Opinion

Nicholas Wapshott

The case for keeping Bernanke

Nicholas Wapshott
May 31, 2013 23:25 UTC

Whisper it abroad: The U.S. economy is on the mend. Most recent indicators suggest that, five years after the start of the Great Recession, the “L-shaped” recovery is finally heading north. The stock market is booming, and home prices are on the upswing. The rising price of houses makes people feel richer, and consumer confidence is on the mend. Private borrowing is up, and consumers are starting to spend again.

Growth is not great, about 2.5 percent to the end of the year, when the postwar average is 3.2 percent, but it is steady and appears to be self-sustaining. And this despite the 1.5 percent reduction on what growth would be were it not for the clumsy sequester’s fiscal drag. The general outlook is bright, if not sunny. As Winston Churchill said after the Battle of Alamein, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Why whisper this good news? Because the idea that we have achieved recovery suggests to some it is time for the Federal Reserve to change tack. Monetary policy is the only instrument the administration has left. Hampered by a hostile House of Representatives, President Barack Obama’s “jobs bill” to stimulate the economy is long forgotten. Even he doesn’t mention it anymore.

But the Fed has a medium-term strategy that means keeping interest rates low so long as unemployment remains stubbornly high. It therefore plans to continue pumping money into the economy through quantitative easing at the rate of $85 billion a month to the horizon. The last meeting of the Fed’s board maintained a steady-as-she-goes policy, with the usual suspect  in the minority anxious about the inflationary implications of quantitative easing.

There is no inflationary pressure, nor is there likely to be. The austerity policies of the European Union, the only rival to America in terms of size and sophistication of economy, have pushed the euro bloc into recession and are keeping the euro weak. The same is true of Britain, where austerity has led to a near-triple-dip recession and sterling is trading lower. America’s old trade rivals the Japanese are on a QE binge, and the yen is sinking fast. As the world’s biggest economy is still growing, there has been a flight to the dollar that has pushed up the exchange rate and kept domestic inflation down.

Selling the family silver

Nicholas Wapshott
May 29, 2013 18:08 UTC

Detroit Industry, north wall, Diego Rivera, 1932-33, fresco. Detroit Institute of Arts

Hearing that the official hired to sort out Detroit’s financial mess has asked for a valuation of the celebrated collection in the Detroit Institute of Arts, perhaps with a view to selling off its Van Goghs, Picassos, Matisses, Rembrandts and the rest, brought to mind remarks by former British Prime Minister Harold Macmillan about then-Prime Minister Margaret Thatcher’s privatization program.

“It is very common with individuals or estates when they run into financial difficulties to find that they have to sell some of their assets,” he said in his inimitable aristocratic drawl. “First the Georgian silver goes. Then all that nice furniture that used to be in the saloon. Then the Canalettos go.” Finally, even the “two Rembrandts that were still left” are put under the hammer.

Lessons of the London butchers

Nicholas Wapshott
May 23, 2013 19:16 UTC

The sickening scene from Britain of a blood-spattered man spouting Islamist hatred, who had just beheaded an off-duty British soldier in broad daylight, sends shivers down the spine. Is this the face of modern terrorism? If so, is no one safe anymore?

After the initial horror at the barbaric butchery on a leafy London street come questions about our attempts to prevent terrorism. Eleven years on from the attacks of September 11, we are still left grappling with some basic questions: What exactly is terrorism? And what can we do, if anything, to prevent it?

The British prime minister, David Cameron, his colleagues, and top officials and police have been careful not to jump to conclusions. They have avoided the rush to judgment that so many in the United States urged on the Obama administration in describing the motivation of the killers of ambassador Chris Stevens in Benghazi. It is not that they do not take the killers at their word; it is because they simply do not know.

It’s not Watergate, it’s Whitewater

Nicholas Wapshott
May 21, 2013 16:31 UTC

The trifecta of scandals — Benghazi, the IRS and snooping on journalists — that has broken upon the heads of the Obama administration is as bad as Watergate. No it isn’t, says Bob Woodward, whose reputation was made by doggedly pursuing the source of a burglary of the Democratic National Committee offices in the Watergate Hotel. No it isn’t, says Carl Bernstein, who shares the bragging rights for toppling President Richard Nixon. Oh yes it is, says Peggy Noonan, the Republicans’ mother superior, writing, “We are in the midst of the worst Washington scandal since Watergate.”

Really? How about the Iran-Contra scandal in 1986 that besmirched the honesty of President Ronald Reagan, for whom Noonan used to write speeches? Perhaps she penned Reagan’s first denial, “We did not — repeat — did not trade weapons or anything else for hostages, nor will we,” or maybe his amnesiac mea culpa four months later, “I told the American people I did not trade arms for hostages. My heart and my best intentions still tell me that’s true, but the facts and the evidence tell me it is not.” Strange the tricks age plays on the memory. And I am not talking about Reagan.

If you were a precocious five-year-old at the time, you would have to be 32 to recall the Iran-Contra scandal, in which, with or without Reagan’s say-so, administration officials, in defiance of Congress’s clearly stated wishes, secretly sold weapons to America’s perennial enemy, the terrorist state of Iran, then passed the proceeds to Nicaraguan insurgents. Even if you were the smartest kid you would have to be over 41 to remember Watergate and, in President Gerald Ford’s words, the “long national nightmare” that led to Nixon’s resignation ahead of certain impeachment.

Austerity is a moral issue

Nicholas Wapshott
May 17, 2013 20:29 UTC

Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.

The initial Keynesian response halted the collapse in economic activity. But it was soon met by borrowers’ remorse in the shape of paying down debt and raising taxes without delay. In the last year, full-throttle austerity has fallen out of favor with those charged with monitoring the world economy.

