Young People's Socialist League

The day before the recent election of Barack Obama, Peter Schiff stopped by CNBC to talk about his views on the possible consequences of "Obamanomics." Schiff is a stock broker and fervent advocate of the Austrian School of economics. He was also one of Ron Paul's economic advisers in Paul's campaign during the Republican primaries. His father, Irwin Schiff, is currently serving time in federal prison for "tax protesting." One can only imagine how thrilled he must be with an Obama victory.

There's nothing really surprising in this interview. Schiff talks the usual ideological pap about cutting entitlement spending, reducing government size, slapping around the fed, and bringing us back to the gold standard. However, he and his ilk have been laughed at in most every corner of the mainstream for predicting economic catastrophe caused by our crazy borrowing over the last few decades. In this sense, Pete has been vindicated. He's still laughed at, but the laughing is now more along the lines of a few nervous giggles as many pundits start to shut up and listen to him. That's what makes him someone to watch out for.

Schiff is also right in anticipating a huge government stimulus package from an Obama administration. Obama himself made his intentions very clear in his first presidential press conference. Another point for Petey.

According to Schiff, Obama will "come in" like it's the 1930's and he's Roosevelt. As he should, according to most respected economists in the mainstream from Joe Stieglitz to Richard Koo. Their opinion is neither radical nor new. It's rooted in the ides of Keynesian economics, the dominant market school of thought in every industrialized nation for almost one hundred years. In a nutshell, Keynesianism was a response to the Great Depression. John Keynes, a snobby Cambridge economics professor who studied directly under the famous Alfred Marshal, saw this global crises as a problem within the market structure itself. To him, the problem was a loop where aggregate demand drops, which encourages investors to stop spending, which drives demand even lower. The only solution, Keynes said, was for someone to make up for that loss of spending by- just guess- spending tons of money. The goal is to raise demand enough to get investors spending again, and the economy back on track.

Keynesianism is often mistakenly lumped with socialism because of its emphasis on government production. But Keynes was no socialist, and openly said so. He saw three major threats to the liberal market paradigm of the west; fascism, Stalinist communism, and the flaws of the liberal market system itself. His goal was to save classical liberalism, not replace it. Not that Schiff could thank him or anything.

Instead of Keynesianism kicking in again, however, Schiff would prefer it if everything just crashed. To him, this recession is a time out for people to pay off their debt, which they incurred irresponsibly. What he doesn't understand is that this dramatic drop in demand as people pay off their debt will very likely cause a drop in GDP along with it. Even those few privileged people with little debt will stop spending and start saving. Not even an interest rate set at zero would get these people spending and borrowing again. Incomes would be lost, and the world would fall into a self-perpetuating deflationary spiral. Seems like not even the man dubbed "Dr. Doom" by the media sees the full extent of this crisis.

Part of the problem is that Schiff sees any Keynesian stimulus on Obama's part to be an attempt at reviving the "bubble economy. He's gonna try to get Americans spending money and borrowing again, and that's the disease, not the cure." It's easy to see how Pete would come to this conclusion. After all, Keynesianism sees problems in terms of a lack of demand, and solves them with more demand. And, as much as it pains me to say, he may be right. If Obama has the same misunderstandings of Keynesianism, then me may just well do this. If that does happen, then Schiff would be right once more when he says "this recession is gonna be so much worse at the end of his first term, that maybe he wont have a second."

But brining back the bubble is not what mainstream economists are clamoring for, nor is it what a Keynesian perspective calls for. Richard Koo, in his great essay called "Plan B for the Global Financial Crisis," calls our situation a "balance sheet recession," where, as described above, the public takes time out to repay their debt. Koo's "Plan B" is a major Keynesian stimulus, possibly larger then even the New Deal, to keep GDP from falling while we handle our bills- NOT to get us to start irresponsibly spending again as we have been for the last 20-30 years. If I were to pull a Schiff and try to predict the future, I'd bet that this is more what Obama will be aiming for. Obama's advisers are not your average dumb liberals. Many come from the famously conservative University of Chicago, Milton Friedman's old stomping grounds.

