Opinion

Nicholas Wapshott

The twisted politics of enforced economic pain

Nicholas Wapshott
Nov 25, 2013 16:16 UTC

By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.

The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.

The return of GM to wholly private hands will no doubt set off hand-wringing from those who would have preferred GM to go properly bust during the financial panic of 2008, then restructure itself without state help. Those who opposed Steven Rattner’s motor rescue argue that government intervention to prevent a company from going broke interferes in a timeless process of rebirth as natural as the change of the seasons.

Quoting the Austrian Joseph Schumpeter’s notion of “creative destruction,” a term borrowed from Karl Marx, such dogmatic harbingers of woe welcome bankruptcies and business collapses as a means towards purposeful regeneration. Expect them to concentrate on the costs to the federal government of keeping the American motor manufacturing industry alive; do not expect them to estimate the real cost — to the shareholders, to the motor workers, to the nation — of allowing it to die.

Other “Austerians” point to the Austrian thinker Friedrich Hayek’s warnings of governments encouraging investment in the wrong industries, leading to more unemployment in the long run than can be saved in the short run. But Hayekians tend to be backseat drivers, always quick to criticize and slow to offer any alternative except a hopeless shrug.

The strange convergence of Bernanke, Hayek and Bitcoin

Nicholas Wapshott
Nov 21, 2013 16:05 UTC

Every time Federal Reserve Chairman Ben Bernanke opens his mouth, the markets move. But few could have guessed that in an offhand remark he would  add legitimacy to the Bitcoin, the virtual currency that competes with the American dollar as a reserve currency and an international trading medium.

Yet that is what he did when he held out a friendly hand to the notion of fantasy currencies in a letter to the Senate Committee on Homeland Security and Government Affairs. Understandably, this improbable endorsement from the guardian of the mighty dollar sent the value of the Bitcoin soaring.

Until recently, the Bitcoin was seen as a novel, experimental, somewhat piratical cyberspace Monopoly money that has proved useful in moving money around the world without the hampering and costly help of banks, which slow things down, waste days while the cash lingers in limbo, and take a hefty slice of every transaction. Bitcoin’s headiest moment was as the currency of choice of the Deepnet black market website Silk Road, which sold everything from crack cocaine to child porn, and was closed down by the FBI last month.

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.

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