Not in the spirit of Hayek

Nicholas Wapshott
May 14, 2013 18:50 UTC

It has been a bad couple of weeks for conservative social scientists. First a doctoral student ran the numbers on the study by Harvard’s Carmen Reinhart and Kenneth Rogoff that underpins austerity and deep public spending cuts as a cure for the Great Recession and found it full of errors. Then a policy analyst, Jason Richwine, who angered Senate Republicans trying to pass immigration reform with a one-sided estimate of the cost of making undocumented workers citizens, was obliged to clear his desk at the Heritage Foundation when it became known his Harvard dissertation suggested Hispanics had lower intelligence than “the white native population.”

It makes you wonder what Friedrich Hayek would have to say about such aberrant research. Hayek has become the patron saint of conservative intellectuals – and with good reason. He went head to head with John Maynard Keynes in 1931 in an effort to stop Keynesianism in its tracks. Hayek failed, but his attempt gave him mythical status among thinkers who deplore big government and central management of the economy.

Hayek became a conservative hero a second time with publication of his Road to Serfdom  (1944) that suggested the larger the state sector, the more there was a tendency to tyranny. Many of today’s Hayekians harden up Hayek’s carefully expressed thoughts to declare that all government is potentially despotic, while also ignoring his arguments in favor of governments providing a generous safety net for the less advantaged, including a home for every citizen and universal health care – perhaps because Americans were first introduced to Serfdom in a much truncated Reader’s Digest edition. They would do well to re-read the original.

Benghazi and the Republican abandonment of the center

Nicholas Wapshott
May 10, 2013 16:24 UTC

In World War Two, the Libyan port of Benghazi was hard fought over, changing hands five times between Erwin Rommel’s Afrika Korps and the Allied forces. Seventy years on, the city has again become the focus of a fierce battle, this time between Republicans and Democrats over the terrorist attack that killed Ambassador Christopher Stevens and three other Americans on Sept. 11, 2012.

This week’s House committee resumed the fight, with GOP members eager to show the Obama administration at fault. Because Hillary Clinton has already emerged as the 2016 Democratic frontrunner, determining what exactly happened in Benghazi that day has become the first scuffle in the next presidential election.

In the weeks running up to President Barack Obama’s reelection, conservative commentators thought that in the Benghazi deaths they had found an explosive issue that would shock the nation. Despite their best efforts, which elicited an admission of responsibility from the secretary of state, the Benghazi campaign did not move the pollsters’ needle. The campaign to implicate the president andClinton was long on innuendo and short on facts. There was no smoking gun. As a result, voters did not grasp what they were being urged to be indignant about.

The continued slur against Keynes

Nicholas Wapshott
May 6, 2013 15:27 UTC

Harvard professor Niall Ferguson’s belief, caught on the hop, that John Maynard Keynes’s homosexuality and lack of children led to recklessness when it came to the effects of his economic theories is widespread among conservatives, though few are foolish enough to express it out loud. At a conference in California last week, the prolific contrarian Ferguson “asked the audience how many children Keynes had. He explained that Keynes had none because he was a homosexual and was married to a ballerina, with whom he likely talked of ‘poetry’ rather than procreated.” Keynes’s lack of children and grandchildren, Ferguson implied, is why he blithely proposed large-scale long-term debt.

After a barrage of complaints, Ferguson – an economic adviser to John McCain, a conservative Newsweek/Beast blogger (typical headline, “Hit the Road, Barack”) and, between book tours and big-fee speaking engagements, sometime history professor at Harvard – was obliged to issue an abject apology. “It is simply false to suggest, as I did, that [Keynes’s] approach to economic policy was inspired by any aspect of his personal life,” he bleated. “My colleagues, students, and friends – straight and gay – have every right to be disappointed in me, as I am in myself. To them, and to everyone who heard my remarks at the conference or has read them since, I deeply and unreservedly apologize.” Brenda Lee could not have sung it better.

Ferguson’s retraction appeared to be more to save his skin than to confess his many errors. While Harvard may tolerate an historian who regularly misrepresents macroeconomics, to smear the greatest economist of the twentieth century for being gay and without issue may well jeopardize his valuable tenure. (Ferguson can afford to lose both gigs: his jobs portfolio also includes: a chair at the Harvard Business School; membership of the faculty of Harvard’s Minda de Gunzburg Center for European Studies; a chair at Oxford University; a fellowship at the Hoover Institution at Stanford; a post with the British Conservatives advising on history syllabuses in schools; and an “advisory fellowship” at the Barsanti Military History Center at North Texas University.)

Obama versus Congress on Guantanamo

Nicholas Wapshott
May 3, 2013 16:07 UTC

A young girl holds a picture of Bobby Sands in a republican march to mark the 20th anniversary of the IRA hunger strike at the Maze prison in Northern Ireland May 27. REUTERS/Archive

Barely a week after Margaret Thatcher’s funeral in London, her ghost is stalking the corridors of power. At his press conference on Tuesday in Washington, President Barack Obama was asked about Guantánamo Bay prisoners refusing to eat. In doing so, the veteran CBS reporter Bill Plante, who asked the question, exposed a running sore in the Obama administration. He also invited direct comparison between Obama and Lady Thatcher – who faced a similar dilemma in 1981.

As a candidate in 2008, Obama, a distinguished Harvard-educated legal scholar known in the Senate for his common sense and humanity, promised to quickly close the prison for 166 terrorist suspects in the U.S. naval base at Guantánamo Bay, Cuba. The existence of a U.S. detention center that ignores the basic legal right of habeas corpus and the failure to bring prisoners to trial after so many years “erode our moral claims that we are acting on behalf of broader universal principles,” he said. He went on to repeat his pledge, yet five years on, Gitmo is still open for business.

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