But there's still a chance that Schiff may pull off another prediction yet again. Even if Obama spends right, (which, in this case, would be spending center-left), the economy may not go up soon enough to replenish government revenue, and our public debt will skyrocket. We can leverage ourselves a bit as the main currency of the world, but there's no doubt the dollar will never recover it's reputation. Of course, either way it was going to loose its luster, so no loss there. But this huge debt could lead to the US government getting a bad credit score - something China could do if they wanted to give us a finishing blow. One can only hope that the Chinese decide they need our demand more then they resent our power.

The solution to this, however, is not to give up on spending, but to spend now, and spend fast, before the spiral picks up speed. if we spent too late and too little we would loose revenue anyways, which would also increase our debt. Funny situation we're in; if we spend, we get more debt. If we don't spend, we get more debt. Of the two, spending is a much better option because it offers the economy a chance to pick up speed. That means more revenue in taxes. In that way, a Keynesian stimulus works like an investment. You spend money to make money. You'd think a stock-broker would understand that.

Actually, Schiff does get it to some degree. "As an investor," he says, "I think it would help my clients out. But as an American, I think it would be a disaster." In other words, even if the stimulus would help people, there's something priceless we would be missing, something that shocks the American morality. Schiff sees this crisis as payback. Even if a stimulus works, we're only cheating ourselves because we're bypassing our due punishment for being reckless. Like the entire Austrian school of thought, Peter Schiff attaches a morality to the market system. The market rewards us and punishes us, and gosh darn anyone who runs away from their spanking.

This is where the Right goes wrong. Markets aren't moral- among many other places. They are simply powerful, complex, a-moral tools that help certain people satisfy material wants and enable those who can wield them best to gain incredible power. They are a means to other people's ends, and have no more inherent morality to them then a hammer. To base a morality on such a tool is nothing but promoting the idea that "might makes right," because you are giving those who can wield the tool the best a moral basis for any aim they use the tool for. If whatever a market does is right, then whatever the best market-smith does is right.

This is not to say that free market fanatics believe all might is right. The might that comes from a sovereign people, unified in opinion, sure cant be right, because they never pick politicians that agree with them! Why don't people like him and Ron Paul get elected, the interviewer asked. Schiff's response: "We have mob-acracy, the tyranny of the majority." Again, nothing particularly new in this opinion. As every socialist knows, hostility towards democracy runs deep in the various forms of market dogma and they don't really try to hard to hide it. Just crack open an Ayn Rand novel.

But as ideologically stuck as Schiff is, he and other market shock troopers like him have been experiencing a boom in the business of ideas. Why? Because they have the appeal of rebels and underdogs, and offer what they call an alternative paradigm. That is their capital, especially when this crisis will have many people looking for alternatives.

But we, as socialists, also have some interesting opportunities to prove that there are alternatives to the blind worship of a tool such as the market system. That alternative, though, must be in opposition to both Schiff's market system and Obama's Keynesian market system, the latter of which is only meant to allow the Peter Schiffs of the world to preach another day. But a lack of direction and a clear vision of what those alternatives look like keep these opportunities out of our grasp. Key among our problems is an internal battle royal among us over just how big of a role this tool should play in a socialist society- if at all. Now, as socialists, I would imagine that most of us draw a certain respect for open debate from what Schiff would call our "mob-ocratic" leanings. The question is if we can use a tool without worshiping it.

It's my belief that the idea of socialism, pre-Marxist, Marxist, and post-Marxist, is based on an opposition to a system where the only thing to justify power is power itself, that the tools through which people achieve material wants can somehow tell us what's right. It's also my perspective that the fundamental flaw of capitalism is the worship of power through a particular means to power, and that socialism is the only real solution. But if we cant bring anything to the table, then it will be people like Schiff offering the "alternatives."

Comments

AGITATE71 on November 12 2008 19:22:49
Thought it might be good if I left a link to a video of the interview.

http://www.youtube.com/watch?v=n4DoQ5PbPfQ

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