shoehorn a separate bilateral deal using the existing Trade Promotion (aka ‘fast track’) Authority initiated in May 2017 covering the tripartite NAFTA inclusive of Canada. In the event the bilateral U.S.-Mexico agreement cannot be fast-tracked, the White House would need to restart the trade negotiation notification and consultation process for bilateral deal(s). Such a process would require new Congressional TPA notification and consultation and would almost certainly extend the potential timeline by 10 months or more, and beyond the Nov. 30 agreement signing window U.S. and Mexican negotiators are trying to achieve.”

These two analyst comments point out that Congress may well be less than willing to roll over on a trade deal for Trump.  Now, that has to be contrasted with the fact that the current US Congress has been seemingly far too willing to be compliant with Trump's demands.  Only time will tell. Trump and his advisors have been remarkably adept at exploiting gaps in the constraints in place to check on the abuse of executive power. Whether they have enough leverage to convince Congress (a majority of whom are from states who will be adversely affected by a "NAFTA 2" that doesn't include Canada) to vote against their own state level interests is unknown.

So far, most of Trump's abuses of power have not affected state level economies and powers. American politics often protects the powers and interests of local states rather jealously.  The levers Trump has been using to this point may not be adequate for this fight.

For its part, Canada will be best served by staying the course. The irony of Trump's recent statements is that they confirm what we have suspected for some time:  namely that Trump has not been negotiating in good faith. Now it is out there for all the world to see.  Trudeau is not being "weak" if he lets NAFTA 2 fail - he is, in fact acting in Canada's interests. A NAFTA which is hostile to Canada's interests is hegemony, not an agreement.